DACH's H1 dealflow remains steady but fundraising lull looms

Private equity activity remained steady in DACH in H1 2019 with 223 deals, including all early-stage, expansion and buyout transactions. The region typically sees a volume of between 180 and 230 deals per half year.

While buyout volume dropped to 72 deals against 87 in H2 2018 and 83 in H1 2018, it is worth noting that 2018's dealflow was record-breaking. Prior to H2 2016, DACH had not yet experienced as many as 72 buyouts in the post-crisis era. SHS managing director Uwe Steinbacher says: "Last year was an all-time high in dealflow, but figures in 2019 suggest we will go over targets for this year, too."

Like much of Europe, exits in DACH declined slightly, but kept within the standard range for the region. H1 2019 saw 88 exits, against 102 in H2 2018 and 85 in H1 2018. Dirk Schekerka, Equistone's country head in Germany, says: "I would not necessarily expect the number of exits to be much lower than in 2018. We are doing another two exits by the end of the year."

DACH led Europe with 28.3% of aggregate buyout value, against France's 16.3%. The region saw three €1bn+ deals, the largest of which was the €8.9bn purchase of Nestlé's skin health business by a consortium led by EQT and Adia.

"Last year was an all-time high in dealflow, but figures in 2019 suggest we will go over targets for this year, too" – Uwe Steinbacher, SHS

However, even excluding €5bn+ deals, DACH led Europe with 19.1% of aggregate buyout value, perhaps an example of the high valuations German companies attract. Schekerka says: "In general, it is still a very active market. Prices remained at a very ambitious level. This sometimes triggers assets of declining quality, which we have seen coming to the market."

In such a market, buying from a GP that has already created value in a company may be hard to justify. The volume of secondary buyouts dropped to 11 transactions in H1 2019, its lowest level since H2 2015's eight SBOs. SHS's Steinbacher attributes the decline in SBOs to soaring valuations, which he does not expect to fall soon. "In SBOs, prices are very high" he says. "Companies in secondary and tertiary transactions are very well established in the market because the prior owner has normally done a lot of good structural work."

Flagging fundraising
Nine buyout and generalist funds held their final close in H1 2019, up from four in H2 2018 and six in H1 2018, suggesting LPs continue to have confidence in DACH-based GPs. Equistone's Schekerka says: "DACH as a region for fundraising has been very successful. There is still lots of money to be fed into the asset class." Equistone closed its sixth-generation vehicle on its hard-cap of €2.8bn in March 2018, six months after its launch.

However, activity looks set to decline in H2 2019 and 2020. Only Unigestion Direct II launched in H1 2019, while five buyout funds were announced in the same period last year. DACH-based open funds are currently targeting a combined €5.3bn (with no first or interim closes recorded so far this year), in comparison with France-based open funds that are targeting a total of €8.6bn at the time of writing, according to Unquote Data.

Nina Dohr-Pawlowitz, CEO of DC Placement Advisors, questions whether some GPs will be successful in their fundraising efforts: "The fact that several funds that launched before 2018 are still in the market supports the argument that many funds from the DACH region find it difficult to come to their desired final closing."

Dohr-Pawlowitz thinks LPs have recently tended to invest in funds-of-funds to decrease exposure to any single fund manager. Furthermore, LPs with less experience of alternative assets are prone to shifting allocations to more liquid strategies. "Due to increased market uncertainty, we have a careful forecast for private equity fundraising activity for the remainder of the year," she says.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Performance
• Fundraising
• DACH
• Activity Review
• DACH