BVK: Overall market remains solid, venture capital continues its upswing

"During uncertain times the German private equity market has proven itself to be an anchor of stability and has solidified its important financing function, in particular among startups. Last year a total of €5.7 billion was invested in approximately 1,000 companies", according to Joachim von Ribbentrop, spokesman for the Executive Board of the German Private Equity and Venture Capital Association (Bundesverbandes Deutscher Kapitalbeteiligungsgesellschaften [BVK]) at the press conference held in relation to statistics published today for the German private equity market in 2016. A drop in volume of 14% was registered vis-à-vis the previous year. In 2015, private equity firms in Germany had invested €6.6 billion. Since 2011, private equity investment activity has, however, oscillated on balance at a stable level of between €5.1 billion (2013) and €7.1 billion (2014).

"Even though major majority takeovers have a decisive influence on market growth, last year once again witnessed the bulk of private equity support going to small and medium-size enterprises", said Joachim von Ribbentrop. Nine out of ten companies financed in the course of the year employ fewer than 500 staff, or turn over less than €100 million.

Major plus for venture capital investment

Contrary to general market developments, venture capital investment saw an increase of €0.93 billion, thus achieving the highest level of annual investment since 2008. In the previous year this figure stood at €0.84 billion. The 568 VC-financed companies once again made up significantly more than half of all financed companies during last year. "The upward trend in startup financing in place since 2012 remains uninterrupted" is von Ribbentrop’s positive conclusion. "Market participants and political stakeholders must, however, remain in search of ways to mobilise more capital for German startup firms. We are currently involved in close collaborative efforts with all players, in view of the upcoming federal parliamentary elections" added Ulrike Hinrichs, Managing Director and Board member of the BVK.

Lively buy-out market

Financially robust businesses with promising prospects and favourable financing conditions once again provided buy-out investors with a great playing field. This was attributable not least to the 9-digit transactions involving Atotech, OfficeFirst, Xella, Bilfinger Building and Facility, Airbus Military and Solvay Acetow. "The last quarter in particular saw a repeated increase in activity" according to von Ribbentrop. "The buy-out market continues to see advantageous financing conditions and well-capitalised funds converging with high company valuations". In spite of this, buy-out investment shrank by approximately 10% to €4.3 billion. "Some of the major transactions were announced at the end of the year. They will only be completed in the current year, and will therefore  have a positive effect on market numbers in the current year" said von Ribbentrop. Growth, Replacement and Turnaround financing activity with mid-size companies saw investment volume drop by half, due to fewer major minority holdings, from €0.93 billion to €0.45 billion.

Major plus for fundraising

In 2016 German companies were able to raise €2.33 billion, roughly half as much more capital than in the previous year. While buy-out funds were able to more than double new resources with €1.27 billion, venture capital fundraising remained - at €0.55 billion - approximately a quarter below the previous year's results. "In the current phase of low interest rates, institutional investors are increasingly looking for investment opportunities offering significant returns." This above all benefits buy-out companies, compared to which venture capital funds do not profit to the same degree" according to von Ribbentrop.

Private Equity forecast: Private equity firms optimistic for 2017

Private equity firms are cautiously optimistic for 2017, and are leaning towards planning an expansion of their investment activity. In the "Private equity forecast" - a survey of private equity companies to gauge their expectations for the current year - every second company anticipates a slight or significant expansion of their investment activity. A further 45% envisage their own investment activity to remain at the level seen in 2016. However, representatives operating within growth financing / buy-outs in particular, have become more reserved. While the degree of optimism was lower than that of the previous year, it actually saw a slight increase among venture capital firms. Simultaneously, the proportion of those risk capital financiers expecting a decline in their own investment activity was halved. "Should operating conditions remain stable, we expect investments for the current year to be at the very least at the previous year's level. We are optimistic within the venture capital segment that the market can continue its upward trend" as per von Ribbentrop‘s prediction.

Detailed venture capital market statistics for 2016 (data inventory February 2017) as well as the "Private equity forecast 2017" can be downloaded from www.bvkap.de. The statistical data is subject to continuous updating, and can deviate from former or subsequent evaluations.

Questions and answers on the BVK statistics 2016:

1. How has investment activity fared in individual market segments?

In the venture capital segment in 2016, companies invested 13% more than in the previous year with €0.93 billion, whereby later stage venture capital registered a significant increase. Growth, Replacement and Turnaround activity totalled €0.45 billion and remained significantly below the previous year's value of €0.93 billion due to fewer large-scale single investments with established mid-size companies. Buy-out investments saw a slight decline from €4.83 billion to €4.3 billion. The number of transactions also reversed slightly from 120 to 110.

2.    Which companies are predominantly financed with venture capital?

Small and medium-size enterprises are the dominant recipients of venture capital support. 94% of companies financed in the course of the year employ fewer than 500 staff; 79% even employ fewer than 100 staff. Four out of every five companies turned over less than €10 million, and only 5% more than €100 million. The 5,000+ companies financed using venture capital in Germany employ approximately 912,000 staff, and achieve a turnover totalling €179 billion.

3.    Which regions witnessed the most investment?

Bavaria topped the federal state table (22% of investment) and Hesse (19%) with a significant margin ahead of Baden-Württemberg (11%) and Rhineland-Palantinate (10%). Bavaria was therefore able to defend its place ahead of the pack.

4.    How did fundraising perform?

Fundraising totalled €2.33 billion, a plus of more than 50% vis-à-vis the previous year (€1.53 billion). With €1.27 billion, buy-out funds were able to more than triple the volume of new resources (€0.36 billion). Generalists were also able to raise significantly more. Here, fundraising increased from €0.16 billion to €0.46 billion. By contrast, at €0.55 billion venture capital fundraising stood approximately a quarter below the previous year‘s results of €0.74 billion.

5.    Which aspects could influence the prospects for the venture capital industry in 2017?

Developments in key countries such as the USA, Great Britain or China are of general significance for Germany as an export nation, as well as interest rate policy in Europe. Market-specific uncertainties remain a critical concern. According to the "Private equity forecast", no fundamental reversal in trend is expected in 2017 by private equity firms. However: almost two thirds of those companies surveyed anticipate no change in the valuations of target companies. After all, a good 25% expect further increases in company valuations.

Press contact:

Janine Heidenfelder, Press Spokeswoman

German Private Equity and Venture Capital Association (Bundesverband Deutscher Kapitalbeteiligungsgesellschaften e.V. [BVK])

Tel +49 30 306982-24, Fax +49 30 306982-20, Email heidenfelder@bvkap.de