BVK: German Buyout Market follows European trend to grow

• Three quarters of all Private Equity investments are Buyouts
• High-amount single transactions dominate

Buyouts are the strongest investment segment in the German private equity and venture capital market in terms of amounts: In 2003, they made up 71% (1.7 billion Euro) of all private equity and venture capital investments thus going into the lead of all other investment stages. Big transactions continued to gain importance because big companies intensified their spin-off endeavours. The BVK Statistics of the Buyout Market 2003 give an in-depth look into equity investments and exits in the context of buyout transactions.

Buyout transactions aim at spin-offs, medium-size companies with successor problems and companies in need of restructuring. Buyout transactions focus on the continuation of a company after its restructuring. Restructuring of a company aims at generating growth and increasing value. Biggest transactions in the year 2003 were the take-over of Kabel Deutschland, MTU Aero Engines, Brenntag, Premiere TV, Bertelsmann Springer specialized publishers and Pro Sieben Sat.1 Media.

Number of German Leveraged Buyouts increases

Since 1998, BVK has been recording the development of various buyout types (MBO, MBI, LBO) considering only the private equity percentage of the transaction while neglecting capital from other sources of mezzanine funds. Looking at the long-term development of transactions since then, LBOs have been continuously growing in  amount: In 2003, LBOs totalled 1.2 billion Euro, i.e. more than 70% of all buyout transactions, MBOs accounted for 483 million Euro and MBIs for 4.3 million Euro. These figures show that Germany follows the European trend: In Great Britain, France, Italy and Sweden buyout transactions and LBOs in particular have been playing a dominant role for years.

Traditional branches in focus

Buyouts are dominant in traditional sectors, in 2003 “Other Services” had the lead with 41,6% including for instance publishing houses and the media as well as industrial services, followed by communication technologies (13.1%), chemistry/materials (7.4%) and mechanical engineering (6.6%).
With regard to the number of big single transactions three Länder are in the regional focus: Northrhine Westfalia (658 million Euro, 46.1%), Hamburg (351 Million Euro, 24.5%) and Bavaria (294 million Euro, 20.6%). The high portion of European investments (279 million Euro) results from activities in Switzerland, Austria and the Netherlands.

Medium-size and very big companies with more than 1,000 employees are particularly attractive for buyout transactions (89% of all investments). With regard to turnover the year 2003 focussed on:

• Medium-size companies with turnovers between 10 and 50 million Euro and
• Very big companies with turnovers of more than 100 million Euro.

Low exit volume

Compared to the amount of investments made, exits totalled very little 48 million Euro. For the year 2003, BVK members recorded only one total loss. Like investments, exits are irregular. This might be one reason why exit channels like the IPO- or M&A-markets which are attractive after big buy outs were rarely used in 2003.

The most important exit channels were reimbursements of partner loans (29.8%) and trade sales (29.4%).

Prospects: Many indicators for growth

“It is difficult to deduce tendencies for buyouts from the actually captured data”, says Dr Holger Frommann, Managing Director of the BVK. “ Single, irregular high amount investments result in leaps and bounds without any clear trends”, he continues. Nevertheless, there are clear indicators for growth in the German buyout market.

Germany offers many attractive opportunities to German and international investors: Big companies continue to spin off activities that do not belong to their core businesses. According to Frommann the German middle class pushes ahead small and medium size transactions. Another focus is going private, i.e. after a buyout the  target company is taken from the stock market (e. g. Celanese and WET in 2003). Potential funds with sufficient ressources are looking for investment opportunities:”The buyout sector still has a capital overhang so that we can deduce to a certain pressure from the investors”, says Frommann.

Statistics Buyouts 2003

Long-term development of buyout investments 1996-2003

Contact

Bundesverband deutscher Kapitalbeteiligungsgesellschaften –
German Venture Capital Association e.V. (BVK)
Dr. Thomas Kuehr, Chairman of the Board
Dr. Holger Frommann, Managing Director
Residenz am Deutschen Theater
Reinhardtstrasse 27 c
10117 Berlin
Germany

Phone: +49.30.30 69 82-0
Fax:  +49.30.30 69 82-20
E-mail: bvk@bvk-ev.de
Website: http://www.bvk-ev.de

VOCATO public relations
Birgit Brabeck/Corinna Bause
Bahnstrasse 19
50858 Köln
Germany

Phone: +49.22 34.6 01 98-0
Fax:  +49.22 34.6 01 98-12