Growing Impact of Private Equity Market Substantiates Need for Comprehensive Private Equity Law in Germany

German private equity firms successfully raised €1,382 million of new funds in the second quarter 2007. Investments in the same period accounted for €528 million and lacked behind the very strong first quarter (€1,316.4 million), but this amount was invested in 331 companies which is a clear plus compared to the 302 companies of the first quarter.

These are some of the key facts of the Statistics for the Second Quarter 2007 published today by the German Private Equity and Venture Capital Association BVK.  The current figures support the growing impact of private equity on the German economy.  At present about 6,000 German companies with about 1 million employees are private equity backed.  Against this background it is regrettable that Germany has no comprehensive private equity law and is not subject to regulations that could offer the private equity industry reliable environmental conditions.

The bill of the Law on the Modernisation of Environmental Conditions for Equity Interest (Gesetz zur Modernisierung der Rahmenbedingungen für Kapitalbeteiligungen (MoRaKG)) which is to pass the Federal cabinet most likely on 15 August 2007,  is a considerable step forward for the venture capital firms it addresses to but does not meet the requirements of the coalition agreement to be a law for the entire industry.  Large  fields of the private equity market are still not regulated.  The purpose of a comprehensive private equity law does not mean for this industry to strive for fostering private equity but for adjusting to internationally common environmental conditions to make Germany more competitive in the international capital market.

So far,  the unsatisfactory legislative situation does not influence the industry’s willingness to invest in Germany.  The positive economic situation spurs on companies to seek funds and  on private equity firms to invest.  The number of private equity backed seed, growth and mid-sized companies continues to grow and the half-year figures support this trend:  In the first six months of the year 2007 the number of financed companies jumped from 473 to 556.  Private equity investments totalled €1,845 million which is almost double the amount of the first half 2006 (€939 million).

Venture capital investments exceeded the weak first quarter not only in terms of amount (€188 million compared to €156 million) but also in numbers of financed companies  (303 compared to 267).  In spite of the upswing in the early stage as a result of the positive economic movement the reforms of the MoRaKG are essential for long-term and sustainable investments in entrepreneurial and young companies.