BVK: Significantly more private equity investments in 2010

The German private equity market has gained a lot of stability. This emerges from the statistics for the German private equity market in 2010 released today by the German Private Equity and Venture Capital Association (Bundesverband Deutscher Kapitalbeteiligungsgesellschaften ­ BVK). Investments in Germany increased by 59 % to €4.44 billion compared to 2009. Approximately 1,300 mostly small and medium-sized companies are financed with private equity and supported in their quest to overcome the financial and economic crisis. After an almost complete collapse of the market in 2009 as a result of the financial and economic crisis, the investment level rose sharply and sustainably. In saying that, the market is still well below the record results of 2007 and 2008. "These years were exceptions and the result of the truly extraordinary market conditions at that time. What we are seeing now is a more sustainable growth", explains Dr Hans Ostmeier, president of the BVK.

After a decline to €2.78 billion in 2009, €4.44 billion was invested last year. As in the previous year, the majority of investments were buy-outs. The capital invested in this segment amounted to €2.52 billion - an increase of more than 50 % in comparison to the year before. While it was mostly small buy-outs in 2009, the year 2010 saw a growing number of larger transactions that significantly contributed to the increase in investments. In 2009, many transactions failed due to the cautious behavior of banks, different valuation opinions of buyers and sellers as well as the uncertain future of businesses. 2010 saw a considerable easing of the situation. The more optimistic outlook of businesses as part of the general economic recovery created numerous opportunities for private equity firms. The SME-oriented minority investments (growth financing, replacements, turnaround) rose significantly from €0.53 billion to €1.26 billion. The venture capital segment on the other hand remains subdued - investments were still at €0.65 billion. Within this segment, the seed and start-up investments decreased by 11 % to €0.37 billion, whereas the later stage venture capital investments increased by almost a quarter to €0.29 billion.

Fund raising had already been challenging in 2009, and the 2010 result confirmed the skeptical expectations due to the still difficult fund raising environment. New funds raised were at €0.93 billion - another 13 % below the already weak result of the previous year (€1.07 billion). This means that the fund raising of German private equity firms has been on the level of 1996 for the last two years. At least the share of capital raised from institutional and private investors by independent fund raising increased slightly to €0.75 billion (up from €0.68 billion).

Economic trend leads to positive outlook

The positive economic environment and the business outlook will be the crucial trigger for the German private equity market. "The growth plans and investment projects of companies will sustain the demand for private equity", predicts Dr Ostmeier. "The private equity firms have the capital available, and we expect an investment level similar to the last year at least", adds BVK managing director Dörte Höppner.

The German private equity firms are also optimistic that the market recovery will continue. This is proven by the "Private Equity Prognose 2011", a survey of all BVK members on their expectations regarding fund raising, investments and divestment activities. More than three quarters of the 132 participants of the survey expect an increase in investments in their market segment for 2011. Those companies operating in growth financing/buy-outs are significantly more optimistic than the representatives of venture capital. For the buy-out market, two thirds of the firms listed secondary buy-outs as the most important dealflow source. Takeovers of parts of groups or enterprises as well as growth financing and minority investments in family-owned companies ranked second place and beyond.

The private equity firms are also optimistic in regards to their exit opportunities. Eighty per cent expect an increase in divestments. Companies are particularly optimistic when it comes to sales to strategic investors (trade sales). But IPOs of portfolio companies are also increasingly given opportunities. About a quarter of the respondents have at least one company in their portfolio ready to go public. In total, 46 portfolio companies were considered ready to go public.

Fund raising will be a crucial topic of 2011 for private equity firms. Many private equity firms had to postpone or extend the commencement of their fund raising as a result of the financial crisis and the reluctance of institutional investors, which means that the capital demand for new funds is still high. Thirty-nine companies claim to either have started fund raising already or start within the next two years. They intend to raise a total of €4.21 billion of new fund capital.

Detailed statistics on the German private equity market for the year 2010 and BVK study "Private Equity-Prognose 2011" can be downloaded at www.bvkap.de.