German private equity market holds its own in a difficult environment in 2020
"2020 was no ordinary year and posed numerous challenges for the German private equity market. Nevertheless, private equity firms invested a total of €12.6 billion in Germany. Thus, the German private equity market not only underlined its strength, but also helped many companies through the pandemic and is now supporting them in overcoming the further consequences of the pandemic", Frank Hüther, board spokesman of the German Private Equity and Venture Capital Association (BVK), summarises the preliminary statistics for the German private equity and venture capital market published today. Compared to the previous year, this represents an investment decline of almost a quarter (2019: €16.6 billion). "However, 2019 was also a record year," Hüther continued. "The investments of 2017 and 2018, on the other hand, were exceeded." In addition, more than 1,000 companies were again financed with private equity and venture capital during the year.
Small damper for venture capital
After the last few years were characterised by a clear upward trend in investments by venture capital firms, a slight decline was recorded in 2020. Investments fell to €1.9 billion - after a historic high of €2.3 billion in 2019. However, with around 650, virtually the same number of start-ups and young companies were financed as in the previous year. 62 % of all companies financed with equity capital during the year thus received venture capital. "In view of the adverse general conditions, the relatively small decline in investment can be seen as a success for investors, founders and the public sector," emphasises Ulrike Hinrichs, Executive Member of the BVK Board. "The fears that Corona would prove to be a serious existential threat to the German start-up and VC ecosystem fortunately did not materialise. This speaks for the development the industry has taken."
Buyouts: decline after record
After buyout investments reached double-digit billions in 2019 for the first time in history at €11.5 billion, 2020 brought a noticeable decline of around a quarter to €9.4 billion. Nevertheless, the previous years' high investment levels (2018: €8.3 billion, 2017: €8.4 billion) were exceeded. "A decline had already been expected after the first six months," adds Hinrichs. "Even though the number of acquisitions and especially very large buyouts was below the previous year's figure, there were some transactions worth highlighting." In particular, the takeover of ThyssenKrupp Elevator, the largest buyout in German history, is worth mentioning. Other examples are the transactions at Wella, neuraxpharm, Flender, Hermes or Schülke & Mayr. "The pandemic had been weighing on the business since the first lockdown. Nevertheless, unlike during the financial crisis, investments did not come to a standstill," Hinrichs continues. "On the seller side, as in the previous year, there are still often families and companies. Private equity remains an important financing pillar and an anchor of stability for medium-sized entrepreneurs, especially in difficult times."
The generally SME-oriented minority investments (growth, replacement and turnaround financing) halved compared to 2019, as larger transactions failed to materialise. After €2.8 billion was invested in 2019, it was €1.3 billion last year.
Fundraising with losses
After German private equity firms were able to raise more new funds from investors in 2019 than ever before, fundraising in 2020 was €3.9 billion – although the number of new funds (30) remained almost unchanged – and a third lower than in the record previous year (€6.0 billion). Both buyout and venture capital funds suffered losses. Venture capital funds accounted for €1.6 billion of the new funds raised and buyout/growth funds for €2.2 billion. "We saw many new and exciting funds in 2020. The fundraising environment continues to be favourable despite the economic turbulences as institutional investors look for return opportunities in alternative investments in the face of low interest rates and volatile equity markets," explains Hüther.
Outlook for 2021
"In 2021, much will depend on how quickly social life and the economy return to a new normal. The demand for private equity is very positive in all market segments, but the economic uncertainties are nevertheless also weighing on the investment business," Hinrichs looks cautiously at the current year. "At the moment, forecasts are almost impossible. However, we are sure that private equity will help many companies to overcome the current crisis."
The detailed, preliminary private equity market statistics 2020 (data as of March 2021) including methodological explanations are available for download at www.bvkap.de. The statistical data is subject to continuous updating and may deviate from earlier and later releases.