“With investments of EUR 5.3 billion in some 1,200 companies, private equity firms once again underlined their vital role in financing in 2015”, said Wilken von Hodenberg, spokesman of the board of Bundesverband Deutscher Kapitalbeteiligungsgesellschaften (German Private Equity and Venture Capital Association − BVK) at a press conference on the 2015 preliminary statistics for the German private equity market, which were published today. “Investments may have fallen 25% short on last year’s record-breaking figures, but they did exceed 2013 levels.” Investments in 2014 stood at EUR 7.1 billion, the highest level since 2008, while a total of EUR 5.1 billion was invested in 2013.
The sale of perfumery chain Douglas was one of the outstanding deals in 2015. The company was sold to CVC and is planning to develop into a global brand together with its new partner. Alongside the Douglas sale, Synlab and Sivantos were two other transactions of note, but investing activities failed to trump the extremely active year of 2014. “The financing climate is good, but the list of potential takeover candidates remains relatively short,” said von Hodenberg.
Venture capital investments continue to soar
Buy-out investments fell by 22% to EUR 3.8 billion, causing the decline in investments across the market overall, but investments by venture capital firms reached their highest level since 2008. At EUR 0.78 billion, this year’s figure exceeded the previous year’s amount by 16%. The 724 venture capital-financed companies accounted for significantly more than half of all companies financed in 2015. “Even though a slight upward trend has been observed in the start-up financing market since 2012, we need better frameworks in place when it comes to financing young companies to inject new and sustained momentum into the market,” said Dr Peter Güllmann, spokesman of the BVK board. So far, the German government has largely failed to follow up on its stated desire to introduce a “Venture Capital Act”. “A package of legislative measures, as described in our draft venture capital act, would mobilize more capital and attract investors from abroad,” continued Güllmann.
After all, the disadvantageous tax and regulatory frameworks in Germany compared to the rest of Europe are hampering private equity firms’ efforts to raise capital. In fact, capital raised by German private equity firms fell year on year. Total funds raised came to EUR 1.33 billion, down by a half on the strong results of the previous year (EUR 2.78 billion) but on a par with 2013 levels. Within the total new funds raised venture capital fundraising remained largely stable at EUR 0.76 billion. “Unfortunately, our hopes of matching the success achieved two years ago failed to materialize,” said Güllmann. But venture capital fundraising at least remained robust.”
“Private Equity Prognosis”: Industry intends to ramp up investments in 2016
The industry is in optimistic form when it comes to 2016, as shown by the “Private Equity Prognosis”, a survey of private equity firms’ expectations for 2016. More than half of firms forecast a slight or significant rise in their investments, while a further 38% believe that investments in 2016 will match those of 2015. At 60%, the percentage of optimists in the growth financing/buy-out segment is higher than the share among venture capital firms, where 45% are optimistic. “If the macroeconomic climate remains stable, 2016 investments in the industry are likely to at least match 2015 figures,” said von Hodenberg.
1. How are investments developing in individual market segments?
Venture capital firms invested a total of EUR 0.78 billion in 2015, 16% more than the previous year, with increases recorded in all market segments (seed, start-up, later-stage venture capital). Growth capital totaled EUR 0.68 billion and almost matched the volume of the previous year thanks to some major investments at established SMEs and more mature start-ups. In the buy-out segment, fewer very large transactions took place in 2015 than in 2014, which was an extremely strong year. The number of buy-out transactions also declined, so investments in buy-outs were down by just under a quarter on the previous year at EUR 3.8 billion.
2. Which companies are primarily financed through private equity?
The private equity market is an SME market. Small and medium-sized enterprises are the predominant recipients of equity capital. 96% of companies financed in 2015 employ fewer than 500 employees, while 86% actually employ fewer than 100. Three quarters of companies recorded sales of under EUR 10 million, while a further 18% posted sales of between EUR 10 million and EUR 100 million.
3. What are the reasons for the decline in fundraising in 2015?
Fundraising from German private equity firms came to EUR 1.33 billion in 2015, a decline of one half compared to the solid previous year (EUR 2.78 billion) but on a par with 2013 levels (EUR 1.33 billion). This decline is due to the significant fall in fundraising from buy-out funds of roughly EUR 1.5 billion. By contrast, venture capital fundraising remained largely stable at EUR 0.76 billion, down from EUR 0.85 billion in the previous year.
4. What could dampen the positive outlook for the private equity industry in 2016?
High company valuations in the market are a source of uncertainty, and private equity firms do not believe that these will decline in 2016. Roughly one half of those surveyed in the “Private Equity Prognosis” believe that target company valuations will remain stable, but more than one third expect valuations to rise further.
5. What is the outlook for fundraising this year?
2016 is likely to be shaped by brisk fundraising activities, with 28 German firms having already declared that they have already begun raising funds or intend to begin doing so by next year. They intend to raise roughly EUR 3.1 billion in new fund capital.
The detailed statistics for 2015 and the “Private Equity Prognosis 2016” can be found at www.bvkap.de, where they are available for download.