Positive development in 2013 makes the venture capital segment stand out from what was overall a weaker German private equity market. Venture capital financing, which had already been strong in the first half of 2013, continued to prove its worth. "The venture capital segment performed better in 2013 than in the previous year, in terms of both investments and fundraising,” commented Matthias Kues, Chairman of the German Private Equity and Venture Capital Association (BVK) with regard to the statistics published today by BVK on the German private equity market in 2013. "However, private equity investments were down around a quarter overall,” Kues continued.
But despite this, almost 1,300 companies were provided with venture capital in 2013. This reinforces the continued importance of venture capital in the financing of German companies. “The German private equity market is dominated by small and medium-sized companies (SME), as these are the companies that receive most of the venture capital,” explained Kues. Only 8 % of all of the companies that received financing over the course of 2013 had more than 200 employees, and only 9 % generated annual turnover in excess of €50 million.
Investments declined in 2013 after having risen for three years in a row starting in 2010. The investment volume fell year on year to €4.68 billion (2012: €6.63 billion). “Unlike last year, the market failed to register a strong final spurt. The strong business performance seen in the buy-out business in particular at mid-year was unable to continue through to the end of the year. There were very few large transactions before the end of the year and these will only be concluded during the course of 2014,” said Kues in summing up.
Venture capital successfully stood firm against the weakening overall market. At €673 million, investments were up significantly on the previous year (€567 million). All sectors (seed, start-up and later-stage investments) posted gains. However, at 723, the number of companies financed in 2013 fell slightly short of the 780 in the previous year. But despite this, venture capital-financed companies made up 56 % of all companies financed in 2013.
The lion’s share of investments was accounted for by majority interests/shareholder suc-cessions (buy-outs). However, at €3.59 billion, the capital invested was down around one-third on the figure in 2012 (€5.27 billion). The number of transactions also declined (2013: 86, 2012: 116). While buy-out financing terms and conditions showed positive devel-opment thanks to a robust German economy, the number of possible target companies con-tinues to be limited, hampering takeovers.
The number of SME minority interests (growth, replacement and turnaround financing) financed rose considerably from 399 to 484; however, the investment volume almost halved from €792 million to €414 million due to only few of these minority interests being larger.
Newly acquired fundraising was down year on year overall, mainly due to the sharp drop in new buy-out funds. Venture capital funds did well, however, raising €440 million in 2013 – up some 17 % on the previous year. Most of the new capital flowed into buy-out funds; however, at €630 million, fundraising in 2013 was only half that in 2012 (€1.56 billion). This is also the main reason why total fundraising, at €1.1 billion, was down considerably year on year (2012: €1.97 billion). “As was the case in 2012, the number of new funds closed was low in 2013. Large funds with assets in the hundreds of millions of euros range in particular were few and far between, which is why fundraising fell to 2009 and 2010 levels,” explained Kues.
Private Equity Forecast: Positive outlook for 2014
The hopeful economic outlook for 2014 is expected to boost the German private equity market. There is also no end in sight to low interest rate policies, meaning that financial conditions, especially in the buy-out sector, are likely to remain favourable. “We are seeing high demand for private equity financing – be it from seed companies or SME and large companies. Consequently, we expect earnings in 2014 to be on par with 2012,” forecasted Kues.
Industry optimism is underscored by both the results of the most recent Private Equity Barometer, a sentiment index for the German private equity market prepared jointly by BVK and KfW, as well as “Private Equity Forecast 2014”.
While the German Private Equity Barometer rose to a two-year high in the closing quarter of 2013, industry representatives generally responded positively in the “Private Equity Forecast” to questions relating to fundraising, investments and the disposal of investments in 2014. Considerably more than half of all companies expect investments to rise either slightly or considerably this year. Another third believes that own investment will be on par with 2013. Investment companies are more posi-tive than venture capital companies when it comes to growth financing/buy-outs.
Those surveyed are also confident with regard to the successful disposal of investments. Every second company expects to see a rise in the number of company disposals, and 40 % are forecasting that the level will be similar to that seen in 2013. Venture capital companies have particularly high hopes; almost two-thirds are predicting more disposals.
The companies continue to face fundraising challenges. Many investment companies con-tinue to be on the lookout for investors. Twenty-six German companies stated that they had already started fundraising or plan to do so before 2015, with the aim of raising a total of €2.6 billion in new fund capital.