"2019 was a record year for the German private equity market. Both investments and fundraising reached new record levels," says Ulrike Hinrichs, executive member of the board of the Bundesverbandes Deutscher Kapitalbeteiligungsgesellschaften [German Private Equity and Venture Capital Association] (BVK), commenting on the preliminary statistics for the German private equity and venture capital market published today. "Last year, private equity firms in Germany invested a total of €14.3 billion, almost a fifth more than in the previous year," continued Ulrike Hinrichs. The years 2017 and 2018 had already reached interim highs of € 11.7 and 12.0 billion respectively. In the course of the year almost 1,000 companies were financed with equity capital.
Upward trend in venture capital continues
After a clear upward trend in investments by venture capital firms had already been apparent in recent years and a total of €1.5 billion was invested in 2018, this trend was able to continue in 2019. Venture capital investments increased to € 1.7 billion. Around 570 start-ups and young companies were financed, accounting for around 60 percent of all companies financed during the year. "For the German start-up ecosystem, this is good news. The German venture capital scene has matured in recent years and the figures speak for the attractiveness of German start-ups," says Dr. Regina Hodits, spokeswoman of the BVK board. "However, the gap to the USA or Asia is still immense. Moreover, foreign venture capital firms continue to provide the bulk of the capital in Germany. Foreign capital is welcome, but our aim must be to establish our own powerful venture capital scene, for which purpose more capital must be mobilised for venture capital, especially from German institutional investors."
Buy-outs exceed the €10 billion mark
At € 10.6 billion, buy-out investments reached a double-digit figure for the first time in history. At the same time, they exceeded previous years (2017: € 8.4 billion, 2018: € 8.3 billion) by about one quarter. "This record result had already been announced in the course of the year, as we were able to see many very large transactions again this year," Hinrichs added. Examples include the takeovers of Ifco Systems, Röhm, Robert Bosch Packaging, Adco, AutoScout24 and Axel Springer. "As vendors, unlike in previous years, we primarily saw strategic sellers as well as families and entrepreneurs. This speaks for the attractiveness of private equity". Despite the continued very active Mittelstand investment activities, the number of transactions fell from 176 to 146. "However, the environment for buy-outs remains positive. The economic situation, financing environment, available capital and the high acceptance of private equity highlight the advantages of private equity firms, even if the valuation level remains challenging".
However, investments in minority holdings (growth, replacement and turnaround financing), which are generally geared towards SMEs, declined slightly. After €2.2 billion was invested in 2018, the figure last year was €1.9 billion.
Fundraising with a leap
In 2019, German private equity firms were able to raise more new fund resources from investors than ever before. Fundraising reached € 5.2 billion, almost a quarter more than in the already successful previous year (€ 4.2 billion). "The fundraising environment is currently more advantageous than ever. This leads not only internationally, but also in Germany, to a strong inflow of mainly institutional capital into alternative asset classes such as private equity and venture capital, which is looking for profitable investments in the low-interest phase," explains Hinrichs. Both buy-out funds and venture capital funds were able to raise more capital. Venture capital funds accounted for € 2.9 billion of the new funds raised and buy-out funds for € 2.1 billion. "Domestic funds are increasingly able to direct investor interest towards Germany. The fund sizes are increasing," Hinrichs continues.
Outlook for 2020
"We are optimistic about 2020, and the economic environment is proving robust despite economic concerns and economic conflicts. At the same time, the demand for private equity and venture capital remains stable," said Hinrichs looking ahead. "In Germany, more than 5,000 companies are financed with private equity. This is a solid foundation for our industry. And interest remains high among founders and medium-sized companies."
The statistical data is subject to continuous updating and may differ from earlier and later evaluations.
Questions & Answers on the BVK statistics 2019:
1. How did the investments in the individual market segments develop?
At € 1.74 billion, private equity firms invested significantly more in the venture capital segment than in the previous year (€ 1.5 billion). 570 companies were financed with venture capital. Growth financing and other minority investments (replacement, turnaround) totalled € 1.94 billion, which represents a decline on the previous year (€ 2.22 billion). At 74%, buy-outs again accounted for the majority of investments. Their volume also rose to € 10.63 billion, also compared with the previous year (€ 8.31 billion), and reached a double-digit figure for the first time. At 146, the number of transactions remained at a high level, but below the previous year's figure (176).
2. Which companies are mainly financed with equity capital?
Small and medium-sized enterprises in particular are supported by private equity. 92% of the enterprises financed during the year with a known number of employees had fewer than 500 employees, 74% fewer than 100 employees. Seven out of ten companies had sales of less than €10 million and only 6% had sales of more than €100 million.
3. In which regions was the main investment?
The distribution of investments by federal state is strongly influenced by very large transactions. At the top of the list of federal states is Bavaria (27%) ahead of Berlin (22%), Hesse (16%) and North Rhine-Westphalia (12%). In terms of the number of companies financed, Berlin (219) is in the top 3, ahead of Bavaria (194) and Baden-Württemberg (101).
4. In which sectors was the main investment?
The ICT sector is by far the leader with around 34% of investments, benefiting, among other things, from the sharp increase in venture capital investments in this area. This is clearly followed by the industrial products and services and consumer goods and services sectors, each with 18 %.
5. How have the divestments developed?
The amount of divestments fell by 45% to €2.35 billion compared with the previous year (€4.3 billion). Whereas sales to other private equity firms were still the most important exit channel in 2018, trade sales were the top channel in 2019, accounting for 45 % of the exit volume. This is followed by sales to private equity firms with 31 % and sales via the stock exchange (IPO or sale of shares) with 8 %.