A good 4th quater for the German equity capital market

After a weak start, the German equity capital market picked up at the end of 2012: “With a figure of € 5.84 billion, investments almost reached the level of the previous year,” says Chairman of the Executive Board Matthias Kues on the statistics for the German private equity market for 2012 released today by the German Private Equity and Venture Capital Association (BVK). “In the past year once again over 1,200 companies in Germany were financed with equity capital. That figure highlights the central role that equity capital plays in financing in Germany, particularly for small and medium-sized companies.” Only 5% of the companies financed over the year had more than 500 employees and only 9% had three-digit revenues.

The volume of investment decreased slightly compared to the previous year, by 6%. Compared to € 6.22 billion in 2011, in 2012 € 5.84 billion was invested. Following a significant increase in investments in 2010 and 2011, 2012 saw something of a stabilisation. As in the previous year, most of the investments were in majority interests/shareholder successions (buy-outs). The capital invested in this way (€ 4.54 billion) was also slightly lower than the figure for the previous year (€ 4.78 billion), as was the number of transactions (2012: 104, 2011: 116). By contrast, minority interest financing focusing on medium-sized companies (growth, replacement and turnaround financing) increased from € 721 million to € 779 million, which is largely attributable to the persistently high demand for investment and therefore also capital among medium-sized companies. Venture capital investments continued a worrying downward trend – at € 521 million they fell short of the figure for the previous year (€ 717 million) by around a quarter. The number of companies financed with venture capital (748) also remained below the previous year’s figure of 884. Despite occasional financing highlights, unfortunately the venture capital market is broadly continuing to lose steam. With regard to fundraising, 2011’s outstanding result was not replicated. In total € 1.82 billion was raised by the funds, which represents a decrease of 45% compared to the 2011 figure of € 3.3 billion. The reason for this was that significantly fewer new funds were set up, particularly large funds in the hundreds of millions range. Nevertheless, at least the fundraising results for 2009 and 2010 were exceeded. “Fundraising is currently a real challenge, not only in Germany but internationally. Given the current state of the capital market, established private equity firms which already have several generations of funds behind them are almost the only people able to make successful closings,” Kues adds.

Private equity forecast: a positive outlook for 2013

The development of the economic outlook and the political successes in containing the still lingering sovereign debt crisis will be the decisive factors determining how the German private equity market develops this year. “There are unknown factors, but equity capital has established itself as a fixed component of German corporate financing. The demand will continue to be high. For 2013 we expect an investment figure which is at least comparable to the previous year,” predicts Kues.

The private equity firms are also looking at 2013 optimistically, as confirmed by “Private Equity Forecast 2013,” a survey of the BVK’s members on their expectations with regard to fundraising, investments and sales of investment holdings this year. Approximately 120 firms took part in the survey.

Six out of ten respondents expect that they will invest more in 2013 than in the previous year and a further third expects its investments at least to remain at the same level. Firms in the area of growth financing/buy-outs are more optimistic than representatives of venture capital.

The firms are also hopeful with regard to their chances of successfully selling investment holdings. Half of companies expect to increase their company sales in 2013 compared to the previous year, and a further 45% expect them at least to remain at the same level. The respondents see the greatest opportunities in trade sales and in sales to other private equity firms. The respondents’ evaluation of the opportunities for exits through initial public offerings is more critical, although one in five firms stated that it had at least one company in its portfolio which is ready to go public. A total of 29 portfolio companies were evaluated by the respondents as being ready to go public.

Fundraising will continue to be a decisive issue for many private equity firms in 2013. Many of them are currently looking for capital and their capital requirement for new funds is still high. Twenty-six firms stated that they have already begun fundraising or that they wish to begin in the next two years. These firms aim to raise a total of € 2.9 billion of new fund capital.