DBAG eyes more tech and healthcare deals as covid-19 hits valuations

The mid-market firm has wrapped up fundraising for its eighth flagship fund, gathering more than €1bn in commitments.

German listed manager Deutsche Beteiligungs AG (DBAG) has reduced the value of its private equity portfolio by 20.2 percent or €359 million as of end-March due to the impact of the coronavirus pandemic.

Earnings before taxes of its 28 portfolio companies also slid to -€80.2 million at the end of Q1 from €5.8 million in the equivalent period last year, according to the firm’s half year results for financial year 2019/20. The firm attributed the loss in profits to the weak operating performance of its companies as well as the stock market decline in recent months.

DBAG mainly invests in industrials companies in Germany but has in recent years widened its investment remit to include IT, software, healthcare and telecommunications. Torsten Grede, the spokesman of the board of directors of DBAG, told Private Equity International, the firm expects to further increase the proportion of investments in sectors like IT, software and healthcare under covid-19.

The firm held a final close on its eighth flagship fund this month, gathering more than €1.1 billion of commitments from LPs. DBAG raised more than €910 million for the main fund and €199 million for the top-up vehicle, which will be used for larger investments. It made a 2 percent GP commitment of €255 million to Fund VIII.

The firm began raising capital in September and held a first close in December, as previously reported. In the latest vehicle, 86 percent of existing LPs re-upped, while New investors include a Dutch pension fund, a UK foundation and a US asset manager, according to a statement. Around 70 percent of the capital commitments came from European LPs, 30 percent of which are from Germany.

Grede noted that the firm has not yet deployed capital from the vehicle because of the market situation but is looking for attractive opportunities in IT and healthcare. DBAG still has around 30 percent of undeployed capital in its €1 billion, 2016-vintage Fund VII, he added, which will be used for one or two further platform investments and for follow-on investments.

On fundraising amid covid-19, Grede said the firm received “a lot of questions from LPs” on the outlook for its portfolio as well as capital calls. “We’ve had intense communications with LPs in the last two months, more than in normal times,” he said.

“We have to differentiate our situation into two phases: the first phase is where we are in – experiencing a liquidity shock – and the second phase is the development when the economy starts to rebound.”

The firm expects covid-19 will accelerate structural changes such as digitisation, and that IT and healthcare sectors will benefit.

Capital raised for Fund VIII will follow the same strategy as previous funds, with the firm making equity investments of between €40 million and €100 million in German mid-sized companies, as well as in Austria and Switzerland. The top-up fund is earmarked for larger deals of up to €220 million.