German mid-market buyouts hold steady in 2015

Research from German Mittelstand specialist Deutsche Beteiligungs shows a slight decline in mid-market transaction value and a continued focus on industrials.

The number and value of management buyouts in the German mid-market declined slightly in 2015, down from 31 deals worth €3.2 billion in 2014 to 30 deals worth €2.7 billion.

The figures come from research conducted by listed, German mid-market private equity firm Deutsche Beteiligungs (DBAG) in collaboration with FINANCE magazine, which analysed majority takeovers by financial investors with existing management company co-investment, and with a transaction value of between €50 million and €250 million.

The data shows that the German “Mittelstand” is still dominated by primary transactions, in which target companies are receiving financial investor backing for the first time. In 2014, 17 of the 31 transactions, or 55 percent, of transactions were primary; in 2015 the proportion rose to 73 percent, or 22 of the 30 transactions.

Industrial sectors such as the chemical industry, automotive suppliers, mechanical and plant engineering companies, and related industrial service providers proved popular with investors, accounting for around half of all MBOs in the Mittelstand last year. 

DBAG also notes strong interest from trade buyers, which provides an attractive exit route for private equity investors.

“The many companies that are leaders in their markets, thanks to their product excellence, attract strategic investors,” Torsten Grede, spokesman of the board of management at DBAG, said in a statement.

“In that scenario, investors from the US or China, for instance, compete with financial investors for attractive industrial companies, including ones from financial investors’ portfolios.”

In December DBAG released the findings of its first PE Monitor, a survey of investment managers at 50 private equity firms operating in the German mid-market looking into strategic issues which face their businesses.

The survey showed a pro-active approach toward value creation. Only 36 percent of respondents thought cost-cutting and efficiency programmes were “promising” in the current environment, and just 12 percent through restructuring strategies and asset-stripping projects would be successful. Seventy-two percent chose growth through add-on acquisitions as the most promising value creation method, while 60 percent chose internationalisation of portfolio companies and 46 percent chose expansion of business lines and services.

Respondents rated competition among private equity firms at an average 8.28 on a scale of 1 to 10, and rated transaction opportunities at 5.60 on the same scale, with corporations posing the most competition in the M&A market. However, 74 percent said family offices were gaining ground as competitors, with foundations becoming less competitive.

DBAG invested in seven portfolio companies in the financial year to 30 September 2015, including five management buyouts alongside the 2012-vintage DBAG Fund VI, which closed on €700 million, and two growth financings with the 2010-vintage, €242 million DBAG Expansion Capital Fund.

In December DBAG and DBAG ECF agreed its first transaction in Switzerland, acquiring a substantial minority interest in mageba, a provider of structural bearings, expansion joints and other products and services for the infrastructure and building sectors. Also in December DBAG and DBAG Fund VI invested in Telio Group, a telecommunications and software provider.