German mid-market feels the heat as family offices give chase

Family offices in Europe are now seen as the biggest competitors to private equity firms in German mid-market buyouts.

Of investment managers surveyed by mid-market firm Deutsche Beteiligungs AG and industry magazine FINANCE, 72 percent said family offices and industrial holdings are the biggest source of competition outside of private equity buyers. This marks a 13 percentage point increase compared with last year.

In addition, four out of five managers agree that family offices are making life more difficult for private equity funds than they were 12 to 24 months ago.

Family offices are also becoming more visible in the market and bidding in auction processes, in addition to joining exploratory talks on bilateral negotiations with small-to-medium-sized enterprises, the survey revealed.

Family offices are adopting highly professional private equity structures and accumulating in-house expertise by recruiting staff from private equity firms, making them more competitive.

German mid-market buyouts – transactions of between €50 million and €250 million – have seen an upward trajectory in recent years, with €4.8 billion invested across 47 deals last year, according to the report.

Family succession is driving deal volume, the report found. Nine out of 47 management buyouts in the mid-range segment of the German buyout market were succession agreements last year.

“Founders and family business owners are increasingly starting to realise what sort of contribution financial investors can make to their companies’ further development,” Torsten Grede, spokesman for the DBAG Board of Management, said in the statement. “We are now seeing increasing numbers of entrepreneurs with new business models in future-oriented sectors looking for new investors.”