PEI: Did fundraising surpass your expectations?
It was at the optimistic end of our expectations. The situation in Europe is clearly very painful; a number of US investors had very significant difficulties even considering Europe. But we’ve built a good brand among LPs as a very focused firm with a very disciplined approach in terms of industries and deal sizes. So we’ve benefited from the trend of LPs wanting to build more exposure to country-specific mid-market funds. Plus the thesis for a good number of LPs was that German engineering has much better growth prospects than overall German GDP – so DBAG offered growth opportunities that were more attractive than German entry multiples might suggest.
Did the performance of previous funds play a part?
Because our investment pace was quite slow at the beginning of Fund V, it has given us quite a decent performance in that fund: it’s currently at a gross of more than 1.7x. We also distributed more than 50 percent of commitments after two years of its life through the exit of [Austrian industrial services group] MCE – which was perfectly timed from an LP perspective. And Fund IV is running at a gross of about 2.7x. These numbers definitely help.
How has your investor base changed?
This fund is only about 19 percent German money; we kept the amount relatively stable, although there have been a number of changes on the investor side – largely because bank balance sheet money, which was very strong in Fund IV, has all but disappeared. We have more money from US investors; they’re about 27 percent of the fund. And Asia accounts for about 14 percent, up from 7 percent last time – our one previous Asian investor has re-upped, and we won two new ones. It was all very smooth though, because people wanted to get into the fund. We told people: if you want a large stake, you have to be in the first close – so most existing investors who re-upped did so in the first close. It’s all about momentum.
Will a bigger fund size mean bigger deals?
It does give us more flexibility at the larger end. But we think our competitive edge in Germany has actually improved in recent years. We invest in cyclical industries – and our impression is that for the German team of a pan-European fund, selling a cyclical machinery deal to an investment committee in New York or London is more of a headache now than it was in 2007. Also, some of the very successful pan-European firms have outgrown us; they’re not in our segment any more. So our strategy is just to do 12 or 13 rather than 10 investments. That’s why we didn’t press to get to €1 billion; our aim is to remain a very prudent and focused investor.
How has the firm improved since the last cycle?
The big step forward is that we now have nine deal partners – three on the expansion capital side, six on the buyouts side – as well as hugely experienced managing partners. The emergence and development of these younger partners – who don’t need to think about management issues related to the listed trust – gives me confidence that we can do more than ten deals per fund, because our capacity is much larger.