Germany’s oldest private equity firm, Deutsche Beteiligungs (DBAG), is celebrating a double landmark in 2015. Not only is this its 30th year listed on the Frankfurt Stock Exchange, but October marks 50 years in the private equity industry.
DBAG was a pioneer in the transition of Germany’s private capital market from a time when minority deals were rare but the most common way to access the market, to the last 20 years, in which majority buyouts have increased along with industry knowledge and acceptance.
Its impact in terms of providing private capital to German companies has been significant. Around €2.5 billion has been invested into 350 industrial-focused companies within Germany’s 3.7 million-strong predominantly family-owned Mittelstand sector.
Torsten Grede, spokesman for DBAG’s board of management, tells Private Equity International that since a step-change in Germany’s capital markets in the mid-1990s, when majority deals became more prevalent, the firm has successfully invested in 36 MBOs. Of these, 21 have been realised to date, with a combined money multiple of 2.7x.
DBAG was founded in 1966, as Germany experienced its first substantial recession since the end of the Second World War. It reminded people that more equity was needed and that the German capital market was very underdeveloped, says Grede.
A gradual transformation took place as part of a “shareholder value discussion” in Germany’s business sector, which saw the adoption of the Anglo-Saxon private equity model.
While that model has accelerated since the 1990s, there is still a significant way to go before the sector reaches a level comparable with the UK and Nordic countries.
Investment from pensions has increased from 16 percent in 2002’s €321 million DBAG IV fund to 35 percent in 2013’s €700 million DBAG VI fund, but Grede sees further room for expansion.
German pension funds have much lower allocations to private equity than their Nordic, US and UK counterparts, he says, while the private capital invested by German GPs is also lower than many of its peers.
According to Invest Europe data, private equity capital invested in Germany comprises just 0.2 percent of its GDP, versus the UK’s comparable figure of 0.72 percent. Much is down to cultural differences.
“Germany is a very nice hunting ground, but it should be bigger than it is,” says Grede. “The typical German family business owner sees it as part of his life and not an asset to grow in value. It could have come from his grandad and he wants it to stay within his family.”
Nevertheless, he sees a gradual shift in attitudes. “There is more openness and knowledge on private equity than 10 years ago [in Germany] and it is developing. But we don’t expect the German private equity market to ever catch up with the UK or the Nordics as part of GDP.”
While Grede says DBAG’s historical links with the Mittelstand give it a competitive advantage in terms of picking winners from such a vast universe of companies, it has “tough competition” from UK and pan-European players, as well as, increasingly, local GPs. There is also growing interest from US firms.
“We have the pan-Europeans on one side, while in the last 10-15 years a sizeable group of German buyout-focused funds has developed in the €350 million-€500 million range,” Grede says. He is confident that the firm’s current €700 million vehicle, DBAG Fund VI, Germany’s largest buyout fund, has the scale to maintain an edge over its rivals.