We analyze the German private equity market, including fundraising, deals, performance and investors, using data from the recently launched Preqin Special Report: Private Equity in Germany.

The German Private Equity Market

Germany is one of the major centres for private equity & venture capital in Europe, hosting the second largest number of fund managers in the whole of Europe – after the UK – and is home to the third highest number of institutional investors in the asset class. Germanybased companies and industries have also proved attractive to private equity investors, attracting the second largest amount of capital of any Europe-based country for both buyout and venture capital deals in H1 2016.

Private Equity

Using data from the recently launched Preqin Special Report: Private Equity in Germany, we take a look at some of the key trends in the German private equity market, including fundraising, deals, performance and investors.

Fundraising

Eight Germany-focused private equity funds closed in the first half of 2016, raising an aggregate €1.8bn (Fig. 2). This is already the second highest level of capital raised in a single year since the Global Financial Crisis (GFC), after 2014, and this figure may rise further before the end of the year. In addition, 89 Europe-focused funds have reached a final close in H1 2016, raising an aggregate $57bn – some of which will also seek exposure to Germany as part of a broader geographic remit.

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The largest Germany-focused fund to close in H1 2016 was EIF Growth Facility, a fund of funds managed by European Investment Fund, which aims to coinvest in venture capital opportunities in Germany.

As of October 2016, there are 14 Germany-focused funds in market targeting a combined €3.4bn, up from 12 funds targeting €2.4bn at the beginning of 2016 (Fig. 3). Collectively, Germany focused funds account for 4% of Europe focused funds currently in market, by both number of funds raising and aggregate target capital.

Private Equity Deal Activity

After declining in the aftermath of the GFC, Germany-based private equity-backed buyout deals have picked up again in recent years, with 132 deals worth €13.4bn in 2014, a post-GFC peak (Fig. 4). Although the number of deals and their value fell in 2015, 2016 started strongly with 69 deals worth an aggregate €5.0bn completed in the first half of the year.

Private Equity

Germany has had the third highest number of private equity-backed buyout deals among Europe-based countries each year since 2007, behind the UK and France. However, deal value has been higher than France for several of these years, including the first half of 2016, when Germany had the second highest value of buyout deals among Europebased countries, accounting for 15% of total European deal value.

The largest proportion of German buyout deals have been for industrial companies in all years since 2007 (Fig. 5). Information technology companies have also attracted considerable interest in recent years, and have made up the second largest proportion of deals in each year since 2011. In terms of the largest deals, three of the top five that have been completed since the beginning of 2015 were for healthcare companies. This includes Cinven’s acquisition of synlab Holding GmbH from BC Partners, Amulet Capital Partners’ acquisition of SynteractHCR from Celerity Partners, Gryphon Investors and Ticonderoga Private Equity and KKR and Panasonic Healthcare’s acquisition of Ascensia Diabetes Care from Bayer AG.

Venture capital deal activity has been even stronger recently: the number of German venture capital deals has increased each year from 2009 to 2014, with over 310 deals completed in 2014 (Fig. 6). While 2015 saw the overall number of deals fall, aggregate value increased to a record of just under €2bn, helped by some large deals including the €496mn that Rocket Internet paid for a 30% stake in food delivery business Delivery Hero.

Internet companies continue to represent the largest proportion of venture capital deals, although this has fallen slightly from 37% in 2012 to 26% in H1 2016, while software-related deals have increased from 13% in 2010 to 23% in H1 2016 (see page 15 for more information).

Performance

The PrEQIn Private Equity Quarterly Index for Germany- and Western Europe-focused private equity* funds stood at 230.4 as of December 2015 (rebased to 100 as of December 2005), up from 205.4 at the end of 2014 (Fig. 7).

Private Equity

Private Equity

The median multiple was highest for 2002 vintage funds, at 1.86x, and has been at or above 1.30x for all vintages except those after 2012, which are still comparatively early in their investment cycle (Fig. 8). However, when examined on the basis of net IRR, more recent vintage funds have been more successful than funds from the previous decade. Median net IRRs of 2010-2012 vintage funds were all over 12%, higher than all other vintages bar 2002 (Fig. 9).

Institutional Investors

As befits the size of its economy and its importance as a financial centre, Germany has the third highest number (164) of institutional investors in private equity among Europe-based countries, after the UK (378) and Switzerland (202). The largest proportions of these investors are made up of insurance companies and family offices, both accounting for 15% of the investor population (Fig. 10).

Institutional investors based in Germany (excluding fund of funds managers) have, on average, 5.0% of their total assets allocated to the asset class, below the average allocation of their peers in the rest of Europe (5.7%) and North America (8.6%). The average target allocation of Germany-based investors is 6.3%, indicating that capital is available for investment. This is roughly the same average target allocation to private equity & venture capital as investors based in Europe, although far below the level seen for North America-based investors (10.4%).

The largest German-based institutional investor is Bayerische Versorgungskammer, a public pension fund which currently allocates €3.2bn to private equity, or 4.5% of its overall portfolio, below its target allocation of €3.5bn (5%).

Private Equity

Private Equity

Article by Preqin

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