Every day counts - Deutsche Beteiligungs AG

MANAGEMENT’S REPORT
I. Market development
Overall, the private equity market declined slightly in financial year 2002/2003. Like
last year, however, the decrease in investments by private equity companies relates to
activities outside the market in which Deutsche Beteiligungs AG operates. Management
buyouts again registered a distinct rise over the prior year. For the first three quarters of
2002, some 600 million euros were invested in management buyouts in Germany; for
the first three quarters of 2003, the Bundesverband Deutscher Kapitalbeteiligungsgesellschaften/
German Venture Capital Association reported that its members had made
investments of more than 850 million euros. This rise of more than one third reflects the
transaction development in that market segment, on which the investment activity of
Deutsche Beteiligungs AG is focused. In 2002, eleven management buyouts with a transaction
value of between 50 million and 250 million euros (mid-market segment) were
recorded in Germany. In the first nine months of 2003, there had been already twelve
management buyouts; in the same time period the transaction value at this mid-market
level increased to 1.8 billion euros, up from some 1.4 billion euros in 2002.
Globally, 2003 saw a reversal of the trend in private equity investments, which has
been negative in recent years. In 2001 and 2002, investments in both the United States
and key European private equity markets had fallen in comparison to each of the prior
years. The reasons were attributable to the sharp drop in venture capital activity that
was not offset by the growth in buyout financing. Preliminary data based on the semiannual
figures indicate that worldwide private equity investments in 2003 will finish
ahead of those completed in 2002.
This global market is valued at approximately 80 billion euros – many times more
than the size of the market accessible to Deutsche Beteiligungs AG. An assessment of
the market opportunities based on such global data does not do justice to the activities
of Deutsche Beteiligungs AG. We anticipate that the uptrend registered in our market
segment in 2003 will continue. In our view, the private equity business in Germany will
be driven by these factors:
1. Fueled by capital market expectations, large corporations will intensify their focus on
core businesses and part with peripheral activities. The large majority of management
buyouts in 2003 originated from these sources. However, experience proves that
financing aspects involved in disinvesting subsidiaries or individual business units are
clearly gaining in significance.
2. Stock markets as a financing option are still only available to a very limited extent to
high growth enterprises; this also holds true for disinvestments of existent holdings.
The private equity market stands to profit from these supplementary investment
opportunities: unsuccessful attempts to raise additional equity by selling parts of an
enterprise through an initial public offering may end up in a complete sale of that
company in a management buyout. Furthermore, management buyouts to a second
generation of managers, or secondary buyouts, have gained in importance as an exit
opportunity.
Deutsche Beteiligungs AG · Annual Report 2002/2003
Management’s Report
Negative trend appears to have
bottomed out
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