Every day counts - Deutsche Beteiligungs AG

Our support for the development of portfolio companies is not only directed at
reducing risks, but, primarily, at building value. Measures and decisions for action are
channeled through supervisory and advisory bodies of portfolio companies. To provide
the incentive for the staff and the Board of Management of Deutsche Beteiligungs AG
to personally commit to maximizing the profit from investments, a substantial part of
income is performance-related.
VI. 2.3. Focus on profitable realizations
A key factor for success in private equity is the realization of capital gains. Prior to
making an acquisition, we explore opportunities to profitably exit that investment again,
following a phase of building value. We principally will not enter an investment, if we
do not recognize realistic mid-term exit opportunities.
Moreover, we work on a number of exits simultaneously during the course of a
financial year to reduce the risk of depending too strongly on a single realization. Nevertheless,
the private equity business, by its nature, may be subject to comparative distortions
for reasons related to the year-end closing date. Complex transactions such as trade
sales or public offerings may not always be completed within a certain financial year.
Delays may arise through changes in the capital market environment or for other reasons.
The realization of the Company’s investment in Edscha, for instance, was finalized in
early November 2002, shortly after the close of the 2001/2002 financial year, while the
transaction had largely been negotiated in 2001/2002. The capital gain from this transaction
was therefore realized in financial year 2002/2003.
In addition to capital gains from the realization of investments, income from investments
in the form of dividends, profit sharing, and interest income constitutes another
relevant source of earnings for Deutsche Beteiligungs AG. The annual volume of this
income is limited, however, and varies depending on the portfolio companies’ earnings
and financial position.
VII. Generation of investment opportunities
To ensure a steady stream of new investment opportunities, the Company has access
to a large national and international network of contacts to industrial enterprises, investment
banks, auditors, attorneys, etc. Deutsche Beteiligungs AG also benefits from its
position as the long-standing private equity partner to Deutsche Bank AG. Furthermore,
Deutsche Beteiligungs AG has built its own pool of industrial consultants, who, in addition
to their knowledge of and insights into particular sectors of industry, can mediate
contacts to enterprises in these industries.
The portfolio strategy, with its focus on majority acquisitions of larger companies, and
the targeted returns mean that the Company will be selective in acquiring new investments.
When comparing specific periods, fluctuations in the number of new investments
are therefore normal in our business and reflect the strict standards we apply to profitable
investments.
Deutsche Beteiligungs AG · Annual Report 2002/2003
Management’s Report
67