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DACH market focus
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Lack of primary deals could
hamper DACH growth
In the past year, private equity investment in the DACH region has picked up,
but could a lack of primary deal activity from the Mittelstand hamper investment?
Diana Petrowicz investigates
The outlook for the DACH market is good as the economy
regains its strength following the financial crisis, but dealflow
could be a problem, market experts say.
According to Palamon Partners’ Holger Kleingarn, although
many private equity companies are active in the market and
ready to invest, there are problems. “A lot of funds are looking
to invest but, aside from secondary sales from PE firms, we see
some shortages in supply of businesses for sale.”
This lack of primary dealflow comes at a time when the
region’s economy is resurgent. Unemployment is at a record
low at the moment, the industrial segment is developing well
and the retail sector is being driven by spending power. As
far as private equity deal-doing is concerned, the volume of
private equity buyouts and growth capital transactions in
2010 was almost back to 2005 levels, according to Private
Equity Insight.
good companies, where private equity players know each other
well, and this is going to continue.”
While acquiring companies from rivals might be an option
for private equity funds, LPs are reportedly concerned about
secondary buyouts, which are said to achieve lower returns
and reduce company performance. However, a recent study
from Golding Capital Partners has shown that these concerns
were unjustified. In fact, the results confirmed that secondary
buyouts can produce reasonable returns, while the operational
value of companies only showed small differences comparing
primary and secondary deals.
The small number of companies in the primary market might
decrease the number of deals in the DACH region this year but
with a strengthened economy, companies should perform well
in 2011 and secondary buyouts will help maintain dealflow at
current levels. ■
That said, primary buyout activity in 2011 has
remained subdued with only secondary buyouts
recording a slight increase – a continuation of the
trend already observed throughout 2010.
It seems that companies in the region are not ready
for investments from private equity funds just yet.
According to Kleingarn, German entrepreneurs
and owners, although more open than ever, are
still slightly biased against private equity ownership,
which makes proprietary dealflow so important in
this market.
Consequently, investors are increasingly turning
to other private equity owners to source deals, as
Kleingarn notes: “We see secondary buyouts of
08 UNQUOTE APRIL 11 ENTIRE CONTENTS COPYRIGHT 2011 INCISIVE MEDIA INVESTMENTS LTD
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