Private Equity Trends 2020: Germany is high on the agenda

The Euro­pean private equity (PE) market remained at a very high level in 2019:
Last year, a total of 2,515 tran­sac­tions with PE parti­ci­pa­tion took place in Europe — 16 percent more than in 2018. Finan­cial inves­tors parti­ci­pa­ted in the purchase and sale of compa­nies with a total of 260 billion euros. The deal volume was thus only slightly lower than in the record year 2018; at that time it was 262.1 billion euros. These are some of the key findings of our “Private Equity Trend Report 2020”. For the study, PwC surveyed 250 Euro­pean PE inves­tors on key indus­try trends.
Summary: Buyouts increased in volume and number, exits remain at a weak level.

In parti­cu­lar, the number of corpo­rate acqui­si­ti­ons (“buyouts”) increased in 2019. The tran­sac­tion volume grew by 26 percent to a total of 1,973 deals, while the value increased by 15 percent to a total of 200.7 billion euros. This is mainly due to the high level of mega deals worth more than EUR 1 billion and the incre­asing number of deals with a tran­sac­tion value between EUR 500 million and EUR 1 billion. A total of 81 such tran­sac­tions took place in 2019.

The finan­cial inves­tors surveyed see one of the biggest chal­lenges in the incre­asing compe­ti­tion for suita­ble invest­ment targets. Two-thirds (66 percent) said compe­ti­tion among Euro­pean PE houses increased in 2019. Esti­ma­tes amount to 2.3 tril­lion euros of curr­ently unin­ves­ted capi­tal. Ever-incre­asing compe­ti­tion and the accom­pany­ing valua­tions should normally lead to lower returns. At the same time, howe­ver, the number of invest­ment targets has not increased. — Ther­e­fore, PE houses need to incre­asingly roll up their slee­ves opera­tio­nally and increase their compa­nies’ value gene­ra­tion over the holding period with the help of opera­tio­nal impro­ve­ments, but also with the use of digi­ta­liza­tion tools for inno­va­tive sales chan­nels and busi­ness units. This means active manage­ment of their port­fo­lio compa­nies. This is the only way to main­tain the excel­lent returns that GPs pass on to their LPs.

Measu­red in terms of gross dome­stic product, the German PE market is signi­fi­cantly larger than the UK and France, for exam­ple. None­thel­ess, the German market is smal­ler in terms of the number of PE deals.

80 percent of the Euro­pean finan­cial inves­tors surveyed rated Germany as “good” with regard to PE invest­ments, 38 percent of them even as “very good”. More than half (52 percent) of them have alre­ady inves­ted in German compa­nies in the past, and almost all respond­ents (99 percent) plan to do so in the next five years. Germany is curr­ently very popu­lar with PE inves­tors! German SMEs in parti­cu­lar have been rather hesi­tant about private equity in the past.

This atti­tude is gradu­ally chan­ging, so that many inves­tors see good oppor­tu­ni­ties for long-term invest­ments in compa­nies with very high indus­try exper­tise. The poten­tial of the German market is enorm­ous and has hardly been tapped yet.