Frank­furt am Main — Last year, company foun­ders and fami­lies among the sellers of compa­nies to finan­cial inves­tors reached a new record high of around 40 percent, the highest share ever recor­ded. 19 of 47 manage­ment buyouts (MBOs) in the mid-market segment of the German buyout market were succes­sion solu­ti­ons in 2018. This is a further increase on the previous two years, which alre­ady saw above-average levels of family buyouts. In previous years, barely more than one in ten tran­sac­tions had a family background.

“Foun­ders and family entre­pre­neurs are incre­asingly reco­gni­zing the contri­bu­tion that finan­cial inves­tors can make to the further deve­lo­p­ment of their compa­nies,” said Tors­ten Grede, Spokes­man of the Manage­ment Board of DBAG. He conti­nues, “We are now seeing more and more entre­pre­neurs seeking new share­hol­ders with new busi­ness models in promi­sing indus­tries — so the market is broa­de­ning for us.”

There was also a signi­fi­cant increase in buyout acti­vity over­all. With 47 tran­sac­tions, finan­cial inves­tors struc­tu­red 12 more MBOs in the German SME sector last year than in 2017. This is also a new record for this market segment since Deut­sche Betei­li­gungs AG (DBAG) began evalua­ting it in 2002. In almost every second tran­sac­tion (21 out of 47), finan­cial inves­tors were active on both sides, i.e. as sellers and buyers. Spin-offs from groups or conglo­me­ra­tes were again the excep­tion in 2018, with seven cases.

The analy­sis only takes into account tran­sac­tions in which finan­cial inves­tors have acqui­red a majo­rity stake in a company with manage­ment parti­ci­pa­tion and which have a tran­sac­tion value for the debt-free company of between 50 and 250 million euros. This is based on publicly available sources as well as esti­ma­tes and rese­arch by DBAG in coope­ra­tion with FINANCE.

Last year, private equity compa­nies finan­ced buyouts in the German SME sector worth a good 4.8 billion euros. This is the highest value since 2002, when the evalua­tion began; in 2017, the market volume had amoun­ted to 4.4 billion euros. The average enter­prise value decreased from 126 million euros to 103 million euros. Unlike in 2017, the vast majo­rity of tran­sac­tions (30 out of 47) were now in the lower part of the segment (enter­prise value: €50 million to €100 million). This corre­sponds to the high propor­tion of company foun­ders among the sellers: Of the 19 MBOs in which finan­cial inves­tors repla­ced fami­lies as share­hol­ders, 13 were dispo­sals by the company foun­der. As in the previous year, around half of the tran­sac­tions (24 out of 47) were struc­tu­red by multi­na­tio­nal, pan-Euro­pean private equity funds.

Deut­sche Betei­li­gungs AG is repre­sen­ted in the list of buyouts with three MBOs in 2018. It is thus once again one of the most active finan­cial inves­tors for private equity in the market segment under conside­ra­tion. In the past 15 years, DBAG accoun­ted for 27 tran­sac­tions, more than any other finan­cial investor.

Family offices are incre­asingly percei­ved as real competition
Despite the larger market volume, compe­ti­tion in the German SME buyout market is intense. This is because the supply of capi­tal is also growing. In addi­tion to the well-known private equity compa­nies focu­sing on invest­ments in German SMEs, there are other compa­nies that are laun­ching funds for invest­ments in this segment on the market for the first time. Added to this is the capi­tal of multi­na­tio­nal private equity funds, which are also targe­ting the German market. Available capi­tal will conti­nue to exceed invest­ment oppor­tu­ni­ties in 2019.

In addi­tion to the abun­dant supply of capi­tal, private equity firms face growing compe­ti­tion from family offices. Just how strong is shown by the current survey of invest­ment mana­gers from more than 50 private equity houses opera­ting in Germany, who are polled every six months on behalf of DBAG by the trade maga­zine FINANCE about trends in the German midmar­ket segment. 72 percent of them — leaving stra­te­gic buyers aside for the moment — recently saw family offices as the biggest compe­ti­tion outside the private equity camp. A year ago, only 59 percent did so. More than 80 percent of respond­ents agreed with the thesis that family offices have made life diffi­cult for private equity inves­tors in the battle for medium-sized take­over targets in the past 12 to 24 months. These figu­res suggest that at least those family offices that have estab­lished private equity-stan­dard struc­tures have caught up with the estab­lished PE houses. Thus, family offices are not only percei­ved as compe­ti­tors in bila­te­ral discus­sions with sellers of medium-sized compa­nies, but almost as much in auctions.

Accor­ding to the survey, compe­ti­tion among the port­fo­lio compa­nies is rated at 8.4 on a scale of 1 (very low) to 10 (very high) — this assess­ment has hardly chan­ged in the past three years.

DBAG trig­gers equity invest­ments of over 270 million euros in 2018
In 2018, Deut­sche Betei­li­gungs AG struc­tu­red eight manage­ment buyouts for the funds it advi­ses: Three of these, namely the MBOs of the mecha­ni­cal and plant engi­nee­ring compa­nies Karl Eugen Fischer GmbH and Kraft & Bauer GmbH as well as the auto­mo­tive supplier Sero Schrö­der Elek­tro­nik Rohr­bach GmbH, were included in the statis­tics mentio­ned at the begin­ning. the five other MBOs are attri­bu­ta­ble to other market segments. DBAG trig­ge­red equity invest­ments of around 270 million euros for this purpose. It has two funds at its dispo­sal for invest­ments in the midmar­ket: DBAG Fund VII — the largest German private equity fund for invest­ments in the midmar­ket, with commit­ments of one billion euros — can deploy up to 200 million euros of equity per tran­sac­tion; more than 50 percent of the fund’s resour­ces are commit­ted a good two years after the start of the invest­ment. The DBAG ECF invests majo­rity or mino­rity inte­rests in compa­nies with a smal­ler enter­prise value; it focu­ses prima­rily on owner-mana­ged medium-sized compa­nies and offers a high degree of flexi­bi­lity with regard to the invest­ment ratio or holding period, which is parti­cu­larly important for entre­pre­neurs, via a broad range of finan­cing forms.

Value enhance­ment of sophisticated
Despite the recent dyna­mic deve­lo­p­ment of the buyout market, DBAG does not expect a further increase in the number of mid-market MBOs in 2019. “Macroe­co­no­mic uphe­avals, such as those caused by Brexit and trade conflicts, increase uncer­tainty — this can affect pricing in the M&A busi­ness and market dyna­mics,” said board spokes­man Grede. “For the exis­ting port­fo­lio, the chall­enge of selec­ting and imple­men­ting value-enhan­cing stra­te­gies — such as expan­ding the product range or ente­ring new geogra­phic markets — remains significant.”

Further infor­ma­tion and the full results of the market survey and market statis­tics, inclu­ding the complete list of MBOs in the German Mittel­stand, are available on DBAG’s website (www.dbag.de).

About Deut­sche Betei­li­gungs AG
Deut­sche Betei­li­gungs AG, a listed company, initia­tes closed-end private equity funds and invests along­side DBAG funds in well-posi­tio­ned medium-sized compa­nies with deve­lo­p­ment poten­tial. DBAG focu­ses on indus­trial sectors in which German SMEs are parti­cu­larly strong by inter­na­tio­nal stan­dards. With this expe­ri­ence, know-how and equity, it streng­thens the port­fo­lio compa­nies in imple­men­ting a long-term, value-enhan­cing corpo­rate stra­tegy. The entre­pre­neu­rial invest­ment approach makes DBAG a sought-after invest­ment part­ner in the German-spea­king region. The capi­tal mana­ged and advi­sed by the DBAG Group amounts to appro­xi­m­ately 1.8 billion euros.