20 years of Finan­cial Year­Book — congra­tu­la­ti­ons on this great anni­ver­sary! FYB thus repres­ents two deca­des of eventful private equity history in Germany, during which the indus­try has under­gone a signi­fi­cant matu­ring process. Just over 20 years ago, Ardian also opened its German office in Frank­furt. For us, this is a welcome occa­sion to review the deve­lo­p­ment of private equity since the turn of the millennium.

Let’s first take a look back: In 2002, the private equity indus­try in this coun­try was still in its infancy. It was charac­te­ri­zed by rela­tively low invest­ment, often mana­ged from abroad without local teams. The volume of private equity tran­sac­tions in Europe, for exam­ple, was around EUR 27.6 billion, with which around 8,350 compa­nies were finan­ced. Germany accoun­ted for around EUR 2.5 billion of this total and the average tran­sac­tion volume was only EUR 3.3 million. Nevert­hel­ess, a clear growth trend was alre­ady discer­ni­ble at that time. It quickly became appa­rent that both the search for new deals and the invest­ments were more successful when the private equity inves­tors used local profes­sio­nals who had a deep under­stan­ding of the market and a network in Germany. This led to inter­na­tio­nal finan­cial inves­tors setting up their first offices in Germany with teams on the ground. Nevert­hel­ess, the young market in Germany proved to be very confu­sing — the Finan­cial Year­Book crea­ted for the first time a valuable over­view of the play­ers as well as the consul­tants active in this envi­ron­ment. Since then, FYB has been an autho­rity in the industry.

And today? — With more than 3,000 tran­sac­tions carried out, the tran­sac­tion volume in 2021 amoun­ted to EUR 217.4 billion — roughly eight times the figure for 2002. Accor­din­gly, the average tran­sac­tion volume was 160 million euros — 48 times that of 2002!

Howe­ver, this look at the figu­res does not yet reveal what ulti­m­ately made private equity so successful in Germany: a change in the quality expec­ta­ti­ons of inves­tors and their invest­ment approa­ches. Twenty years ago, maxi­mi­zing short-term returns was the top prio­rity, espe­ci­ally for U.S. inves­tors, and was to be achie­ved by any means neces­sary. And even though only a mino­rity of private equity inves­tors beha­ved this way at the time, these were the high-profile nega­tive examp­les that shaped the percep­tion of the indus­try. Because there was little or no commu­ni­ca­tion on the part of the inves­tors. The result: distrust from poli­ti­ci­ans, resis­tance from trade unions and fear of cont­act from entrepreneurs.

The future and accep­tance of private equity in Germany was in ques­tion. Three effects have coun­ter­ac­ted this. Firstly, the self-clea­ning forces of the market meant that, after the first nega­tive examp­les of deals in Germany, the so-called “corpo­rate raiders” simply hardly got a chance, they had to cope with some major insol­ven­cies due to the high use of debt capi­tal during econo­mic fluc­tua­tions and conse­quently also strug­g­led in fund­rai­sing. Second, private equity firms have proven over thou­sands of invest­ments that they are good owners who create value for compa­nies and society. And thirdly, the indus­try has reco­gni­zed that it must also make its good work trans­pa­rent to the inte­rest groups of poli­ti­ci­ans, trade unions, entre­pre­neurs and the press.

Today, private equity is reco­gni­zed for helping compa­nies deve­lop, grow and trans­form. Inves­tors like Ardian create a finan­ci­ally stable foun­da­tion through which entre­pre­neurs gain entre­pre­neu­rial flexi­bi­lity, support stra­te­gi­cally sensi­ble acqui­si­ti­ons with know-how, and ther­eby help to increase sales, earnings, and the number of employees — in short, private equity uses its finan­cial power and exper­tise to create added value for everyone.

In addi­tion to finan­cial and stra­te­gic goals, private equity mana­gers also set society-orien­ted goals for the funds and port­fo­lio compa­nies, such as carbon emis­si­ons reduc­tion, employee and custo­mer satis­fac­tion, and regio­nal enga­ge­ment. The increased focus on sustaina­bi­lity and ESG in recent years is ther­e­fore only the next logi­cal step in the industry’s matu­ra­tion process. Once again, the posi­tive self-clean­sing forces of the market are evident: Inves­tors without a compre­hen­sive ESG approach have a hard time in fund­rai­sing today and port­fo­lio compa­nies can suffer signi­fi­cant valua­tion losses due to insuf­fi­ci­ent ESG scores.

This sustainable invest­ment approach has meant that port­fo­lio compa­nies have not only flou­ris­hed in good econo­mic times, but have also come through all the crises of the past 20 years better than the economy as a whole when expe­ri­en­ced invest­ment mana­gers have contri­bu­ted their exper­tise. This was recently demons­tra­ted again in the Corona pande­mic, and we believe it will hold true for the current geopo­li­ti­cal crisis, even as we find oursel­ves in a combi­na­tion of infla­tion, inte­rest rate hikes and war not seen in deca­des. A major vote of confi­dence is the fact that insti­tu­tio­nal inves­tors such as pension funds, insu­rance compa­nies and foun­da­ti­ons are incre­asingly raising their allo­ca­tion ratios, espe­ci­ally as private equity has become an incre­asingly liquid asset class in recent years thanks to the rapidly growing secon­dary market for fund units.

We conti­nue to see a posi­tive deve­lo­p­ment for our indus­try, which will also become incre­asingly ancho­red in broa­der sections of society as the “demo­cra­tiza­tion” of private equity progres­ses, i.e. growing access for private inves­tors. We are sure and plea­sed that FYB will conti­nue to compe­tently accom­pany the deve­lo­p­ments of the indus­try as usual in the years to come. In this sense: All the best!

Jan Phil­ipp Schmitz