Editorial 2014: Private Equity in Europe in the Year Five after the Lehman Crisis: A Stocktaking

In the year five after the outbreak of the global financial and economic crisis associated with the collapse of Lehman Brothers, there are a number of interesting developments and trends in the private equity sector in Germany and Europe. The aftermath of the crisis is mixed with adjustment processes that are affecting this industry at various levels. At the same time, there are a number of aspects that point to positive development potential and are already reflected in a resurgence of interest among institutional investors. It will be interesting to see to what extent the industry can implement the call to tackle necessary reforms Do not waste the crisis or revert to the status quo ante.

The effects of the crisis are undoubtedly still being felt in a number of areas. Companies that were bought before the outbreak of the crisis on terms that, at least in retrospect, appear to be overpriced and lacking in equity, are often still in fund managers' portfolios. They are increasingly posing problems for them as the corresponding fund structures approach the end of their originally planned lifespan. On the other side of the same equation, the capital overhang resulting from the excessive size (again, in retrospect) of many private equity funds launched shortly before the crisis is only slowly diminishing, as there are still quite few attractive investment opportunities available and fund managers have to demonstrate great creativity to obtain sufficient debt capital for classic leveraged buyout investments. Now that the last of these funds are nearing the end of their investment period, pressure is building to invest the available subscribed capital as well.

These two factors have already created an environment in recent years in which secondary transactions, in which a private equity fund sells a company from its "aging" portfolio to another private equity fund with "aging" subscribed capital, will be commonplace. The past has shown that such transactions are not necessarily to the detriment of the buyer or seller, and they can also be quite advantageous for the target company. Nevertheless, the question arises as to what this trend says in the long term about the industry's ability to successfully accompany companies through transformation processes and then transfer them back to another form of ownership.