3 questions to smart minds
Photo: R. Burton | PWC

Debt crisis weighs on the private equity industry

For this 3 questions to R. Burton

Photo: R. Burton | PWC
7. March 2012

More than half of finan­cial inves­tors expect access to credit to be more diffi­cult in 2012, with only six percent expec­ting an impro­ve­ment. The view of the gene­ral econo­mic situa­tion is also rather skep­ti­cal: 47 percent of the entre­pre­neurs expect a down­turn in the coming months, only 22 percent believe in a reco­very of the market. The biggest hurdle for fund mana­gers: too little outside capi­tal. As a result of the debt crisis in Europe, banks are no longer prepared to provide high levels of debt financing.
These are the key findings of the PWC study “Private Equity Trend Report 2012”. PWC surveyed 170 fund mana­gers world­wide, inclu­ding 29 from Germany, for its annual analysis.
Study PWC ( order free of charge )

For this 3 ques­ti­ons to Editor of the Private Equity Trend Report 2012 Part­ner and Head of Private Equity at PWC in Frank­furt a. M.

1. Do private equity compa­nies expect to be able to increase the number of their invest­ments in 2012?

Since the begin­ning of the credit crunch in 2007, the private equity indus­try has faced much shorter econo­mic and finan­cing cycles. This vola­ti­lity makes it diffi­cult to evaluate and finance new expo­sures and to plan the opti­mal exit timing of some invest­ments. The finan­cing condi­ti­ons in parti­cu­lar are caus­ing problems for finan­cial inves­tors. For many, they were much more diffi­cult than expec­ted in 2011.

Nevert­hel­ess, around 46 percent of private equity compa­nies expect to be able to increase the number of their invest­ments in 2012. The expec­ted increase in new commit­ments is explai­ned by the fact that quite a few funds want to invest the money raised before the permit­ted invest­ment period expi­res. They also try to demons­trate the best possi­ble track record through their sales for the next fundraising.

2. Is Germany an attrac­tive destination?

The report paints a posi­tive picture for Germany: 58 percent of the compa­nies see Germany as an attrac­tive target for invest­ments in the next five years. By compa­ri­son, this figure was 52 percent in 2011 and only 22 percent in 2007. This has made the loca­tion much more attrac­tive. Only 10 percent of the study parti­ci­pants have a nega­tive impres­sion of Germany — five years earlier, that figure was 36 percent. Accor­din­gly, 80 of the 142 inter­na­tio­nal private equity compa­nies surveyed are alre­ady inves­t­ing in Germany, and a further 23 are plan­ning to do so in the next three to five years.

At the same time, compa­nies are on the lookout for new growth markets. The inter­na­tio­nal compa­nies consider Asia an attrac­tive desti­na­tion (39 percent), follo­wed by Latin America and Central and Western Europe (25 percent each). At 55 percent, German inves­tors are even more attrac­ted to Asia.

3. Are there areas with parti­cu­lar growth opportunities?

Inter­na­tio­nal invest­ment compa­nies see parti­cu­lar growth oppor­tu­ni­ties in the health­care sector: 38 percent of respond­ents confirmed this. Tech­no­logy and indus­trial produc­tion came in second, each with 27 percent. The picture is some­what diffe­rent for the German private equity indus­try: 66 percent are looking at targets in indus­trial produc­tion, 48 percent in consu­mer goods and 41 percent in the auto­mo­tive indus­try. This is typi­cal of German finan­cial inves­tors, who tradi­tio­nally see great poten­tial in SMEs.

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