How can the private equity industry renew itself?
Currently, deal activity in the secondary segment in Germany is above 60%. These are transactions in which both buyers and sellers of companies come from the equity capital industry. I think this is an unhealthy development that will hurt us in the long run. Of course, one can argue that money is also made from these transactions. As long as that’s the case, proponents of this model say, that’s fine.
Unfortunately, these arguments fall short because the numbers speak a different language. Holding periods are increasing and returns are decreasing. The problem is that there are too few transactions in the market. I’ve been in business 18 years this year. From my perception, except for the distortion of the “new market” period, the market has not grown in the last 2 decades, but the number of participants, with bulging pockets, has. The industry has become highly institutionalized during this time; everything, even in the small cap sector, is almost exclusively through auctions. This is not good for us because transparency and processes squeeze returns.
So what can we do? There is no simple answer here. I believe we as an industry need to fundamentally change our business model if we want to be successful in the long term. We are already seeing this in the market. — Technology is advancing inexorably; let’s think of digitization, which is taking hold of everything from media giants to small-cap machine builders. We need to address this and not only understand key technology drivers, but also systematically implement measures to exploit the resulting opportunities in our portfolio companies. The same applies, of course, to the associated risks.
To do this, we need different personnel and different networks than the ones we have been used to. If you think in terms of opportunity, it’s never been more exciting in the last two decades. However, we must have the courage to fundamentally revise our business model. We need to be more confident and more entrepreneurial. Those who manage to do this will also be able to operate a prospering PE business and convince investors in the next 2 decades.
I want to make technology tangible. My parents were technicians, I myself studied electrical engineering and computer science and worked as a programmer and product developer in industry before my career in VC/PE. I try to teach my three children about technology so they have good career opportunities.
At Amcham, I was asked to introduce a new format because our previous events were about large companies. With the new “Hidden Champions” event series, I work with the guest of the evening spontaneously, without a script or presentation material. Audience interaction is not only desired, but a cornerstone of the concept. With our guest, we dive into the world of small, innovative small technology companies, perhaps the global players of the future that will secure our standard of living.
Another motivation for the project was a personal one. We earn very good money with German engineering and German technology. The ambivalence and, worse, technophobia, in large parts of the population hurts my soul. I traveled internationally for almost 2 decades. I know of no leading economic nation with such a pronounced lack of understanding of technology as Germany. We must explain the benefits of new technologies to the public, but not hide the negatives. If I can contribute a little bit to the understanding and acceptance of new technologies with the format, it would have been worth the effort.