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3 questions to smart minds

How can the private equity industry renew itself?

For this 3 questions to Marko Maschek

PINOVA Capi­tal
Photo: M. Maschek Pinova Capital
3. June 2015

The private equity indus­try seems to be trea­ding water, with more secon­dary deals than exits to stra­te­gists at the moment. Incre­a­singly pres­sing for the indus­try is the need to renew the private equity busi­ness model in its current form. For example, three quar­ters of Euro­pean survey parti­ci­pants in a Roland Berger study (Euro­pean Private Equity Outlook 2015) believe for the first time that their busi­ness model is no longer up to date. The concept of purely finan­cial invest­ments no longer works today. To be success­ful, inves­tors would have to actively manage their port­fo­lio companies.


For this 3 ques­ti­ons to Part­ner at PINOVA Capi­tal in Munich

1. The private equity indus­try seems to be trea­ding water, with more secon­dary deals than exits to stra­te­gists at the moment. What do you think it will take for the sector to inno­vate and transform?

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.

2. PINOVA Capi­tal offers various equity solu­ti­ons for small caps. Indus­try sectors are in focus at PINOVA? What are PINOVA’s unique selling points?
PINOVA offers flexi­ble equity solu­ti­ons for highly inno­va­tive small caps, where we can deploy up to 15 million of equity. Larger tran­sac­tions complete our inves­tors. We focus on indus­trial segments in which the German economy is a global leader: medi­cal tech­no­logy, envi­ron­men­tal tech­no­lo­gies, new mate­ri­als, chemi­cals and auto­mo­tive. We also have invest­ments in soft­ware and e‑commerce compa­nies. There are niches here where German compa­nies are TOP, even if the Inter­net and soft­ware are domi­na­ted by the Ameri­cans. We see our tech­no­logy focus as a unique selling point of PINOVA. In addi­tion to seaso­ned busi­ness people, we employ tech­no­lo­gists, electri­cal engi­neers, mecha­ni­cal engi­neers and compu­ter scien­tists, which is rather unusual in our segment. Our young people often come with two majors, one of which is a tech­ni­cal disci­pline. This helps us to become experts oursel­ves in order to gain the necessary accep­t­ance from the manage­ment of our port­fo­lio compa­nies. This approach should also bear fruit at the exit. Often, in the course of our port­fo­lio manage­ment approach, we get to know stra­te­gic buyers and can initiate a dialo­gue. We hope to be able to gene­rate better returns as a result. Howe­ver, we already have the first indications.
3. They want to pave the way for rese­arch and its results into the economy. To this end, you have laun­ched a new format at the Ameri­can Cham­ber of Commerce (Munich), among others: at so-called ‘fire­side evenings’, you present the following topics in an inter­view in front of an audience.

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.

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