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.

Subscribe newsletter

Here you can read about the latest transactions, IPOs, private equity deals and venture capital investments, who has raised a new fund, how Buy & Build activities are going.

Get in touch

Contact us!
fyb [at]