Private Equity Trends 2020: Germany is high on the agenda
The European private equity (PE) market remained at a very high level in 2019:
Last year, a total of 2,515 transactions with PE participation took place in Europe — 16 percent more than in 2018. Financial investors participated in the purchase and sale of companies with a total of 260 billion euros. The deal volume was thus only slightly lower than in the record year 2018; at that time it was 262.1 billion euros. These are some of the key findings of our “Private Equity Trend Report 2020”. For the study, PwC surveyed 250 European PE investors on key industry trends.
Summary: Buyouts increased in volume and number, exits remain at a weak level.
In particular, the number of corporate acquisitions (“buyouts”) increased in 2019. The transaction volume grew by 26 percent to a total of 1,973 deals, while the value increased by 15 percent to a total of 200.7 billion euros. This is mainly due to the high level of mega deals worth more than EUR 1 billion and the increasing number of deals with a transaction value between EUR 500 million and EUR 1 billion. A total of 81 such transactions took place in 2019.
The financial investors surveyed see one of the biggest challenges in the increasing competition for suitable investment targets. Two-thirds (66 percent) said competition among European PE houses increased in 2019. Estimates amount to 2.3 trillion euros of currently uninvested capital. Ever-increasing competition and the accompanying valuations should normally lead to lower returns. At the same time, however, the number of investment targets has not increased. — Therefore, PE houses need to increasingly roll up their sleeves operationally and increase their companies’ value generation over the holding period with the help of operational improvements, but also with the use of digitalization tools for innovative sales channels and business units. This means active management of their portfolio companies. This is the only way to maintain the excellent returns that GPs pass on to their LPs.
Measured in terms of gross domestic product, the German PE market is significantly larger than the UK and France, for example. Nonetheless, the German market is smaller in terms of the number of PE deals.
80 percent of the European financial investors surveyed rated Germany as “good” with regard to PE investments, 38 percent of them even as “very good”. More than half (52 percent) of them have already invested in German companies in the past, and almost all respondents (99 percent) plan to do so in the next five years. Germany is currently very popular with PE investors! German SMEs in particular have been rather hesitant about private equity in the past.
This attitude is gradually changing, so that many investors see good opportunities for long-term investments in companies with very high industry expertise. The potential of the German market is enormous and has hardly been tapped yet.