A total of 63 foreign investments made into Germany by buyout firms in 2014 surpassed the previous two years and is the third highest level recorded by MergerMarket.
According to experts at the German M&A and Private Equity Forum in Düsseldorf, thanks to its stability in a volatile environment and the strength of its Mittelstand, Germany will remain very attractive to private equity investors. The post-crisis high of 135 private equity buyouts last year suggests reasons to be optimistic.
“We expect the positive investing environment to continue as investors search for companies with skilled management, stable cash-flows and strong credit stories,” says Mathew Cestar, Head of Leveraged Finance in EMEA at Credit Suisse. “We expect default rates in Europe to remain low with the high yield rate seen at 0-1% and leveraged loans at 1-3% in 2015.” The Industrial and Chemical sectors are likely to receive the strongest interest from private equity, as the long-term outlook for these industries remains strong. The sector is already accounting for 87.5% of all buyouts so far this year with seven deals worth EUR 769m.
Panellists at the conference agreed that favourable financing will support private equity investors in 2015. This will make the buyout market very competitive, forcing up valuations: “There are fewer deals in the pipeline, but the investment pressure still remains,” states Georg Schneider, Partner Noerr LLP, Head of Noerr’s Private Equity & Venture Capital Group. “On the other hand, the fundraising window opened wide in 2014, thereby increasing divestments by existing private equity funds.”
As a result of the financial crisis, private equity funds have had to modify their business models and rethink their approach. Industry specialists at today’s conference describe a shift to more sustainable strategies. The trend is that private equity funds invest more time and money in the companies of their portfolios than ever before, and this is increasingly important differentiator for sellers in an auction process. ”Rather than short-term and limited investments , private equity funds are investing more in to their portfolios for convincing and sustainable equity stories to stay trustworthy and competitive,” states Johannes Koch, German Bureau Chief at Mergermarket.
