Private equity panel 2017/I survey by CMS and FINANCE: Green light for a strong transaction year in 2017

Frankfurt/Main – German private equity managers expect more deals, more new investments and more recaps in the year just started. According to the surveyed private equity investors, buoyant deal activity is being driven by supportive financing conditions. That is the finding of the latest private equity panel survey, which is conducted three times a year by CMS Germany and FINANCE magazine. Some 50 private equity (PE) firms provide anonymous assessments of the market for the survey. “If you look at the market environment, which is still perceived as very positive, and take into consideration the huge cash piles that private equity firms are sitting on worldwide, we are likely to see a host of deals in 2017,” commented Dr Tobias Schneider, a partner at law firm CMS.

Fundraising and reselling to private equity investors gaining in importance

The favourable market environment is encouraging private equity managers to boost their investment activity: 53% of respondents believe they will have more time in 2017 for new investments than in the past year. German PE managers also intend to move forward with alternative methods of raising capital, with 36% of those surveyed planning to broaden their fundraising activities. Last year, the figure was 29%. “When the deal flow and market environment are right, private equity firms can really flourish. They are then motivated to raise fresh money from their investors for new deals,” said Dr Tobias Schneider. Across the market, PE managers also expect the high level of special dividends financed by loans (recaps) to remain a feature, although not in their own firms. In 2017, only 11% intend to spend more time personally on recaps than in the previous year. 47% of the PE managers polled expect to see an increase in secondary and tertiary buy-outs, i.e. the sale of a majority stake in a company to another PE investor. “The positive financing environment favours fund managers who wish to get investors’ money back at an early stage by recapitalising, without throwing away the opportunity to make further gains on a subsequent exit,” explained Dr Jacob Siebert, a partner at CMS. “The rise in secondary and tertiary buy-outs is not surprising, bearing in mind the large number of investments in previous years and the increasing maturity of the market.

Healthcare and IT companies are investment favourites

Private equity investors find target companies from the healthcare and software/IT industries the most attractive. On a scale of 1 to 10, healthcare firms have an attractiveness value of 7.81 points in the latest survey, with IT companies scoring 7.67 points. The automotive industry brings up the rear, with PE managers awarding just 3.53 points. “It's no surprise that the healthcare sector comes out top, given that it generates stable cash flow. The automotive sector is slowly adjusting to a future where electromobility will play a major role, meaning that attractive assets face the risks arising from the associated medium-term implications, especially with regard to powertrains. This mixed picture probably explains the low ranking,” said Dr Jacob Siebert.

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