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Private equity panel 2019/I survey by CMS and FINANCE: Investors eager to buy despite economic downturn

03/04/2019

Frankfurt/Main – Despite a gloomy economic outlook and downturn in growth, private equity investors in the German market are continuing to pursue acquisitions. While the weakening economy is also dampening purchase price growth, this is not hurting the general performance of private equity-financed companies. That is the key finding of this year’s first private equity panel survey, which is conducted by CMS Germany and FINANCE magazine. More than 50 different private equity (PE) firms in the German SME sector provide assessments of the market for the survey.

According to the panel, private equity managers believe that purchase prices for new investments have become somewhat more attractive than last year. On a scale from 1 (very expensive) to 10 (very cheap), the survey result climbed from 2.70 to 3.39 points. The shift towards the buyer side becomes even clearer when looking at the tactical positioning of the PE managers surveyed. Only 39% of them see themselves as more of a seller at present, a decline of 19 percentage points compared to the last survey. Dr Tobias Schneider, Private Equity partner at CMS in Germany, commented: “If the economic prospects deteriorate, purchase prices will also fall in many sectors, although not all. In the end this will do the market good overall, following the absolute high prices of recent years.”

The panel’s responses suggest that PE investors are aware of an increasingly challenging environment. Accordingly, they rate their business prospects at 6.48, significantly down on the 7.76 points recorded in spring 2018. 

More challenging environment forces private equity managers to make adjustments

65% of the private equity professionals surveyed plan to place even greater emphasis on add-on acquisitions this year, representing a shift in the focus of their work. As recently as the start of last year, the figure was 59%. A total of 35% of those surveyed believe they will be devoting a significant amount of time to considering acquisitions of listed companies. Both in 2017 and in 2018, just 11% gave an affirmative response to this question.

Only 35% of panellists are still focusing on conventional new investments. Last year, the figure stood at 65%. The investment focus thus appears to be on strengthening platform companies previously acquired. Dr Jacob Siebert, Private Equity partner at CMS in Germany, said: “Here again, the glut of cash is driving investor behaviour. It allows them to boost existing investments while at the same time reducing the pressure to invest.”

Fundraising is also more of a priority than in the past. Over half of the respondents are looking to raise capital and nurture investor relations. “Anyone attracting investment into a new fund feels positive about the future. We will be seeing more fund closings in the next few months than of late. At all events, investors are still swimming in cash that urgently needs to be invested,” said CMS partner Dr Tobias Schneider.

Automotive industry becoming ever less attractive to private equity investors

The economic slowdown is particularly noticeable when looking at acquisition targets, with industries perceived as robust gaining more and more support. The panel found that the stable service sector, with a score of 7.22 points, overtook the electronics industry, which is more sensitive to cyclical fluctuations (6.78 points). Alongside the software/IT sector (8.35 points), healthcare is also very popular (7.82 points).

In contrast, the automotive industry is experiencing a veritable collapse. With a score of 2.65 points compared to 3.64 points in the autumn of 2018, i.e. a slump of more than 25%, the industry is rated by respondents as being by far the least attractive investment target. Compared to the previous year’s score of 4.27 points, the decline is even more marked, at almost 40%. CMS partner Dr Jacob Siebert: “Given the upheaval in the industry and the associated uncertainty around the business model, this shouldn’t really come as a surprise.”

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FINANCE Private Equity Panel Frühjahr 2019 Ergebnisse
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Tobias Schneider
Dr. Tobias Schneider
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Jacob Siebert
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