Private equity panel 2012 III survey by CMS Hasche Sigle and FINANCE: Weak economy now affecting German private equity portfolios

Frankfurt/Main – The economic slowdown has reached the German private equity market, with the business prospects of PE-financed companies now looking gloomier. That is the key finding of the latest survey of the FINANCE private equity panel polled three times a year jointly by CMS Hasche Sigle and FINANCE. The survey covers some 40 private equity firms, with partners being asked anonymously about their assessment of the market. The PE investors surveyed at the start of October are significantly less optimistic about the business outlook of their portfolio companies over the next 12 months than in the May survey.

The deteriorating visibility around corporate performance is likely to have a negative impact on traditionally important year-end activity in the German private equity market. "Although the deal flow in PE firms remains high, the quality of the assets on offer all too often leaves much to be desired. This leads to prolonged processes and in a worst-case scenario no buyer being found, despite extensive negotiations," said Dr Tobias Schneider, partner at CMS Hasche Sigle.

Despite the growing uncertainty surrounding their portfolio companies, private equity investor interest in new investments remains high. Purchase prices are regarded as being roughly as attractive as in the spring. The financing environment is also stable. Respondents assess both the availability of buy-out finance and the attractiveness of financing terms and conditions as slightly better than in May – although levels are still rather average.

When selecting target industries for new investments, PE investors are nonetheless being very much guided by the weaker situation of companies in Germany and largely ignoring major cyclical sectors as an investment target.

The attractiveness of the automotive industry has virtually collapsed over the summer, for example. The 32% drop is the highest ever recorded by the FINANCE private equity panel in one sector. Automotive suppliers are traditionally a very desirable investment target for PE investors in Germany. CMS partner Dr Joachim Dietrich commented: "PE investors certainly don't have the automotive sector in their sights at the moment. The industry is waiting to see whether the situation changes if government stimulus packages like those seen during the car crisis in 2009 materialise." Logistics, chemicals and engineering have also lost much of their appeal. On the other hand, gains have been made by sectors that are largely immune to economic cycles, such as pharmaceuticals, financial services and software/IT.

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