Private equity panel 2013 III survey by CMS Hasche Sigle and FINANCE: Banks welcome private equity investors

Frankfurt/Main – The lights are on green for private equity investors in the German SME sector. The banks seem to be courting them almost as enthusiastically as in the run-up to record year 2007. After having first raised maximum borrowing limits quite substantially, the banks are now also making concessions to PE investors with regard to the financing terms. The latest autumn survey of the private equity panel polled three times a year by CMS Hasche Sigle and FINANCE magazine also revealed that many potential corporate takeover candidates are still regarded as too expensive and not exciting enough. Meanwhile, more and more investors can envisage investing in distressed firms. Some 40 private equity (PE) firms provide anonymous assessments of the market for the survey.

Easier finance, slowdown in acquisitions and greater acceptance of investment risks

Overall, respondents assess financing terms as 14% better than in the summer – marking the highest point since the first panel survey in 2010. The availability of buy-out loans received the second-highest rating ever, climbing by 9%. "The new, more receptive mood among banks won’t necessarily result in an appreciable rise in the number of deals, since not all investment targets meet the required quality standard," points out CMS Hasche Sigle partner Dr Tobias Schneider. In fact the flourishing finance market is currently having hardly any impact on acquisitions: "The panellists still regard purchase prices as too high," says Dr Joachim Dietrich, partner at CMS Hasche Sigle. "Private equity investors face stiff competition from other potential buyers." Respondents also believe that the business prospects of target companies are unchanged compared to 12 months ago; only a few think that the market environment will change soon. Accordingly, most PE firms are playing a waiting game and are not rushing to join the sellers either. Going forward, two thirds of respondents nonetheless intend to take a closer look at companies that have outstanding financial, legal or structural issues when considering investments. The main reasons given were latent potential and perceived undervaluation. "Tough competition for good target companies, combined with high prices, will probably boost this trend – especially since large-scale bidding processes can be avoided and attractive terms act as an incentive," said Dr Joachim Dietrich.

Cleantech investments being hit by EEG debate

When respondents were asked about the attractiveness of target companies, the services, food, and pharmaceuticals sectors were rated highest, as in the previous survey. Sentiment towards the cyclical automotive industry seems to be turning: it posted the strongest rise, gaining 28%. The losers again include renewable energy companies, which are down 9%. This is attributable to the ongoing debate about reform of the Renewable Energy Act (Erneuerbare Energien-Gesetz – EEG). Only the construction sector fared worse. This is no surprise to Dr Tobias Schneider: "We are seeing a reflection of key megatrends that also drive private equity investors."

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