Frankfurt/Main – The German market for SME private equity remains in a very robust state at the start of the year. The portfolio companies held by German private equity investors continue to defy the many trouble spots that surround them. The latest survey of the private equity panel polled three times a year by CMS Germany and FINANCE magazine revealed that private equity managers believe that the business prospects of their portfolio companies actually improved further at the start of the new year. Some 40 private equity (PE) firms provide anonymous assessments of the market for the survey.
Earlier exits and favourable financing terms
"The current strong business outlook for portfolio companies, combined with the question of whether prospects will remain positive going forward, is likely to cause some investors to consider an exit earlier than originally planned," emphasises Dr Joachim Dietrich, partner at CMS in Germany. The financing environment was also again rated as highly as the outstanding level reached in 2014. The PE investors surveyed assessed the availability of buy-out finance as almost as good as last autumn, while financing terms have seen a further slight improvement. Banks now frequently seem to be more willing to soften the terms and conditions of their funding packages. Assessments of the availability of finance and of the terms and conditions of financing packages are currently closer than they have been for a long time. "The exceptional financing environment has, of course, also resulted in purchase prices being pushed to quite a high level," explains Dr Tobias Schneider, partner at CMS Germany. Healthcare, services and food remain the most attractive target sectors, according to respondents. The automotive sector gained most in favour compared to the previous survey, with private equity managers currently finding it on average 35% more attractive than in autumn 2014. Having said that, it is still below mid-place in the ranking.
Deal pipeline being filled by PE investors
The supply of new transactions again seems to be coming mainly from the private equity camp itself in 2015. When asked about the expected activity of each vendor group, the surveyed panellists rated PE investors significantly higher than industrial groups and family businesses. PE investors are evidently also not inclined to place much reliance on companies as buyers in 2015. Only 24% believe that the number of sales by PE firms to strategic buyers (trade sales) will increase in 2015. In contrast, 48% believe there will be an increase in secondary and tertiary buy-outs, where other PE investors acquire the asset. Expectations are especially high this year for recaps (special distributions from companies to their private equity owners, financed via loans). 66% expect that 2015 will see an increase in recaps. This is an indication that private equity investors regard the attractive financing environment as stable, since recaps can only be financed if this is the case.