Private equity panel 2021/II survey by CMS and Finance: Private equity investors wary of SPACs

Frankfurt/Main – Private equity firms would seem to be predestined to invest in SPACs, but PE investors lack belief. Indeed, they would be the ones to suffer if a booming SPAC market reduced their deal flow. The vast majority of the PE investors in the German SME sector surveyed for the panel believe that the global SPAC boom will not affect the German M&A and private equity market. That is one of the findings of this year’s second private equity panel survey, which is conducted by commercial law firm CMS Germany and Finance magazine. More than 50 different private equity firms in the German SME sector provide assessments of the market twice a year for the survey. The results of the latest private equity panel survey also show that around 84% of the respondents do not regard SPACs as competitors for M&A targets.

Those polled are reluctant to get into the SPAC business themselves, either as an investor or an advisor. Some three quarters (72%) reject the idea of becoming an investor or advisor in the SPACs space. Only 16% can see themselves becoming a SPAC advisor or investor, while just 12% can envisage taking on both functions. “Although SPACs are set to continue playing a significant role globally over the coming years, scepticism in Germany remains high. Implementing a real exit via a SPAC is also quite a challenge in the current situation,” commented Dr Jacob Siebert, a partner at law firm CMS. 

High purchase prices combined with an oversupply of finance

Asked about the attractiveness of purchase prices, the respondents gave a rating of just 3.8 points on a scale from 1 to 10, suggesting that purchase prices are very high. Even shortly before Covid-19 struck, the figure was a slightly less stretched 4.0 points. “Valuations have been very challenging for some time now, but increasingly an investor ups the price substantially just before the end of an auction and blows the other bidders away. Compared to the amount of capital that needs to be invested, there simply aren’t enough suitable targets,” said Dr Tobias Schneider, a partner at law firm CMS.

When it comes to the availability of deal financing, meanwhile, the verdict of the PE managers surveyed is very favourable. Debt availability is currently rated at 8.48 points, the third-highest score since inception of the panel in 2010. The figure is also higher than before the crisis in autumn 2019, when it stood at 7.96 points. Similarly, financing terms are assessed more favourably than prior to the crisis, coming in at 7.32 points as compared to 6.96. “There’s been a significant oversupply of finance for a while now, as reported here on various occasions, and it doesn’t look as if that will change any time soon. As such, there’s still a favourable backdrop for transactions,” commented Dr Jacob Siebert, a partner at law firm CMS.

Boom sectors down slightly

Up to now, almost all investors have been seeking out asset-light companies in less cyclically sensitive sectors, with healthcare, software/IT and services being particularly popular. That trend now seems to be weakening. While software/IT and healthcare are still the front runners, the software sector has fallen slightly from 8.94 (spring 2021) to 8.8. Healthcare has also lost ground compared to the spring (8.62), scoring 8.36 in autumn 2021. A score of 10 represents a very attractive investment target. 

By contrast, relatively unattractive sectors recorded significant gains. The automotive industry made progress compared to spring 2021, rising from 2.56 to 2.96 points. Construction saw its rating go from 4.41 to 5.24, while engineering moved up from 5.03 to 5.36. “The boom industries are positively besieged and some PE investors are now beginning to turn their attention to other mainstream sectors. We don’t see a trend reversal as yet, though,” said CMS partner Schneider.

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