10 Jahre deutsche Buyouts

Private equity has seen an impressive activity surge in Germany over the last ten years. This working paper meets the increasing thirst for information on the German buyout market with an overview of its historic development, a quantitative analysis of its performance and a future outlook. While the authors' findings show an outperformance of buyout-financed businesses with regard to sales growth on CAGR basis, profitability growth and capex expansion, significant underperformance in terms of interest coverage levels and equity funding becomes apparent. This is in contrast to studies conducted by private equity associations and consultancies, and gives some validity to the growing fear of target company collapses as a result of riskier financing at the next economic downturn. As far as activity is concerned, the authors project only a short time-out for private equity in the wake of the ongoing credit crisis. The majority of German buyouts are middle market transactions which are fairly unaffected by the crisis and continue to offer great hidden potential. Investor returns are likely to fall in the short and midterm due to higher interest rates and risk premiums but more restrictive financing, in turn, will also lower entry prices. If private equity groups can outbid strategic players at moderate levels going forward, returns should continue to be attractive.