The private equity industry has got its eye on Germany. Deutsche Telekom AG is selling a 30% stake in Scout24. Why does that matter? It might turn out to be the biggest transaction that European private equity has seen for a while, with an expected 1.5 to 2 bn euro transaction value. Some see this as a turning point.
The crisis is over, large deals are possible again. Really? Let’s have a look at the facts: in 2007 there were 49 private equity transactions in Europe above the 1 bn euro threshold, nine of them in Germany. Then the crisis hit and brought investment to a halt.
In 2009 a mere three buy-outs above 1 bn euro were recorded for Europe and none for Germany. In subsequent years, activity remained pretty stable with 11 to 14 transactions in Europe and one or two in Germany. In the first half of 2013 we saw five transactions in Europe, one of them being the takeover of Aibel by the Swedish firm Ratos, and one in Germany namely the acquisition of energy-metering firm Ista by CVC. These numbers do not tell us that “mega deals” are back in Europe. Rather, they confirm something else: Europe is not the continent of large investments. Those will always be more of an exception.
In fact, private equity in Europe reflects the structure of our economy. Europe is fundamentally a mid-market economy with a strong “Mittelstand” and thousands of highly productive SMEs. This is where more than 80% of private equity investments are made.
The Scout24 auction tells another story. It shows that investors from across the world are very keen to invest in Europe. There are not many auctions for companies of that size at the moment. But when there are, interest is high.
Germany is a challenging territory for private equity, always has been. Many firms would like to get a foot on the ground but German sellers are shy when it comes to investors. Some of our German mid-market members told me last week in Frankfurt, that more and more family offices are investing direct into the Mittelstand. So tough competition in what is a very attractive market. That, of course, drives high valuations. And explains the huge interest in Scout24.
With valuations on the up in northern Europe, the industry is taking a closer look at other regions. As we see the first green shoots of recovery, private equity is showing an interest in Southern Europe where valuations are low. Sorry, no numbers on that yet. But this is what I am hearing: Italy and especially Spain are two countries being explored by the adventurous. It’s great news for the European economy that is finally able to demonstrate its real strength, the immense diversity of its mid-market opportunities.