Germany is increasingly seen as Europe’s most promising private equity market, with a growing number of PE firms investing in German companies.
Private equity deals in Germany are not as big or numerous as those in Britain or America, but they are catching up. Of all deals in Europe last year, 19% involved assets in the GSA region, based on data from PwC’s 2019 Private Equity Trend Report. In its survey of PE fund managers, Germany was singled out, with 90% of respondents saying they believe the country will become more attractive for PE investing in the next five years. All of those with existing investments in Germany said they plan to continue making deals there, and over 80% said they will increase their German holdings.
Several characteristics make Germany a good bet for PE investing. It is the EU’s biggest economy, and the world’s fourth-largest. It boasts stable politics, a skilled workforce and steady economic growth. Further, its manufacturing is renowned – and survey respondents ranked industrial manufacturing as the top sector for PE investment. As the report notes, “Germany is home to some of the most sophisticated manufacturers in the world and represents significant potential.”
The private equity trend favouring Germany is exemplified by American PE firm KKR, which has been on a buying spree there. In August it announced a takeover of a majority stake in payment-processing firm heidelpay, as well as a buyout of German publisher Axel Springer. German-born Johannes Huth is KKR’s Head of EMEA, and has been with the firm for 20 years. Since entering the country in 1999, KKR has spent $5 billion buying more than 20 German companies.
A notable feature of KKR and other firms active in Germany’s private equity market is that far from being the “swarms of locusts” described by former Social Democratic Party Chairman Franz Müntefering, they are seen as a force for good, helping companies improve performance and creating jobs.
Private equity firms’ enthusiasm for investing in German companies is being reciprocated. Mathias Döpfner, Axel Springer’s Chief Executive, was the one to approach KKR about becoming an investor. Similarly, lighting manufacturer Osram Licht expressed full support of a €3.4 billion takeover bid from U.S. private equity giants Bain Capital and Carlyle, announced in July.
“German conglomerates have long been happy to offload unwanted parts to private-equity companies,” The Economist points out. For example KKR added Hensoldt, the defence electronics business of Airbus, to its portfolio in 2017. Germany and France are the European multinational’s two largest stakeholders. PE firms also invest in thousands of the SMEs and family-owned businesses comprising the Mittelstand, a vital slice of the German economy.