Private Equity strengthens growth in the German mid-market Study: Management teams speak out about working together with financial investors

Private-Equity investors are focusing on growth and encouraging their management teams to look to business acquisitions. They are optimizing organization and processes in order to establish the necessary basis for the strategic further development of portfolio companies. Furthermore, they are implementing individual profit responsibility at all levels of management and hereby establishing maximum transparency. Financial investors view themselves as partners of portfolio companies and therefore largely allow their management plenty of rope. These are the basic results of the study published today, Private Equity in the Mid-Market: How are financial investors changing German businesses, which FINANCE compiled on behalf of Deutsche Beteiligungs AG and Lincoln International.

Management teams within the German mid-market were asked about their cooperation with their financial investors in detailed interviews. Of the businesses examined, a total of 16 are actively invested in holding companies within the German mid-market, among these are 3i, Allianz Capital Partners, Doughty Hanson, KKR as well as Odewald & Compagnie. These companies differentiate themselves considerably from each other in their approach: whilst some focus almost exclusively on M&A (Buy-and-Build-Strategies), others push for operational improvements in the businesses, in which they provide the management teams with industry experienced advisors and ensure the transfer of practices between their individual portfolio companies. Some of those surveyed listed the considerably high reporting demands and high pressure as critical. The greatest value adding lever in this point all agree is the strategic further development and consequently the consistent qualitative growth of the portfolio company, and not so much optimisation of costs and personnel.

Over the last 20 years, Private Equity companies in Germany have invested around 32 billion Euro in more than 15,000 mostly small and medium sized businesses and with success: The revenues of those companies in to which they invested, have increased four times as fast as the industry average. These businesses increased their number of employees from 5 to 15 percent annually. German politics should now take an interest in the competitive capabilities of the German investment industry and establish stable conditions for Private Equity, claimed Wilken von Hodenberg, spokesman for the board of managers at Deutsche Beteiligungs AG, at the introduction to the study. Germany needs conditions for financial investors, which they can use to measure against the other EU countries. This effects the taxation on revenues accrued by investors and the shares and pension funds and current foreign VAT exemption of management remuneration. In order to sustain positive activity for the mid-market businesses in Germany, the taxation equalisation of Private Equity funds with investment funds is highly necessary, in other words, taxation transparency and exemption, states von Hodenberg.

With company disposals, Private Equity is in many cases advancing as the preferred buyer group: In contrast to strategic buyers foreign competitors in particular financial investors offer, as a rule, greater process speed and transaction security. Due to their enormous share pressure and support by the once again blossoming credit interest of acquisition financing banks, financial investors are increasingly in a position to pay the same or even higher prices than strategic investors. Finally, Private Equity offers the management teams concerned attractive growth prospects and entrepreneurial structures. Accordingly, we expect that over the next three years, around one third of all sales processes of German mid-market companies will receive the bonus of Private Equity funds, claims Dr. Michael Drill, CEO of Lincoln International.

About Deutsche Beteiligungs AG

Publicly listed Deutsche Beteiligungs AG (www.deutsche-beteiligung.de) belongs to the leading Private Equity companies and with more than 40 years of experience, is the oldest such company in the industry in Germany. Deutsche Beteiligungs AG concentrates on market leading medium sized businesses in Germany. It invests using its own capital and from parallel funds. In total, it has around one billion Euro under management.

About Lincoln International

As a globally positioned, integrated M&A-advisory house for medium sized transactions, Lincoln International (www.lincolninternational.com) with its highly educated and experienced experts, offers corporate finance advisory services at the highest quality level. In the offices of Chicago, Frankfurt, Los Angeles, New York, Paris and Vienna, there are around 100 M&A experts altogether. In 2006, Lincoln International in Germany successfully completed 23 company disposals.

About FINANCE-Research

FINANCE-Research compiles studies and annuals in the field of corporate financing and M&A. Until now, studies such as Asset Stripping of Germany Ltd., Obsolescent Model House Bank and Economic Impact of Private Equity. Furthermore, FINANCE-Research has a considerable database listing all business transactions since the year 2000 (DealBank) and regularly organises industry events in the field of Corporate Finance. FINANCE-Research is a part of the Financial Gates GmbH, a subsidiary of the F.A.Z.-Instituts. The main product of Financial Gates is the monthly produced trade publication FINANCE.

Contact persons for further enquiries:

Deutsche Beteiligungs AG
Thomas Franke, Head of Public and Investor Relations
Kleine Wiesenau 1, 60323 Frankfurt am Main
Tel. +49 69 – 9 57 87-3 07 oder mobil +49 – 1 72 – 611 54 83
E-Mail thomas.franke@deutsche-beteiligung.de

Lincoln International
Ute Raab, Director Marketing & Public Relations
Ulmenstrasse 37 – 39, 60325 Frankfurt am Main
Tel. +49 – 69 – 97 10 54 40 oder mobil +49 171 707 95 70
E-Mail u.raab@lincolninternational.de

Editorial department of FINANCE
Michael Hedtst├╝ck
Tel.+49 69 – 75 91-2583
E-Mail: michael.hedtstueck@finance-magazin.de