Private equity deal pipeline getting busier
Financial investors are currently finding it difficult to exit their investments in companies at the prices they want. According to Pitchbook, the PE exits shrank to their lowest level in ten years in 2023, with a volume of 345 billion dollars. However the volume of new investments is now on the increase. „Private equity activity is picking up again,’ says Christian Kames, Co-Head of Investment Banking for the DACH Region at Lazard. ‘Two of the largest M&A deals in Germany this year were attributable to private equity.“
First, KKR acquired a stake in wind and solar farm developer Encavis, valuing the firm at 2.7 billion euros. KKR invested alongside family owned company Vießmann. Secondly, the US private equity firm KPS Capital, which specialises in industrial holdings, acquired the Siemens electric motor division Innomotics for 3.5 billion euros.
„Sales of companies from one financial investor to another were less frequent,“ says investment banker Kames. There was one major exception. Carlyle sold Bonn-based enterprise content management software company SER Group to the Boston-based private equity firm TA Associates for around 800 million euros.
Core shareholders as allies
In addition to carve-outs of divisions of large corporations, that offer transaction security, Kames expects more public-to-private deals in the future, in which a financial investor buys a listed company and takes it off the stock exchange. „We expect five to ten such transactions in Germany by the end of 2025," he says. "Private equity likes to do take-privates when there is one or more core shareholders who support and facilitate the deal,“ says Kames. In the case of Encavis, for example, it was the Hamburg billionaire Albert Büll who came to an agreement with KKR and the Vießmanns to tender his shares.
Marcus Schenck, Kames' colleague and second Co-Head of Investment Banking in the German-speaking DACH region, points to two further drivers for take-privates. „A company like Encavis always needs fresh capital, and this is easier to achieve away from the stock exchange," he says. "In addition, changes to the company are easier off the stock exchange because there is less publicity.“
Larger deals more successful on average
Rick van Aerssen, Managing Partner at law firm Freshfields, also expects private equity to continue focussing on take-private deals. „The transactions are usually larger – and financial investors like that because the large deals are more successful on average," he says. In addition, the relevance of debt capital is lower in „P to P“ deals because more equity is used. Freshfields partner Christoph Seibt also points out that the deals often go through easily because "the premiums paid on the share price have now become much higher - at 35 to 40%“.
The upswing in private equity deals has come at the right time. On 4 June industry conference SuperReturn began in Berlin, where more than 5,000 people from the industry regularly gather at the Interconti Hotel. The celebrities included David Rubenstein, co-founder of Carlyle with 400 billion dollars in assets under management, who, as a veteran of the industry, is known for having donated a large part of his billion-dollar fortune to charity. And among the speakers were executives from KKR, EQT, Thoma Bravo, Carlyle, General Atlantic, Silver Lake, Goldman Sachs, Bain Capital, Vista, Brookfield and many other private equity firms.
Bridget Walsh, EY Global Head of Private Equity, was one of the more prominent female participants at the male-dominated industry gathering. She gave the Chair's welcoming address on the first main conference day, 5 June. Tanuja Randery then gave the first presentation. She is Managing Director of Amazon Web Services, and spoke about „Generative Artificial Intelligence as a Growth Driver’. Centerbridge co-founder Jeff Aronson gave a talk about private credit. Next up was David Rubenstein, Co-Chairman of Carlyle, giving an ‘Update on the global investment landscape for 2024 and beyond“.
