This session featured Dr Michael Drill (Lincoln International AG), Dr Andreas Fendel (Quadriga Capital Beteiligungsberatung), Philipp Haindl (Serafin Group), Jan Mayerhöfer (Mayerhöfer & Co Corporate Finance Beratung), Tristan Nagler (Aurelius Investments) and Steve Roberts (PwC Germany), and was moderated by Dr Nikolaus von Jacobs (McDermott).
Diving into an evaluation of the current market, the panel found that the overall mood is good despite large amounts of money continuing to chase a limited number of opportunities, leading to a very active, if not crowded, market place. More strategic players are active in the market than in recent years, including many from the United States and Asia, and China in particular. A multitude of new market players, including newly established financial sponsors, direct-investing fund-of-funds, family offices and private trusts, are increasing competition. It remains to be seen, however, whether these new players will be able to act as professionally and efficiently as established market participants.
US players continue to be interested in investment in Europe, and overall the market is driven by large transactions from entities such as Bayer/Monsanto, which in turn trigger smaller deals.
Monetary policies continue to ensure high purchase prices. Financing banks are keen to secure their piece of the pie and are therefore prepared to provide leverage loans at considerable debt multiples and at covenant-lite terms. Buyers are still cautious, however, having learned their lesson in the financial crisis. Price levels can drop quickly, making a fair return on an investment questionable, even if operationally it is a success.
Brexit is not regarded as having a significant impact on the transactional landscape.
Panellists tended to have differing views regarding the quality of assets. Whilst some found the market extremely challenging under the circumstances, others found it very promising and pointed to a series of recent successful acquisitions. Given the lack of primary targets, there is some concentration on secondary or tertiary transactions, which can be attractive because the groundwork has been done, giving new investors the freedom to concentrate on new strategies for a cleaned-up asset. Digitisation is a driver for transactions as well as a focus of operational development.
The panel also addressed the question of where investors can find the right assets to add value, given the competitive land scape. There is a sentiment that German Mittelstand is more open than private equity. The market experience might have shown owners that enterprises can have a bright future under investment by a financial sponsor. Additionally, management teams have experienced freedom to act under the ownership of a private equity fund.
The panellists observed that there is a tendency to change the structure of auction processes. Investors’ capacities are limited. Whilst in the past broad auctions took place, now an investor must be convinced to invest its capacities in the assessment of an asset, which leads to more focused processes and a considerable increase in one-to-one discussions among sellers and buyers.