Private Equity in Germany – too good to be true?

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With more than 350 fund managers and over 180 registered investors, Germany is a major player in European private equity. The market has seen solid growth throughout 2017, but high valuations and rapid growth have concerned some investors. How sustainable is the German private equity market?


Germany has long been an attractive choice for investors and fund managers. Data from Preqin shows private equity-backed buyout deals in Germany in H1 2016 reached an aggregate value of €50 billion, the second largest amount of any European country. This is largely as a result of international interest in German companies, particularly in the industrial and information technology sectors.

Deal value in the DACH (Germany, Austria, Switzerland) rose by a staggering 83% in 2016, reaching €25 billion – prompting PwC to declare Germany as “the new core market for private equity in Europe.”

Germany’s stable economy and long-term economic growth is no doubt one reason for the region’s attractiveness to investors – the country is currently experiencing one of the longest upswings since the 1950’s.

International interest in Germany is so far continuing into 2018. Just last week, leading global investment firm KKR announced that it was opening a new office in Frankfurt – further strengthening Germany’s reputation as a key player on the international stage.

It is perhaps not surprising then that a mood of optimism exists amongst German investors – KWF reported that in the last quarter of 2017, investor sentiment reached an all-time high.

Too good to be true?

However, not everyone is so cheerful. Sustained interest in German Private Equity has resulted in valuations reaching historically high levels – with buyers paying 12 or even 13 times EBIDTA for a company on the market. The sustained economic upswing has prompted Marcus Brennecke, Munich-based partner of private equity group EQT to predict an inevitable downturn “in the not too distant future.”

German Private Equity investors are also experiencing increased competition from businesses outside the sector, such as pension funds and insurance companies, which is further pushing up prices. KWF research found that despite their overall optimism, investors’ dissatisfaction with high prices rose for the 6th consecutive quarter in 2017.

Unlocking value

So, should we worry about an impending crash in the German market? And how is best to ensure value from German assets?

Despite some concerns, the German private equity market looks sustainable and set to remain strong in 2018. PwC figures reveal that the German private equity market has unusually low levels of debt; in 2016 8% of investors financed deals with debt, compared with 22% internationally. This should go some way towards reassuring investors wary of a bubble.

Investor interest is focused on German technology and industrial assets – both of which are sustainable sectors likely to see long-term growth. As digitising assets is currently the most popular method used by investors to ensure value creation in today’s environment of high valuations, German technology assets are likely to provide healthy returns.

As with any high priced environment, we recommend using data and insights to interrogate growth strategies and ensure an asset is worth its valuation. However, the continued strength of the German economy, low levels of debt in the market, and high levels of investment into lower risk sectors means Germany will continue to provide solid opportunities for investors in 2018.

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