The return of strategic investors

2008

Speech given by Dr. Gerd Sievers at the 9th Munich Private Equity Training (MUPET)

The volume of transactions in Europe has grown by approx. 25% annually from 2002 to 2007. In the same period, leverage ratios have increased by 47% from 4.16 to 6.12. During that time, financial investors were able to pay higher premiums than strategic investors. In 2007, the total volume of transactions in Europe hit a record high of EUR 1,012 billion. However, the subprime crisis has made it more difficult for PE investors to raise capital. Since the start of the subprime crisis, the volume of the top 10 deals by PE investors is down by EUR 63 billion. Furthermore, the share of deals by PE investors has been declining since 2007.

There is strong evidence that strategic investors are making a comeback. They are in less direct bidding competition with financial investors due to difficulties in financing debt, and PE investors are focusing increasingly on mid-cap deals due to lower refinancing volumes. Strong economic development is currently forecast for the euro area, which will allow strategic investors to exploit transaction synergies. Strategic investors have large cash stocks available for transactions, and the intact corporate bond market supports financing for deals.

PE investors, who still have a high level of unused fund capital, have somewhat of a dilemma; however, they have several options:

• They can streamline the portfolio with the focus on value levers through controlling bodies (such as management committees), combined with pre-defined reporting processes
• The pickapack approach focuses on new investments in collaboration with strategic investors
• Splitting up the acquired target among the investors involved creates a win-win situation

MUPET (= Munich Private Equity Training) started as a P+P (Pöllath + Partners ) client workshop in 1999 with about 20 participants. By 2008 the number of participants had grown to over 250 persons.

The combination of talks on recent developments and networking with private equity professionals attracted more and more visitors every year. Today, the annual MUPET is well-known and almost a "must" in the private equity sector.