Private capital activity has increased remarkably in Germany (D), Austria (A) and Switzerland (CH), collectively referred to as DACH.
In December 2022, DACH-based fund managers held a total of EUR 238 billion in assets under management (AUM), up by more than 140% since 2018, a new report by Preqin, a London-based investment data company, shows.
Within private capital, private equity (PE) activity witnessed momentum, rising from EUR 26.7 billion in 2018 to EUR 75.7 billion in 2022. The surge was driven by several billion-dollar deals, including the EUR 17.2 billion TK Elevator deal of 2020, the CHF 10.2 billion deal for Galderma, formerly Nestlé Skin Health, in 2019, and the US$5 billion deal for Veeam Software Group in 2020.
Venture capital (VC) AUM climbed from about EUR 12 billion in December 2018 to EUR 32.3 billion by the end of 2022, with notable deals including US$1 billion rounds secured by Gorillas Technologies, a German on-demand grocery delivery and dark store operator, and Celonis, a German data processing company; a US$900 million Series E raised by German digital bank N26; and a US$900 million Series C secured by German neobroker Trade Republic.
In DACH, private capital activity is increasing as more managers enter the market. Between 2018 and 2023, the number of active general partners in the region doubled, surging from 986 to 2,084, with the most dynamic manager growth happening in PE and VC. PE grew by 90% during the period, while in VC, the figure doubled.
The surge is largely due to more DACH-based investors participating in private capital, driven by private wealth. Since 2018, the number of family offices involved in private capital has increased by over 140%. This growth is primarily focused in Germany, where the number of private capital investors has risen by nearly 70% over the same period.
Despite the momentum in private capital activity, the data show that DACH still represents under 10% of the total EUR 2 trillion European private capital AUM. The region is lagging behind its two regional rivals, France and the UK, which have embraced alternative investments more actively over the last decade. In fact, private equity AUM in the UK is over six times greater than that of DACH.
Over the mid-term, Preqin expects Germany to become a popular home for PE investments, particularly in the Mittelstand market. Mittelstand are generally private, family run companies that specialize in one product or service. These companies are typically defined as mid-market organizations with up to 250 employees and annual turnovers of no more than EUR 50 million.
Private equity fund managers across Europe have sought access to Mittelstand companies, which are the economic backbone of Germany, making up over 99% of firms and accounting for 58.5% of jobs.
Deutsche Beteiligungs AG, a PE firm specializing in mid-sized companies, reported in January 2024 that the buyout market in the German Mittelstand market is growing at an average annual rate of around 7%, indicating a yearly increase in the number of businesses being sold by founders and families.
The importance of PE firms for Germany’s Mittelstand has significantly increased in recent years. Ulrike Hinrichs, executive board member of the German Equity Capital Association, told springerprofessional.de in an interview in March 2024 that this is because SMEs often need more support for growth, internationalization, and technological innovations than traditional bank financing can provide.
Munich Strategy, a consulting firm specializing in mid-sized companies, conducted an analysis of over 800 mid-sized companies, and found that companies backed by PE grow faster in sales and profits compared to owner-managed companies.
In particular, PE-backed companies recorded an average annual sales growth of 7.5% between 2018 and 2021, while owner-managed companies grew by only 2.3% during the same period. After the COVID-19 pandemic, PE-backed companies showed a particularly rapid recovery with an average sales growth of 15.6% in 2021, compared to 7.7% for owner-managed companies.
PE investments also lead to more job creation. Between 2018 and 2021, the number of employees in owner-managed companies increased by 1.3% per year. In contrast, PE-backed companies saw an 8% annual increase in employees, partly due to takeovers.
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