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German private equity and venture capital on the up22/11/2006. Source: BVK (Bundesverband Deutscher Kapitalbeteiligungsgesellschaften).
 The German private equity and venture capital market saw a recovery in fund raising and an increase in investments in the third quarter of 2006, says the BVK.
The Statistics of the 3rd Quarter 2006 presented today by Bundesverband Deutscher Kapitalbeteiligungsgesellschaften – German Private Equity and Venture Capital Association e.V. (BVK) shows that from Jan to Sep 2006 1,817.7 million Euro were raised, a plus of 20 per cent compared to last year’s period (1,548.6 million Euro). Investments now total 1,449.2 million Euro (2005: 1,116.0 million Euro). The overall portfolio as per 30 Sep 2006 remained constant at 21.6 billion Euro invested into 5,918 enterprises.
Intensive raising of funds for small and medium-size buy-outs
In the 3rd quarter 2006 private equity and venture capital firms raised 1,025.4 million Euro which is considerably more than in the 1st (553.1 million Euro) and 2nd quarters (293.2 million Euro) and in the 3rd quarter 2005 (864.1 million Euro). The lion share were funds for buy-outs in classical medium-size enterprises. 600 million Euro of the 681.0 million Euro raised as independent funds were dedicated to four small and medium-size buy-out funds. "Since last year numerous funds have been founded for medium-size buy-outs while the venture capital sector lacks behind.", says Rolf Christof Dienst, member of the BVK Board and General Partner of Wellington Partners Venture Capital GmbH.
Buy-out investments are still dominant
Private equity and venture capital firms invested 509.9 million Euro into 290 companies in the 3rd quarter 2006 marking the highest value this year. Investments in 2006 total 1,449.2 million Euro, the number of financed companies increased slighty from 668 to 686. Investments in the buy-out sector make up 268.4 million Euro which are 52.6 per cent of all investments made in the 3rd quarter. Like in quarters 1 and 2, 2006, small and medium-size investments dominate the buy-out sector.
Remaining funds were invested in the venture capital sector. The invested amount of 241.4 million Euro exceeded quarters 1 and 2, but the total amount of all three quarters (605.8 million Euro) is slightly less than the amount invested into venture capital in 2005 (618.0 million Euro). "The environment for venture capital in general and in the hightech field in particular in Germany is complicated.", says Dienst. "We are in urgent need of improved environmental conditions to boost the raising of funds and invest more funds into growing companies."
Strong contradictions in venture capital sector
A look at the sectoral distribution of venture capital investments shows that seed investments increased rapidly compared to the 2nd quarter now making up 10.9 million Euro invested into 36 companies (a plus of 176 per cent with regard to the amount and 32 per cent with regard to the number of financed companies). "The reason for such a gratifying development is clearly to be seen in the activities of the Hightech Gründerfonds.", says Dienst. Nevertheless, the early stage, i.e. seed and start-up financing had to accept considerable losses now making up 58.3 million Euro (2nd quarter 71.8 million Euro).
The lion share of venture capital investments in the 3rd quarter 2006 went to the later stage: 183.1 million euro (2nd quarter 105.0 million Euro) were invested into 157 companies (2nd quarter 128 companies). "Prime importance had some bigger expansion investments into SME between 5 and 15 million Euro.", explains Dr. Holger Frommann, Managing Director of the BVK. "It clearly shows that the traditional Mittelstand profits from venture capital as young and not yet estasblished enterprises do."
Exits at highest level
Exits totalled 573.9 million Euro in the 3rd quarter and clearly exceeded the amounts of the 2nd quarter 2006 (316.5 million Euro) and the 3rd quarter 2005 (569.0 million Euro). Two sales to other private equity and venture capital firms let exits account for 65.9 per cent of the entire exit amount while 10.7 per cent were trade sales. Two private equity backed enterprises had their IPO; total losses making up 20.9 million Euro (2nd quarter 21.6 million Euro) continue to decline.
Expectations
Based on the experiences of recent years the BVK expects a considerable increase in investments for the remaining quarter. The majority of private equity firms will have closed their transactions by the end of the year but it remains to be seen if last year’s result can be achieved. The raising of funds is expected to continue to rise as many firms plan to close their funds by the end of the year. "In most cases it will be buy-out funds for the Mittelstand that will be closed by the end of the year.", explains Dienst. "But we also hope for some success stories from the venture capital sector." With regard to the raising of funds the Association hopes for some progress in the issue of the planned private equity act. "In spite of the Government’s announcement in August 2006 the planned private equity act has not taken shape yet.", says Frommann. But it is the venture capital sector that needs improved legal environmental conditions to attract foreign investors. "At present, the raising of venture capital funds depends on public and regional initiatives.", explains venture capitalist Rolf Christof Dienst. "For us it is inevitable to create internationally competitive structures for venture capital in Germany.
The Bundesverband Deutscher Kapitalbeteiligungsgesellschaften – German Private Equity and Venture Capital Association e.V. (BVK) is the organisation of German venture capital and private equity companies and representatives of foreign venture capitalists operating in Germany.
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