German Private Equity Q1 2017: Fundraising climate reached new peak

• German Private Equity Barometer for Q1 2017 shows diverging momentum in the sub-markets: early-stage investors were more upbeat while later-stage investors were more subdued
• Fundraising climate reached new peak
• Extreme differences in demand: venture capital on record high while later-stage funding dropped to all-time low

Frankfurt am Main, 16-May-2017 — /EuropaWire/ — The business climate in the German private equity market was almost unchanged at the start of the year 2017 and remained very good. In the first quarter the business climate index of the German Private Equity Barometer stood at 61.8 balance points (-0.2 points). At the same time, the indicator for the current business situation climbed moderately by 0.5 points to 65.1 balance points, while business expectations fell slightly by 1.0 points to 58.6 balance points. As in the preceding quarter, the business climate in the sub-markets developed unevenly, this time with inverted values: While early-stage investors are becoming more confident again, sentiment among later-stage investors has become more settled after the preceding record quarter.

The business climate in the venture capital market recovered from its decline in the final quarter of 2016. The indicator of the early-stage segment rose by 11.3 points to 59.7 balance points in the first quarter of 2017. Investors rated their business situation and business expectations almost equally. The indicator for the current business situation rose by 9.8 points to 59.7 balance points, while the indicator for business expectations increased by 12.8 points to 59.8 balance points. Three records were broken in the VC market environment: the fundraising climate, public support and the level of deal flows have never been rated better. Exit opportunities and deal flow quality were also rated very positively. The previously recorded level of dissatisfaction with entry prices also appears to be decreasing.

The business climate in the later-stage segment of the private equity market cooled off slightly after the preceding quarter’s record high. The indicator was down 7.2 points to 63.5 balance points in the first quarter of 2017 but remained on a very high level. At the same time, the indicator for the current business situation fell by 4.7 points to 69.2 balance points, while the indicator for business expectations dropped by 9.8 points to 57.8 balance points.

The fundraising climate climbed to a new record high in the later-stage segment as well and exit opportunities continue to be rated very positively. By contrast, later-stage investors were more dissatisfied with entry prices than ever before, as well as with the levels of their deal flows. Moreover, deal flow quality has deteriorated substantially on the preceding quarter and the pressure on write-downs has increased profoundly.

“The current market environment is pointing to a very good VC year 2017”, said Dr Jörg Zeuner, Chief Economist of KfW. But he is concerned about the poor demand in the later stage segment. “We must also lead established companies into the next generation because SMEs will not be spared from the disruption of digitalisation. Private equity can be the right means to mobilise the necessary investments.” Zeuner sees political uncertainty as a risk. “Investors do not like uncertainty. Two thirds of equity investors fear negative impacts in the German private equity market if the EU is further weakened. So the outcome of the run-off election in France is good news against this background as well.”

“The continuing positive sentiment points to a stable market that is defying numerous odds, particularly with a view to the general political climate. This stability is good news for business founders and SMEs in search of capital”, added Ulrike Hinrichs, Managing Director of the German Private Equity and Venture Capital Association (BVK). Hinrichs is not surprised by the critical assessment of deal flows in the later stage. “That is an effect of the low-interest phase. Business owners are finding few attractive investment alternatives and therefore are holding off on the sale of their businesses. Besides, many businesses have been able to build up financial reserves in the past years when the economy was strong, and banks are offering good businesses very favourable lending terms.”

SOURCE: KfW

Mr.Wolfram Schweickhardt
Phone +49 69 74 31 17 78
Fax +49 69 74 31 32 66
wolfram.schweickhardt@kfw.de