Pr Equity Trend Report 2010

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Private Equity

Private Equity Trend Report 2010Navigating the rocky road to recovery

pwc




Edited by PricewaterhouseCoopers

By Martin Scholich and Richard Burton

This publication includes information obtained or derived from a variety of publicly available

sources. PricewaterhouseCoopers has not sought to establish the reliability of these sources or

verified such information. PricewaterhouseCoopers does not give any representation or warranty of

any kind (whether express or implied) as to the accuracy or completeness of this publication. The

publication is for general guidance only and does not constitute investment or any other advice.

Accordingly, it is not intended to form the basis of any investment decisions and does not absolveany third party from conducting its own due diligence in order to verify its contents. Before making

any decision or taking any action, you should consult a professional advisor.

Typesetting

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Printed in Germany

© February 2010

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Private Equity Trend Report 2010

Navigating the rocky road to recovery

Preface

Preface

Our annual survey of private equity funds was undertaken in the finalmonths of a turbulent year for the industry. Our sincere thanks go to all whocontributed to this year’s survey.

As predicted in last year’s survey, 2009 proved to be a ‘time of challengeand change’ for private equity. Indeed, the year can be characterised as amajor year of restructuring activity within the portfolios.

Most of our respondents are now cautiously optimistic about the future – theconsensus is that the European M&A market will start its recovery during2010. Nevertheless, it is widely acknowledged that portfolio restructuring

activity and negotiations with financing providers will need to continue in thenext 12 months.

As well as dealing with ongoing difficult trading conditions at portfoliocompanies and a likely dearth of willing sellers and finance providers for new transactions, private equity also needs to manage a variety of other challenges:

•

•

•

•

Changes in the traditional business model of private equity – these areexpected by an overwhelming 90% of participants.

Investor actions to address fund performance – though only 12% of fundssurveyed claimed to be dissatisfied with the performance of their portfoliocompanies, their limited partners may beg to differ.

Increasing focus on risk management and sustainability issues –however, less than half the funds we surveyed have so far undertaken anassessment of sustainability issues in their portfolios.

The demands brought by increased regulation and transparency(e.g. AIFM).

In summary, we expect that the private equity market – and the majority of market participants – will embark on the ‘rocky road to recovery’ during2010. This road looks set to provide a smoother ride than 2009, but manyinvestors will still need to navigate a challenging passage past the bumps,around the curves and out of the odd chicane.

We look forward to supporting your successful drive through 2010.

Martin ScholichAdvisory Leader

Richard BurtonPrivate Equity Leader

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Contents Private Equity Trend Report 2010


Contents

Preface......................................................................................................... 3 Figures ......................................................................................................... 5 A Executive summary ................................................................................ 8 B Turbulent times: 2009 in retrospect ...................................................... 11

C The future for private equity: outlook and opportunities........................ 17 D Emerging issues: risk management and sustainability ......................... 25 E German and international investment trends ........................................ 29 F Background information and methodology ........................................... 33 About us ..................................................................................................... 34 Contacts ..................................................................................................... 35

4





Figures

Figures

Fig. 1 Percentage of portfolio companies that have breachedone or more bank covenants......................................................11

Fig. 2 Outcomes of negotiations with banks following covenantbreaches ....................................................................................12

Fig. 3 Measures taken to preserve profitability in portfoliocompanies in 2009 .....................................................................13

Fig. 4 Measures taken to preserve liquidity in portfoliocompanies in 2009 .....................................................................14

Fig. 5 Level of satisfaction with the overall development of portfolio companies ....................................................................15

Fig. 6 Expected European deal market recovery .................................17 Fig. 7 Future sources of new deal opportunities ..................................18 Fig. 8 Future industry focus of international private equity funds .........19 Fig. 9 Development of credit availability over the next 12 months .......20 Fig. 10 Development of credit terms over the next 12 months...............21 Fig. 11 Percentage of portfolio companies expected to breach

one or more bank covenants in 2010 .........................................21 Fig. 12 Future changes to the private equity industry ............................23 Fig. 13 The changing importance of risk management as a result

of the global financial crisis ........................................................25 Fig. 14 Processes established to manage risk in portfolio

companies..................................................................................26 Fig. 15 Importance placed on sustainability by funds.............................26 Fig. 16 Sustainability issues considered in assessing new

investments ................................................................................27 Fig. 17 Attractiveness for private equity funds in Germany –

development since 2007 ............................................................30 Fig. 18 Development of Germany’s position in a ranking for

private equity investments..........................................................30 Fig. 19 Countries/regions which will become more attractive for

private equity over the next 5 years ...........................................31

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Figures Private Equity Trend Report 2010


Fig. 20 Respondents by headquarters ..................................................33 Fig. 21 Respondents by total global fund volume (capital under

management) ............................................................................ 33

6



Executive summary Private Equity Trend Report 2010


A

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Executive summary

A total of 187 private equity funds took part in PwC’s fourth annual survey of investment trends. Of these funds, 20% were based in Germany and 80%were headquartered outside Germany. 65% of participants manage funds of up to €500 million, 15% between €500 million and €1 billion and 20% over €1 billion.

The key findings of the survey were as follows:

The vast majority of respondents (over 75%) had to deal with covenantbreaches within their portfolio companies or were otherwise required toenter negotiations with financing banks during 2009.

2009 in retrospect

Staff reductions were the most common measure cited by internationalfunds1 to preserve the profitability of portfolio companies (78%), whereasGerman-based funds preferred to make use of procurement savings(84%), cutting temporary or contract staff (84%), short-term cost cutting(79%) and short time work (Kurzarbeit ) (76%) before resorting toemployee lay-offs (66%).

Despite the challenging conditions, two thirds of all funds surveyedexpressed satisfaction with the development of their portfolio companiesin 2009. Only 12% admitted they were dissatisfied.

A mood of cautious optimism now prevails: 68% of funds expect theEuropean deal market to recover in the course of 2010, most likely in thesecond half of the year (44%).

Outlook and opportunities

Almost 80% of the German funds expect the German market for privateequity deals to improve in 2010. None expect the market to be worse thanin 2009.

Over 90% of funds surveyed believe that the business model of privateequity will change in future and that less leverage or financial engineeringwill be used.

Co-operations are expected to be high on the agenda: 60% of fundsanticipate more co-operations with strategic investors and 52% expectmore club deals with other private equity funds. However, while 26% of international funds expect more co-operations with sovereign wealthfunds or hedge funds, only 5% of German funds believe this will occur.

For 64% of all respondents the importance attached to risk managementhas increased since the beginning of the global financial crisis.

Risk management and sustainability

Over two thirds of all funds have improved monthly performancereporting, use an early warning system and have set up supervisory or advisory boards to conduct regular risk reviews of portfolio companies.

58% of the international funds attach a relatively high importance tosustainability issues in making investments, compared with less than half of the German funds surveyed (46%). 12% of all funds still considered thisissue to be “not at all important”.

1In this survey, “international funds” refers to all funds whose headquarters are based outside Germany.

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Executive summary

•

•

•

•

42% of the international funds stated that they had undertaken an

assessment of sustainability issues within their existing portfolio,compared to fewer than 30% of the German funds.

International funds plan to significantly increase investments in Germanyin future:

German and internationalinvestment trends

– Over 45% of the funds currently investing in Germany expect toincrease the assets that they allocate to the country by 2014.

– Over 40% of the international funds that currently do not invest inGermany plan to start making investments there in the next five years.

The funds surveyed continue to view Western Europe (48%) as mostattractive for future investment, followed by CEE (37%) and Asia (27%).

Poland (18%) was ranked as the most attractive individual country for future investment, particularly among the German-based funds, followedby China, France, Germany and India (16% each).

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Turbulent times: 2009 in retrospect

B Turbulent times: 2009 in retrospect

As forecast in last year’s survey, 2009 proved to be an exceptionallychallenging year for the European private equity industry, with investmentactivity almost coming to a standstill. While the lack of available bankfinancing was undoubtedly a key factor, the capacity of many investmentteams was fully utilised by the need to deal with emerging issues in their existing portfolios. In addition, businesses exposed to the severe economiccycle became almost impossible to value reliably in the first half of 2009 astheir order books and trading results deteriorated on almost a weekly basis.Under these circumstances the basis for a negotiated transaction wassimply not present in many cases.

As the results of our survey will show, the German and international fundsalike were faced with taking action to preserve the profitability and liquidityof their portfolio companies.

Three quarters of all funds had to deal with bankcovenant issues within their portfolio companies

Negotiations with banks

Only 20% of all funds surveyed stated that their portfolio companies had notbreached one or more bank covenants or had otherwise needed to enter negotiations with their financing providers since the collapse of LehmanBrothers and the beginning of the global financial crisis.

3%

24%

18%

21%

16%

8%

10%

7%

18%

35%

9%

5%

6%

20%

0% 10% 20% 30% 40%

Not specified

None at all

Less than 10%

10 to 20%

21 to 30%

31 to 40%

Over 40%

German funds International funds

Fig. 1 Percentage of portfolio companies that have breached one or more bank covenants

When asked about the outcomes of the negotiations with their banks, over 60% of the German funds and almost half of the international funds namedwaiver or standstill agreements.

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Turbulent times: 2009 in retrospect Private Equity Trend Report 2010


Other outcomes most frequently named by the interviewees were:

••

•

Covenant resets with no new equity injection,

Use of an equity cure,

New equity injection without dilution of shareholding.

However, a significant minority of funds admitted that they had experiencedeither a full loss of their equity shareholding (16% of international funds,11% of German funds) or a loss of majority control in favour of the financeparties (13% of international funds, 11% of German funds) at one or more of their portfolio companies. 33% of international and 29% of German fundshad been required to dilute their equity stake while managing to retainmajority control.

The survey results also indicate that the wave of restructurings is by nomeans completed – 54% of the international funds and 46% of the Germanfunds found themselves in the midst of negotiations at the time of thesurvey.

46%

11%

11%

29%

36%

25%

50%

64%

54%

16%

13%

36%

40%

46%

49%

33%

0% 10% 20% 30% 40% 50% 60% 70%


Waiver or standstillagreement only

Negotiations are stillongoing/in progress

Full exit in favour of finance parties

Capital restructuring withloss of majority control

Capital restructuring withoutloss of majority control

New equity injection withoutdilution of shareholding

Equity cure

Covenant reset withno new equity injection

Fig. 2 Outcomes of negotiations with banks following covenant breaches

“The level of financial restructuring activity in 2009 was unprecedented – we expect this tocontinue for at least two more years.”

Dr. Derik Evertz, Business Recovery Services Leader, PwC

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Short-time work (Kurzarbeit ) was a popular

measure to protect portfolio company profits inGermany

Protecting profitability

76% of the German funds said that their investee companies tookadvantage of the short-time work scheme introduced as a crisis measure bythe government, compared with only 37% of the international fundssurveyed. This indicates that German labour law provided companies withan effective instrument to avoid dismissals in difficult economic situationsand to achieve temporary savings in personnel expenses. Under thisscheme, the employees’ working hours, and hence the company’s owncosts, are reduced and the staff receive money from the Bundesagentur für Arbeit (German Federal Employment Agency) in compensation for the lower income received from the employer.

Almost 85% of the German funds also cut costs by reducing temporary or contract staff which they had built up during the boom years. This use of short-time work and the reduction of temporary or contract staff has led tofewer layoffs of permanent staff by the German private equity fundssurveyed. 66% of them stated that they have made permanent staff redundant, compared with 78% of the international funds.

Other popular measures employed by the majority of respondents wereprocurement cost savings and use of temporary cost cutting measures suchas cut-backs of travel and marketing expenses. Transfers of operations to

low cost countries, outsourcing and insourcing were less prevalent, but stillformed a substantial component of cost saving measures. Further unprompted responses covered reductions in salaries, reductions inoverhead, sales increases and changes in research and developmentprogrammes.

32%

32%

18%

84%

79%

66%

84%

76%

22%

45%

28%

69%

78%

73%

37%

68%

0% 20% 40% 60% 80% 100%


Use of short-time work

Insourcing

Outsourcing

Transfers of operationsto low cost countries

Procurement savings

Short term cost cuttingmeasures (e.g. travel ban)

Layoffs/redundancies

of permanent staff

Reduction of temporaryor contract staff

Fig. 3 Measures taken to preserve profitability in portfolio companies in 2009

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Preserving liquidity Cash is king: This principle counts in times of an economic crisis more than

ever and never more so than in 2009. Companies that managed their liquidity position effectively were much better equipped to survive thedifficult economic situation, which meant that they were also better positioned in negotiations with finance providers.

When asked about their activities to preserve liquidity in portfoliocompanies, the majority of both international and German funds focused on:

•

•

•

•

Reductions in inventory holdings,

More active receivables management,

Cuts in capital expenditure budget,

Renegotiations of credit terms with suppliers.

Despite these actions, 50% of international funds and 37% of German fundsadmitted that their investee companies had resorted to deferring supplier payments beyond the agreed credit terms. More surprisingly, only a smallminority of funds (28% international, 18% German) had agreed a reductionof tax prepayments with the tax authorities.

18%

37%

37%

68%

84%

79%

79%

28%

46%

50%

66%

74%

79%

66%

0% 20% 40% 60% 80% 100%


Reducing advancepayments of tax

More active receivablesmanagement

Disposal of non-core assets

Deferring supplier paymentscompared to agreed terms

Renegotiating creditterms with suppliers

Reductions ininventory holdings

Cuts in capitalexpenditure budget

Fig. 4 Measures taken to preserve liquidity in portfolio companies in 2009

“Cash management will continue to be key in 2010 – businesses will want to start investing in capex and working capital again but many lack the means to do so.”

Steve Roberts, Cash Accelerator Leader, PwC

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Two thirds of all funds surveyed were satisfied

with the development of their portfolio companiesin 2009

Development of portfolio companies

Against the background of the restructurings that the private equity fundshad undertaken to keep their portfolio companies profitable and solvent,PwC asked the respondents about their overall satisfaction with thedevelopment of their investments in 2009.

In spite of the undoubtedly difficult situation, this positive feedback isstriking. Only 12% of them expressed their dissatisfaction and there was nodifference in the answers given by the German and the international funds.

53%

21%

12%

0%

1%

13%

0% 10% 20% 30% 40% 50% 60%

Not specified

Very satisfied

Satisfied

Neither/nor

Dissatisfied

Very dissatisfied

Fig. 5 Level of satisfaction with the overall development of portfolio companies

“Most GPs seem satisfied with the performance of their investments. Whether this view isshared by their LPs is open to question – we may well find out in 2010.”

Richard Burton, Private Equity Leader, PwC

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16



The future for private equity: outlook and opportunities Private Equity Trend Report 2010


New deal opportunities When asked about the likely sources of new deal opportunities for private

equity, the traditional sources of transactions continued to score highly, inparticular:

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Equity injections into private companies,

Corporate spin-offs/carve-outs,

Acquisitions of majority shareholdings from private owners.

Nevertheless it is clear that new deal sources will be considered by mostinvestors. As many as 71% of German funds and over half the internationalfunds expect opportunities to arise from acquiring assets out of insolvencyor distress. Previously the focus of relatively few specialist funds, this typeof transaction appears set to become mainstream. In addition, half of the

international funds and 45% of German funds anticipate opportunities toarise from disposals of equity stakes by banks.

However, it appears that relatively few funds would contemplate makingprivate investments in public equity (PIPE) – less than a quarter of international funds cited this as an opportunity and even fewer Germanfunds (only 13%).

13%

45%

71%

82%

84%

79%

24%

50%

51%

78%

90%

62%

0% 20% 40% 60% 80% 100%


Corporate spin-offs/

carve-outs

Equity injections intopublicly listed companies

Banks selling equitystakes in companies

Acquisitions of assetsout of insolvency/distress

Acquisitions of majorityshareholdings from private owners

Equity injections intoprivate companies

Fig. 7 Future sources of new deal opportunities

“We were bumping along the bottom in 2009 – the only way from here can be up. Weexpect new structures for doing deals to develop during 2010.”

Dr. Frank Schmidt, M&A Tax Leader, PwC

Industry trends The international funds cited a very diversified range of target industries.The most popular industries were technology and business services, but

even these were only mentioned by a third of participants. Energy wasranked third at 30%.

German funds, on the other hand, have a clear preference for industrialproducts and services (71%) – the companies which have historically driven

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The future for private equity: outlook and opportunities

the country’s economic strength. Automotive, with 37%, may also enjoy a

return to favour with German funds – in particularly those companies, whichare set to emerge as winners from the recent turmoil in the industry. Thebusiness services industry is also becoming increasingly popular as a targetfor investment.

Other notable differences were that international funds showed significantlymore appetite for pharmaceutical and biotechnology (24%), media (18%)and telecommunications (18%) compared to the German funds – whereasthe chemicals sector was mentioned by 26% of German funds, but very fewinternational funds.

3%

0%

21%

8%

0%

5%

5%

71%

3%

13%

32%

26%

34%

37%

6%

18%

33%

9%

24%

18%

24%

17%

30%

20%

7%

33%

3%

9%

0% 20% 40% 60% 80%


Business services

Financial services

Energy

Consumer

Chemicals

Automotive

Media

Technology

Retail

Public sector and healthcare

Pharmaceuticals, biotechnologyand life sciences

Industrial products/services

Transport and infrastructure

Telecommunications

Fig. 8 Future industry focus of international private equity funds

“Germany’s industrial heartlands will remain a rich source of buyout opportunities in the

future.”

Werner Suhl, Corporate Finance/M&A Leader, PwC

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3%

0%

18%

58%

21%

0%

7%

1%

9%

36%

1%

46%

0% 10% 20% 30% 40% 50% 60%


“I expect credit terms to…”

Get substantially better

Not specified

Get substantially worse

Get slightly worse

Stay generally the same

Get slightly better

Fig. 10 Development of credit terms over the next 12 months

The majority of funds again expect to face bankcovenant issues in 2010

Bank covenants

6%

42%

34%

13%

5%

0%

0%

7%

32%

42%

4%

1%

1%

13%

0% 10% 20% 30% 40% 50%

Not specified

None at all

Less than 10%

10 to 20%

21 to 30%

31 to 40%

Over 40%


Fig. 11 Percentage of portfolio companies expected to breach one or more bank covenants in

2010

While there is a mood of cautious optimism in respect of the prospects for new transactions, and to a more limited extent, for the return of leverage tothe buyout market, our survey shows that a majority of funds still expect tobe heavily occupied with their portfolios in 2010.

21





52% of the German funds surveyed and 61% of the international funds

expect further bank covenant breaches within their existing portfolio. Only athird of the international funds are more optimistic and do not expect anyfurther covenant breaches or negotiations with their financing providers infuture – this compares to 18%, which did not face such issues in 2009. Inthis respect, the German funds are slightly more optimistic: 42% anticipateno further covenant breaches in their portfolios, compared to 24%, which didnot experience any problems in 2009.

Clearly, there is significant restructuring activity still to occur in 2010.

“An accurate covenant forecasting system has now become a must for the CFOs of private equity owned companies.”

Dr. Ulrich Störk, Private Equity Audit Leader, PwC

Over 90% expect the business model of privateequity to change in future

The future of private equity

This represents a sizeable further increase from the 80% of last year’ssurvey participants who believed that changes to the business model wouldbe required in future.

Co-operations are high on the agenda

As a result of the ongoing difficult environment for bank financing, around90% of the funds surveyed plan to make less use of leverage or financialengineering while focusing more on active portfolio management.

Co-operations ─ either teaming with strategic investors or “clubbing” withother private equity funds ─ are likely to increase according to the surveyparticipants. 60% of all funds expect more co-operations with strategicinvestors and 52% of them expect more club deals with other private equityfunds. However, less than one in five funds now believes in more co-operations with sovereign wealth funds or hedge funds – significantly fewer

compared to last year’s survey.

A majority of investors also plan to expand into other investment areas suchas infrastructure or distressed debt, and half of the international fundssurveyed would now contemplate taking minority positions in companies.

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5%

41%

49%

62%

49%

89%

92%

26%

50%

53%

63%

89%

93%

55%

0% 20% 40% 60% 80% 100%


Less use of leverageor financial engineering

More co-operations with sovereignwealth funds or hedge funds

More minority shareholdings

More club deals withother private equity funds

Expansion to other investment areas,e.g. infrastructure or distressed debt

More co-operationswith strategic investors

More focus on activeportfolio management

Fig. 12 Future changes to the private equity industry

“Our survey implies that the private equity industry has fully embraced the need for change.”

Martin Scholich, Advisory Leader Germany, PwC

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24



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Emerging issues: risk management and sustainability

D Emerging issues: risk management and

sustainability

Since the beginning of the global financial crisis, the role of riskmanagement at banks and other large corporations has come under scrutiny. Likewise, the importance attached to sustainability issues hasincreased exponentially in society as a whole in the last years.

In this year’s survey, PwC has analysed the role that risk management andsustainability issues currently play in the eyes of private equity funds.

For 64% of all respondents the importance of riskmanagement has increased since the beginningof the global financial crisis

Managing risk

34%

45%

19%

2%

0%

0% 10% 20% 30% 40% 50%

Decreased significantly

Decreased slightly

Stayed the same

Increased slightly

Increased significantly

Fig. 13 The changing importance of risk management as a result of the global financial crisis

There was no material difference in the answers given by the German andthe international funds.

In order to monitor risk in portfolio companies, the majority of all funds haveimproved their monthly performance reporting and have established anearly warning system. In addition, their supervisory or advisory boardsconduct more regular risk reviews. However, other techniques which arewidely used in the corporate world, such as the use of risk assessment

questionnaires and balanced scorecards, are used by only a minority of private equity funds.

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Emerging issues: risk management and sustainability Private Equity Trend Report 2010


24%

37%

82%

76%

76%

27%

27%

64%

77%

68%

0% 20% 40% 60% 80% 100%


Improved monthlyperformance reporting

Regular risk reviews bysupervisory or advisory board

Balanced scorecards

Risk assessmentquestionnaires

An early warning system

Fig. 14 Processes established to manage risk in portfolio companies

58% of the international funds and 46% of theGerman funds surveyed attach importance tosustainability issues

Sustainability

We asked the survey participants to grade the importance their organisationsplace on sustainability issues on a scale from 1 to 10, where 1 denotes “not

at all important” and 10 “very important”. 58% of international funds gradedthe importance of sustainability higher than 6, compared to a lower percentage of German funds (46%). Yet slightly more than 10% of bothgroups considered the issue to be “not at all important” to their organisation.

11%13%

0%

3%

26%

3%

16%

13%

3%

12%

5% 7% 5%

11% 11%

4%

17%

11%

15%

11%

0%

5%

10%

15%

20%

25%

30%

1 2 3 4 5 6 7 8 9 10


not at allimportant

veryimportant

Fig. 15 Importance placed on sustainability by funds

A closer definition of the types of sustainability issues considered revealsthat the majority of the funds surveyed are most concerned about thereputational impact of their investments: Over 80% consider the

consequences of reputation or image in the decision-making process aboutnew investments. Other criteria such as energy use and environmental or community impact were also mentioned by a majority of funds, but theGerman funds consistently lagged behind their international counterparts in

26





Emerging issues: risk management and sustainability

the importance they attach to sustainability issues when assessing new

investments.

35%

38%

47%

62%

68%

85%

48%

59%

66%

80%

82%

70%

0% 20% 40% 60% 80% 100%


Environmental impact

Water availability

Climate change regulation

Community impact

Energy usage

Reputation impact

Fig. 16 Sustainability issues considered in assessing new investments

International funds lead the way in performingsustainability assessments within their portfolio

Consistent with the apparent higher importance placed on sustainability,a higher proportion of international funds (42%) have undertaken anassessment of sustainability issues within their existing portfoliocompanies – compared to just under 30% of the German funds. However,the results imply that a majority of private equity funds surveyed have notyet undertaken such an assessment of their portfolio.

“Taking the lead on sustainability could be a key source of competitive advantage for thefuture.”

Dr. Peter Bartels, Valuation and Strategy Leader, PwC

27





28



28





German and international investment trends

E

•

•

•

•

•

•

•


As part of the annual barometer for private equity trends in Germany, PwCasked the international funds participating in the survey to assess theattractiveness of Germany as an investment destination for private equityand name their top countries for private equity investments in future.

International funds plan to significantly increaseinvestments in Germany by 2014

Germany as an investmentdestination

The key trends identified included:

At the time of the survey, 52% of the international funds already heldinvestments in Germany.

99% of these funds confirmed that they intended to continue investing inGermany over the next five years.

Over 45% of the funds currently investing in Germany expect to increasethe assets that they allocate to the country by 2014.

Over 40% of the international funds that currently do not invest inGermany plan to start making investments there in the next five years.

Altogether, a total of 71% of all international funds surveyed plan to investin Germany in the next five years, indicating a significant net inflow of

capital in future.41% of the international funds surveyed consider the attractiveness of Germany for private equity to be very good or quite good, whichrepresents a further improvement compared with 2009, when only 30%thought this was applicable, and 2008 (only 22%).

Conversely, only 18% now consider the attractiveness of Germany for private equity to be quite poor or very poor, compared to 36% two yearsago.

“Our survey results indicate that Germany will emerge from the financial and economic crisis as a clear winner for private equity investment.”

Andreas Mackenstedt, Global Valuations Leader, PwC

29



German and international investment trends Private Equity Trend Report 2010


23%20%

18%

32%30%

41%36%

22%

0%

5%

10%

15%

20%

25%

30%

35%

40%45%

2007 2008 2009 2010

Very poor/quite poor Very good/quite good

Fig. 17 Attractiveness for private equity funds in Germany – development since 2007

In our previous survey, 28% of respondents expected Germany’s position inan international ranking for private equity investments to improve. At thattime, the country ranked third behind the UK and France.

According to the latest EVCA statistics2, Germany has moved up in theranking for private equity investments and now ranks second behind the UK.According to over half of the international funds surveyed, this position islikely to remain the same. However, 26% believe that Germany’s positionwill improve further.

12%

7%

14%

32%

46%

52%56%

47%

28%26%

7%

45%

0%

10%

20%

30%

40%

50%

60%

2007 2008 2009 2010

Deteriorate Remain the same Improve

Fig. 18 Development of Germany’s position in a ranking for private equity investments

Poland, China, France, Germany and India willbecome more attractive to private equity in thenext five years

International flows of capital

The funds surveyed continue to rate Western Europe (48%) as mostattractive for future investment, followed by CEE (37%) and Asia (27%).

2EVCA Yearbook 2009

30






Participants rated Poland as the destination, which will gain most in

attractiveness for private equity investment in the next five years, followedby China, France, Germany and India.

Almost one in five funds plans to open new offices over the next five years.Germany, USA, Switzerland, China and India were cited the most times bysurvey participants.

Country Percentage

Poland 18%

China 16%

France 16%

Germany 16%

India 16%

Czech Republic 12%

Sweden 12%

UK 12%

Norway 10%

Denmark 8%

Hungary 8%

Russia and CIS 8%

Spain 8%

Switzerland 6%

Finland 5%

Slovakia 5%

Fig. 19 Countries/regions which will become more attractive for private equity over the next

5 years

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Background information and methodology

F Background information and methodology

Between 12 November and 4 December 2009, PwC’s International SurveyUnit interviewed 187 top management representatives of internationalprivate equity funds. A total of 56% of them were headquartered inContinental Europe (excluding Germany), 20% of them were based inGermany, 17% had their headquarters in the UK and 5% were based in theUnited States. In this survey, “international funds” refers to all funds whoseheadquarters are based outside Germany.

UnitedKingdom

17%

Continental Europe(incl. CEE,

excl. Germany)56%

Others2%

Germany20%

USA5%

Fig. 20 Respondents by headquarters

At the time of the survey, the majority of the survey participants had up to €500 million of capital under management. 15% of them manage funds of between €500 million and €1 billion, and a further 20% of them have over €1 billion of capital under management.

Less than €500 million

65%

Between €500 millionand €1 billion

15%

Above €1 billion

20%

Fig. 21 Respondents by total global fund volume (capital under management)

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About us Private Equity Trend Report 2010Navigating the rocky road to recovery

About us

With some 9,000 employees and a turnover of around €1.37 billion,PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft is one of the leading auditing and consultancy companies in Germany. Experts at29 locations work on behalf of national and international clients of everysize. The focus is on assurance and business advisory services, taxservices as well as deals and consulting. The company’s activities aremarked by an emphasis on high quality, forward thinking and timely action.

Decision-oriented analysis and comprehensive transaction advice – this isthe passion of over 600 transaction experts in Germany. You too can profitfrom our track record of over 1,000 successful transactions in the last

10 years.

It is the people at PricewaterhouseCoopers, our team of advisers, whomake our firm unique. They possess invaluable experience and in-depthtechnical know-how. They know the requirements of our clients first hand.They possess an instinct for new trends and know how to rapidly convertthese into success.

The focus areas of our advice at a glance:

•

•

••

•

•

•

Transaction planning, M&A lead advice

Business due diligence

Tax structuring

Financing

Valuation

Restructuring

Post merger integration

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Contacts

Contacts

Martin ScholichAdvisory Leader Phone: +49 69 [email protected]

Richard BurtonPrivate Equity Leader Phone: +49 69 [email protected]

Dr. Peter BartelsValuation and Strategy Leader Phone: +49 40 [email protected]

Dr. Derik EvertzBusiness Recovery Services Leader Phone: +49 [email protected]

Andreas Mackenstedt

Global Valuations Leader Phone: +49 69 [email protected]

Steve Roberts

Cash Accelerator Leader Phone: +49 69 [email protected]

Dr. Frank SchmidtM&A Tax Leader Phone: +49 69 [email protected]

Dr. Ulrich StörkPrivate Equity Audit Leader Phone: +49 69 [email protected]

Volker StrackTransaction Services Leader Phone: +49 69 [email protected]

Werner SuhlCorporate Finance/M&A Leader Phone: +49 69 [email protected]

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mailto:[email protected]






















www.pwc.de/de/a-great-deal-better

http://www.pwc.de/de/a-great-deal-better



Pr Equity Trend Report 2010

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