Germany’s relationship with private equity is changing and so are its dealmakers, by Rupert Bell

12 September 2019 | Rupert Bell, Director of DACH

Private equity’s reputation in Germany has improved markedly over the past decade, paving the way for more investment, more funds and more deals. Even with recession on the horizon, this golden period looks set to continue. It’s a paradox at a time like this that the supply of suitably qualified talent is static or even shrinking, but could this be a blessing in disguise?

Frankfurt skyline

Famously likened to a “plague of locusts” by a leading German politician during the financial crisis, why is private equity investment now being welcomed more warmly by German companies and their owners? First, there’s a great deal of money on the table, driving up valuations to levels far more attractive to sellers, and furthermore, in many cases, using a greater proportion of safer equity capital rather than more highly leveraged structures. Second, German private equity has been selling itself better; it has become emotionally more intelligent, with the stress on an ethos of partnership, not acquisition, or worse domination. Thirdly, the latest generation of Mittelstand owners are often more experienced and less conservative than their predecessors, and increasingly open to what private equity can offer.

It’s been widely reported that Germany is on the brink of recession or already in recession territory, but that doesn’t mean that the expansion of the private equity asset class in Germany is likely to stall. After all, a softening economic cycle is often welcomed as prices come down and buying opportunities increase. For the moment at least, the economic cycle and the private equity cycle are not correlated with one going through a cyclical change, the other structural.

In this environment, demand for dealmakers is high, but it doesn’t end there. Ensuring a strong return with such high entry valuations means significantly increasing underlying profitability, so there’s more human capital to be spent on improving portfolio companies, entering new markets and investing in the future. Deal making is also becoming more competitive and sucking up more resource. Funds who cannot grow their teams are struggling to compete as private equity becomes ever more labour intensive. Add to this the significant number of new funds coming into the German market and you’ve got a heated battle for the right people on your hands. 

Talent pools aren’t expanding to meet this increased demand either. Top juniors are in short supply because banks are still taking on fewer graduates into their training programmes and those coming out of consultancy have more offers than ever before from start-ups and technology companies to tempt them away from private equity. As ever, the promise of carry in their current funds makes senior investors less inclined to move. Individual candidates who fit the ideal profile of a private equity investor are being flooded with offers and consequently becoming increasingly expensive. We are living in a candidate-led market.

Counterintuitively, this problem of supply and demand may well have a positive impact on the industry in Germany long term, as employers are forced to search more widely for soft skills and potential rather than the archetypal private equity profile. Many of the funds we work with are now looking for the right fit in terms of personality and attitude over the perfect plain vanilla CV background and are prepared to invest time and effort to back fill hard skills where these have not yet been acquired, providing the intrinsic brains and motivation are in place. There’s a new confidence that hard skills like modelling can be learned whereas you can’t teach raw ambition or people skills. The old adage ‘hire for attitude, train for skills’ is at last coming into play in the private equity market. Widening criteria in this way opens the door to diversity as different backgrounds and skillsets are being considered.

Germany’s market for buyout deals is almost as big as the UK’s, a far cry from where it was a decade ago and there’s a huge opportunity for investors and people from less traditional backgrounds to find a place in private equity. If you’re interested in a role in the industry, get in touch to see if you’ve got the skills our clients are looking for.

About the author

Rupert is a Principal Consultant, Director of DACH and a member of our leadership team. He set up and leads our DACH business, opening in Munich in 2010 and Frankfurt in 2017.

E-mail LinkedIn

Back to Insights

Back to top