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Speaking today at the unquote” DACH private equity forum in Munich, Peter Hammermann of Equistone said the seemingly elusive Mittelstand has always been open, just not in the ways that people have wanted. Katharina Semke reports live from the event
During the Leaders' Debate at the DACH forum, Hammermann spoke of the Mittlestand: "This has been on the table for 30 years – it has always been open, but not in a way people have wanted. The Mittelstand will continue to remain opportunity-driven. If people can see how private equity can work positively, the more opportunities will arise, and so will the understanding that the right partner can be helpful and constructive." Hammermann went on to say that private equity's penetration of the Mittelstand will remain slow, but is increasing.
Christine Panier, head of lower-mid-market in western Europe at the European Investment Fund (EIF), noted that the main concern for German entrepreneurs is that private equity would sell their company in three to five years. "This is especially the case for smaller companies, as they see themselves as employers and important players in their region," she said.
However, Panier said this creates an opportunity for hybrid products. She believes it is best to enter Mittelstand companies through debt products so as not to dilute ownership and to give an option to liquid financing without losing equity. In agreement with this, Andreas Schober, chairman of the board at Hannover Finanz, said: "These are family businesses. Investments can be personal and emotional, because people are attached to their companies. So if you can offer a longer-term investment, that's an asset."
Rate rise required
Another factor that could encourage more private equity investment in the Mittelstand is a rise in interest rates. "We would see more deals in the Mittelstand if the interest rates weren't so low," said Schober. "Entrepreneurs looking at selling their business don't know what they would do with the cash and instead continue to reinvest in their own companies, which leads to fewer deals."
Vittorio Pignatti Morano, chairman of Trilantic Capital Partners, also highlighted the importance of the younger generation of entrepreneurs. He sees a shift in mentality that private equity is slowly starting to benefit from: "In Germany, like the rest of Europe, the over-50s have a language barrier and aversion to travel. The younger generation have done a couple of years abroad and they are much more aware of the positives and negatives of international capital. I see a more sophisticated younger generation."
Looking at the challenges ahead, Schober remains optimistic, but urges private equity to explore more sectors: "The private equity market in Germany is still underdeveloped, with plenty of potential in the near future. Most investments in Germany go into mechanical engineering. I think we need to focus more on information technology if we want to succeed in the long term."
For Panier, the EIF's outlook is positive: "We are seeing fund managers mature and genuinely create value and growth. Good success stories are coming through. Now we can really talk about the added value that private equity generates. And as private equity offers not only equity, but also hybrid debt products, these offerings are more sophisticated, enabling companies to obtain a more tailored investment to suit their needs."