Private Equity in Germany
If you ever decide to work in private equity in Germany, would it be a prudent decision? How the private equity market in Germany looks like? How is the pay structure in the private equity market in Germany? What are the exit opportunities (if any)? How would you take the leap into Germany’s private equity market?
In this article, we will try to answer all the questions we posed above. Let’s have a look at the sequence of the article.
In this article, we will talk about the following –
- Private Equity Market in Germany Overview
- Private Equity Firms in Germany – Services Offered
- Top Private Equity firms in Germany
- Private Equity Recruitment Process in Germany
- Culture in Private Equity in Germany
- Private Equity Salaries in Germany
- Private Equity Exit Opportunities in Germany
Private Equity Market in Germany Overview
If you’re aiming for private equity in Germany, there is good news. Germany is one of the top markets for private equity and venture capital. German private equity market hosts the second biggest number of fund managers in the whole of Europe, after the UK.
To private equity investors as well, German-based companies, industries, and corporates are proved attractive. German-based industries and organizations thus attracted the second-largest amount of capital in Europe for both venture capitalVenture CapitalVenture capital (VC) refers to a type of long-term finance extended to startups with high-growth potential to help them succeed exponentially. & buyout deals in the first half of 2016.
From Preqin’s special report, we can extract the key trends of the private equity market in Germany –
- In the first half of 2016, eight private equity funds (Germany focused) raised around 1.8 billion Euros, the highest level of capital raised in a single year since the GFC (Global Finance Crisis).
- The largest Germany focused fund was the EIF Growth Facility that was closed in the first half of 2016 and managed by the European Investment Fund, whose aim is to invest in venture capital.
- Currently, Germany focused funds are around 4% of total Europe focused funds – in total target capital and the number of funds raising.
- In 2014, Germany based private equity funds closed 132 buyout deals worth 13.4 billion Euros. In 2015, the number of deals and value got reduced; but in 2016, the private equity market bounced back by closing 69 deals worth 5 billion Euros only in the first half.
- It has been seen in the report that Private equity in Germany has had closed the third-highest number of buyout deals since 2007. The first & second positions are held by the UK and France, respectively.
Private Equity Firms in Germany – Services Offered
As you can understand, German private equity firmsPrivate Equity FirmsPrivate equity firms are investment managers who invest in many corporations' private equities using various strategies such as leveraged buyouts, growth capital, and venture capital. The top private equity firms include Apollo Global Management LLC, Blackstone Group LP, Carlyle Group, and KKR & Company LP. offer a varied range of services to their esteemed clients. Here’s a brief of their most significant services offered –
Support in the investment process:
Most of the private equity firms offer support services to facilitate the whole investment process through –
- Due Diligence: Finding out the facts and detailed account of what actually is of utmost significance to the success of an investment process. It can be in the field of finance or tax, in the area of law or commerce – due diligence is the sole function that helps clients take the leap.
- Tax structuring: Tax structuring is an essential component of the investment process. Private equity firms in Germany take care of the same as well.
- M&A Advisory: Mergers and AcquisitionsMergers And AcquisitionsA merger and acquisitions (M&A) agreement refers to an agreement between two existing companies to merge into a new company, or the purchase of one company by another, which is done generally to benefit from the synergy between the companies, expand research capacity, expand operations into new segments, and increase shareholder value, among other things. have so many facets, and if the firms don’t suggest the right way to execute buy-side deals, clients may make mistakes of putting things together in the most accurate way.
Advisory on the development of portfolio companies:
Before portfolio companies can ever expand, they need advice on the following things –
- Financial Statement Auditing: Without looking through the financial statements and ensuring the accuracy, it’s impossible to expand upon the business. At the same time, private equity firms advise the companies on financial statement auditing in congruence with the German Commercial Code (IFRS).
- International Business Report (IBR): Private equity in Germany also advises companies on financial restructuring, restructuring reports, and budgetingBudgetingBudgeting is a method used by businesses to make precise projections of revenues and expenditure for a future specific period of time while taking into account various internal and external factors prevailing at that time..
- Financing structure optimization: Private equity in Germany also provide advisory in financing structure optimization/balance sheet structure optimization.
- Taxes & Accounting: Before portfolio companies can ever develop, they need the basics ready. For that, they receive advice from private equity firms on how to maintain their accounting and pay their taxes.
Divestment Phase Support:
Private equity in Germany also provides support in the divestment phase.
- M&A Advice: One of the major advisories in the divestment phase is M&A Advisory, which is provided by top-notch private equity firms in Germany.
- Vendor Due Diligence: It’s essential to find out whether the vendors are really capable of providing support or not.
Top Private Equity firms in Germany
There are many top-notch private equity firms in Germany. According to a survey done by Preqin, there are 5 private equity firms that hold the top-most positions in terms of total capital raised over the last 10 years. These 5 private equity firms alone have raised over 37% of total capital raised over the last 10 years.
Let’s have a look at them one by one –
- Triton: Triton’s main emphasis is on medium-sized firms in Belgium, Austria, Denmark, Finland, and Germany. It has combined sales of 13.9 billion Euros and focused on buyouts and growth investments in Europe.
- Deutsche Beteiligungs AG: This is one of the oldest private equity in Germany, founded in the year 1965. It serves its huge clientele and specializes in buyouts and growth investmentsGrowth InvestmentsGrowth Investing refers to capital allocation in potentially high earning companies such as small caps and startups, which grow much faster than the overall industry or mature companies. Because the returns on such investments are high, the risk that such investors face is also higher.. The capital administered and advised by the DBAG group is around 1.8 billion Euros.
- Quadriga Capital: Quadriga Capital not only emphasizes on German-speaking countries, but it also invests in Russia. A deal that is currently in the talk is of 500-550 million Euros approximately.
- Odewald & Compagnie: This is one of the top-notch private equity firms in terms of total capital raised in the last 10 years. This firm was founded in the year 1996. Since 1997, Odewald & Compagnie has invested over 1 billion Euros in SMEs in the German-speaking regions.
- Caption: This private equity firm mainly focuses on buyouts, and they emphasize on mostly promotional products & services industry. This firm was founded in the 1980s, and since then, it has a fund volume of over 1.1 billion Euros.
Private Equity Recruitment Process in Germany
The recruitment process of private equity in Germany is just like the UK and Europe. Let’s have a look at the recruitment process of the private equity market in Germany –
- Psychometric Tests: The first filter of tests through which the candidates need to go through is psychometric tests. Through these tests, almost 30-50% of candidates are trimmed, and only the remaining are allowed for the next round.
- Fit interview: You need to prepare well for the fit interview. During this interview, you will be asked to walk through your CV. You would also be asked to answer a few basic questions like – “Why private equity?” “Why you want to join our firm?” “Tell me something about you,” etc. These questions seem easy to answer but actually fit interviews will reject a lot of candidates. Thus, you should practice the answers to these questions a lot to be able to answer well.
- Mini-case analysis: Often, if you go through a fit interview, your next test would be a presentation on a mini-case. Through mini-cases private equity firms would like to understand your business acumen. You would be asked simple questions like – “Do you think the airline is a good investment?” or, “In the last 10 years, was real estate a good investment? Why? Why not?” etc. Or else, you may be asked to do a SWOT analysisSWOT AnalysisSWOT Analysis is an analytical tool to identify and evaluate an entity’s strengths, weaknesses, opportunities, and threats. of a firm, or they may give you a SWOT and ask you questions around it.
- Technical round: Once you’re through, you would have to go through a technical round. Usually, this round is easy for those who have experience in LBO, IRR, and other finance/modeling questions.
- Next rounds: Most of the candidates are rejected at this level. Only selected few are shortlisted in the last two rounds. First, you will have to present a case on LBO modeling. If you don’t know LBO modeling or you have a basic idea, it will not cut. You need to know LBO in detail to solve the case, do the analysis, and present the case on your findings. Before the interview, prepare LBO modeling from scratch. If you go through this round, you need to go through the last round called the “likeability test.” In this test, the setting would be informal. And you may be invited to a dinner with CEO and senior partners. And they can ask you anything. This round is implemented for two basic reasons – first, the firm needs to know whether you’re a perfect fit for the firm in the long run; and second, this round will let senior partners and other members of the firm talk to you and find out whether you’re a good fit or not. In this round, you may be asked many personal questions as well. Be flexible and hold your nerve. This round is not only a fitment round; it’s also a personality-test round. So be yourself and express your best.
Culture in Private Equity in Germany
In Private equity in Germany, working hours are similar to the UK or European private equity market. People work long working hours, and there is huge pressure for bringing in better investments.
However, the working hours as a private equity analystPrivate Equity AnalystA private equity analyst is an analyst who looks for undervalued companies for a private equity investor to buy, take them private and earn profits. The companies are primarily unlisted, and the risk is higher. are lesser than working hours in investment banking in GermanyInvestment Banking In GermanyGermany's top investment banking firms are - Cf-Mittelstand, Deutsche Bank, Nomura Holdings, BNP Paribas, M&A International, Morgan Stanley, Credit Suisse, EY, Oakley Advisory.. You would be working around 60-70 hours on average, but the working hours depend a lot on the private equity firms you’re working for. You will maintain a good work-life balance, but if you work for a bulge-bracket firm, then maybe you would need to work more hours per week.
Usually, private equity firms work in a small team, and as a result, you can walk into anybody and ask questions. You also need to do a bunch of tasks that have nothing to do with analyzing investments – like making cold calls to prospects, looking over investments that are already being bought and see their status as of now and so on and so
Private Equity Salaries in Germany
In Private Equity in Germany, compensation is quite good. But compared to other finance roles, it’s not great (at entry-level).
As per Robert Walters, in 2015, the average compensation of private equity professionals who had 3 to 7 years of experience was 55,000 – 75,000 Euros per annum. In 2016, the figure increased, and it became around 65,000 – 80,000 Euros per annum.
But it can be seen that if you can stick to private equity for more years (at least 10+), your compensation would be much more. In 2015, the salary of private equity professionals with 7 to 15+ years of experience was 90,000 to 160,000 Euros per annum. In 2016, the range of salary for 7 to 15+ years of experience increased to 90,000 to 180,000 Euros per annum.
If we compare the compensation of private equity professionals with other finance positions, we would see that in the beginning, private equity professionals earn less; but as years go by and experience increases, private equity professionals earn more than other finance positions.
Statista did a study, and they found that in the year 2017, the compensation of private equity investmentEquity InvestmentEquity investment is the amount pooled in by the investors in the shares of the companies listed on the stock exchange for trading. The shareholders make gain from such holdings in the form of returns or increase in stock value. managers of Germany having 3 to 7 years of experience is 75,000 to 100,000 Euros per annum. And for over 7 years of experience, the compensation increased to 90,000 to 180,000 Euros per annum.
Private Equity Exit Opportunities in Germany
Private equity professionals usually quit for better opportunities and to explore other career options.
Private equity professionals usually go for investment banking or venture capital since both of these careers (investment banking & venture capital) are providing ample opportunities in Germany. But few also go for equity researchEquity ResearchEquity Research refers to the study of a business, i.e., analyzing a company's financials, performing Ratio Analysis, Financial forecasting in Excel (Financial Modeling), & exploring scenarios to make insightful BUY/HOLD/SELL stock investment recommendations. Moreover, the Equity Research Analysts discuss their findings & details in the Equity Research Reports. profiles.
If you want to exit from a private equity career, first be clear why you would like to quit and change your career. Suppose you know “why,” you will find out “how” easily.
As the UK and France, Germany is a big deal in the private equity market. That’s why many people are getting interested in shifting to Germany for better career prospects. One thing you need to remember, along with preparing hard for a private equity career; and that is the German language. If you want to make your mark in Germany, better you learn the German language and become fluent enough to read, write, and speak in it. If you know German, your job prospects in Germany will drastically increase.
This article has been a guide to Private Equity in Germany, their services offered, the recruitment process, their culture, top private equity firms in Germany, salaries, and exit opportunities. You may also have a look at the following article for learning more about Private Equity –