OBJECTIVES & STRATEGY
OBJECTIVE: TO SUSTAINABLY INCREASE THE VALUE OF DBAG
The core business objective of our activity is to sustainably increase the value of Deutsche Beteiligungs AG. We achieve this aim by increasing the value of our two business segments, Private Equity Investments and Fund Investment Services.
As is common in the private equity sector, a long period of time is required before we can be judged on our success. The income from investment activity is influenced to a significant degree by the appreciation in value of our portfolio companies. Exploiting development potential requires patience; on average, we support the companies over a period of four to seven years. Income from Fund Services is largely influenced by the launch of new funds, something that happens every four to five years or so, while the lifetime of a fund generally extends to ten years and extensions of up to two years are common. Key indicators can also be headed on a downward trajectory in the short term. This is partly a typical feature of the business because, for example, income from Fund Services falls after investments are disposed of. In part, however, it is also attributable to external factors that can fluctuate considerably in the short term, such as the valuation levels of listed peer group companies in the context of the portfolio valuation process. This means that a single quarter and even an entire financial year say very little about the success of our business activities. It is only when viewed over a sufficiently long period of time that it is possible to assess whether we have reached the core objective of our business activity.
STRATEGY: INVESTMENTS IN GERMAN MITTELSTAND COMPANIES WITH DEVELOPMENT POTENTIAL
DBAG invests in established companies with a proven business model. This approach excludes investments in early-stage companies, or companies requiring considerable restructuring. Moreover, we attach a great deal of importance to seasoned and dedicated management teams who are able to realise the objectives agreed with them.
In financial year 2018/2019, we expanded our investment strategy and, as a result, our product r ange for the mid-market segment: in addition to the co-investments alongside the DBAG funds, we now offer equity investments that are financed exclusively from the Deutsche Beteiligungs AG balance sheet. These are investments that are not consistent with the investment strategies of the existing DBAG funds. As a result, these Principal Investments differ from the co-investments made alongside the funds first of all in terms of the intended term of the investment: our offering is aimed at family businesses to whom we can offer equity capital from our balance sheet, enabling holding periods that are longer than the usual term of a closed-end private equity fund.
We look for companies with development potential to add to our portfolio. By way of example, measures to strengthen a company’s strategic positioning – e.g. by expanding its product range or covering a larger geographical market – can unleash potential for value appreciation.
Companies that fit the range of investments we cover are also characterised by leadership positions in a (possibly small) market, entrepreneurially-driven management, strong innovative capacity and future-proof products. The business models of these companies are also aimed at reaping the benefits from the megatrends in their respective sectors. Many such mid-market companies can be found in Germany, for example, in mechanical and plant engineering, in the automotive supply industry and among industrial support services providers, as well as among industrial component manufacturers.
In addition to the investments in our core sectors, we have increasingly turned to portfolio companies in other new focus sectors in recent years and these now account for a considerable proportion of the portfolio. Examples of transactions from these new focus sectors involve companies whose business is related to the expansion of digital infrastructure in Germany. Companies with mature and attractive business models are increasingly being found in the software industry, too. The healthcare sector has also opened up to financial investors over the last few years.
Geographically, we concentrate on companies domiciled – or whose business is centred – in German-speaking regions. We limit any investments outside of this region to our core sectors.