Business climate in the German private equity market starts the year on a positive note

• German Private Equity Barometer rises in 1st quarter 2018
• Early stage: Expectations much more subdued than business situation
• Later stage: Dissatisfaction with entry valuations remains near peak levels

The German private equity market started the year on a high note. The business climate index of the German Private Equity Barometer rose by 2.4 points to 66.7 balance points in the first quarter of 2018. The indicator for the current business situation rose to 71.2 balance points (+2.1), while the indicator for business expectations climbed to 62.1 balance points (+2.5).

Assessments of the level and quality of deal flows and the exit and support environment changed only marginally. The fundraising and innovation climates dropped slightly but continued their upward trend.

The business climate in the early-stage segment cooled off again slightly at the start of the year. The corresponding indicator dropped by 3.3 points to 63.0 balance points in the first quarter. The indicator for the current business situation reached a new record high of 67.7 balance points (+0.4). The indicator for business expectations was down 7.1 points to 58.2 balance points. Relative to their business situation, equity providers had the lowest expectations of the past three years.

The later-stage segment recovered at the start of the year from its previous decline. The very good assessment of the fund-raising climate, exit environment, pressure on write-downs and innovation climate contrasts with the dissatisfaction over entry valuations, which has almost peaked. The business climate indicator rose 7.1 points to 70.0 balance points in the first quarter. The indicator for the current business situation rose by 4.1 points to 74.5 balance points, while the indicator for business expectations increased by 10.1 points to 65.6 balance points.

“Short-term interest rates in Europe will remain at record low levels for the foreseeable future,” said Dr Jörg Zeuner, Chief Economist of KfW Group. “We therefore expect continuing good conditions for fundraising and exits. We are on the way to significantly improving our supply of venture capital to start-ups in Germany at every stage of their business. I am pleased that this market environment is helping us.”

Ulrike Hinrichs, Managing Director of the German Private Equity and Venture Capital Association (BVK), added: “The continuing positive underlying sentiment is good for the market and the economy. A stable private equity market in particular is best able to perform its task: that of providing start-ups and SMEs with private equity. The indications of subdued expectations, on the other hand, reflect the general uncertainty over how long the low-interest environment and the unusually long cyclical upswing in Europe will continue. At the moment, however, there is no end in sight.”

KfW calculates the German Private Equity Barometer exclusively for the Handelsblatt together with the Bundesverband deutscher Kapitalgesellschaften e.V.(BVK; German Private Equity and Venture Capital Association). You can find a detailed analysis with a spreadsheet and graph for the latest German Private Equity Barometer at www.kfw.de/gpeb.