Face-to-face: Hans J Moock – Distracted by deal flow

Hans Moock joined EQT Partners in November last year to head and set up the firm’s new office in Munich. Previously, he was a director of the Carlyle Group where he worked on the acquisition of a leading light metal foundry and managed the subsequent public-to-private process. From 1993 to 1998 he held senior positions within the Bertelsmann empire. So far this year Hans Moock has recruited Udo Philipp and Jochen Martin. Philipp who worked for LEK Consulting at Treuhandanstalt, the German government privatisation agency, during the time in the early 1990s that Hans Moock worked at the agency as a director. Before joining EQT Partners Udo Philipp held various positions at BertelsmannSpringer Science+Business Media. Martin was formerly project manager at TA Triumph-Adler AG, a German strategic management holding, specialising in medium-sized M&A transactions in selected industries.

Moock has some way to go to meet his recruitment plans and says that he has been distracted by an incredible deal flow since setting up the office. EQT’s investment criteria are not industry-specific but the firm seeks participations of 50 per cent or greater, avoids turnaround situations and commodity-type businesses and instead focuses on businesses that present add-on opportunities and/ or have organic growth potential. Until the new fund is raised investments are being made from EQT II, which is currently 60 per cent invested. The team’s investment level rests at a minimum of E50 million.

Are you enjoying your new role and why?

I am thrilled and very excited in my new role at EQT Partners in Munich. It is a great and rare entrepreneurial challenge to set up a new top quartile private equity firm in this extremely competitive German market environment. We strongly believe that EQT, the private equity arm of the Wallenberg group and one of the most successful and largest private equity groups in Scandinavia, will be able to work its formula successfully in Germany. EQT’s unique operating and industrial approach (10 of 12 partners have operating backgrounds) to adding value to companies and its unique network of relationships enhanced through its sponsor Investor AB, the Swedish industrial holding company controlled by the Wallenberg Foundations, will be particularly attractive to German “Mittelstand” entrepreneurs and managers.

Do you have a full team on board now?

No. We are in the process of setting up a team of 8 to 10 investment professionals by year-end. So far we have a team of three, a fourth professional will join us in May.

Munich has a tradition of venture capitalists investing in biotech: is this a geographic advantage that you can leverage?

More and more private equity companies are setting up their offices in Munich because of the favourable business environment and an extremely pleasant lifestyle (beer-garden culture). The most critical bottleneck in our business is finding outstanding investment professionals with the right mind-set and the right blend of industrial and financial expertise. Munich helps to attract this kind of people.

Is the German mid-market buyout market getting crowded?

It has been crowded for many years already. However, there is even more capital coming into the market every quarter at the moment. Everybody is attracted by the apparent high private equity market potential in Germany. No matter which ratios you use (number of deals, deal volume, deal volume as percentage of GDP, etc.) Germany seems to have an enormous potential relative to mature markets such as the US and the UK. As a result not every private equity player will get a deal in Germany at the moment and some will pay very high prices to get deals. In order to become a successful private equity player in this market you need more than just capital, especially if the “Mittelstand” is a target group. Differentiation is the name of the game.

What are your current fund raising plans?

Sorry, we cannot comment on that because we are in the middle of a quiet period. I can however tell you, that by year-end we will be in the “Champions’ league” of private equity firms in Europe in terms of fund size.

How have you found the change from a north American to a north European firm?

Changing from an organisation with over 250 investment professionals run out Washington DC to an organisation with 24 investment professional run out of Stockholm and an industrial sponsor, Investor AB, in the background, is a quantum leap in many ways. EQT is a small partnership with equal rights for each partner. Decision making is quick and straightforward. Scandinavians have a good understanding of the German culture and business principles, it is therefore pretty easy to communicate, align interests and work together. There is a great common denominator between all investment professionals at EQT. The market acceptance of EQT in the first four months of operations in Germany has been excellent: good deal flow and quite positive reaction to our business approach. The market seems to welcome a Scandinavian private equity firm as an alternative to the numerous Anglo-American firms.

How are you finding conditions for investing in Germany?

Conditions are satisfactory at the moment, at least much better than a decade ago. There have been about a dozen sizeable private equity deals annually over the last few years. The Neuer Markt has helped to enable exits for the private equity industry, MBOs are becoming more accepted, public-to-private deals are taking place now and even hostile deals (Vodafone) are working (unthinkable a few years ago). However, there are still barriers to be removed (minority shareholder squeeze out; tax reform etc.) to get to higher levels of deal flow.

What are your expectations for the growth of the German buyout market this year?

I don’t expect the market to grow this year – no more than a dozen large transactions at around E4 billion to E5 billion. This is because corporations are waiting for the tax reform decision to happen mid-year in order to minimise capital gains tax when the new law comes into effect (January 2001 or January 2002). After the tax reform decision I expect an explosion of M&A activity in Germany.

Do you expect the Neuer Markt to continue to go from strength to strength this year?

Germans have discovered their passion for the stock market! I expect this to last for a while until the market realises that cash flow is actually the name of the game and not just clicks, wishful thinking and losses. The bubble will burst eventually.

Is the auction process a fully established part of the German buyout market?

It certainly is with large public companies like Siemens, Veba and government institutions. It is not established within the “Mittelstand”, because many traditional German entrepreneurs feel embarrassed to put their company on the block and don’t want to open their books to competitors either. They prefer a more discreet process with a partner who has an industrial orientation and offers a fair price to someone who just puts money on the table.