Germany Sees Sustained Increase in Venture Activity

Statistics for the first half of 1998 released by the Bundesverband Deutscher Kapitalbeteiligungsgesellschaften (BVK), Germany’s national venture capital association, suggest that the market is heading for another record-breaking year.

In the six months ended 30 June, BVK members made 387 new investments at a total cost of DM650.8 million and deployed a further DM375.4 million in an unspecified number of follow-on rounds. The DM 1.026 billion (ecu 521 million) invested in the first half of this year represents a 33% increase from the DM770 million total for the first six months of 1997, when 276 new investments were made.

BVK president Albrecht Hertz-Eichenrode pointed out that historic statistics for the German market show that first-half investments typically account for approximately one third of new investment activity recorded for the full year.

If this trend is maintained in 1998 in parallel with continuing high levels of follow-on investments, German private equity investment this year looks set to surpass 1997’s record tally of DM2.4 billion.

Divestment levels (measured at cost) also rose strongly in the first six months of this year to DM410.8 million, a 45% increase on first-half exits in 1997.

Meanwhile, the level of write-offs declined slightly to 54 investments with a cost value of DM41.7 million, whereas 58 write-offs with a cost value of DM43.4 million were made during the first half of 1997. Only 69 full divestments were achieved in the first half of this year compared with 92 full disposals through last June, but their DM155.2 million cost value was 8% greater than in 1997. The strongest increase, however, was in partial divestment activity, which resulted in the realisation of DM213.8 million of investments at cost, an increase of more than 120% from 1997.

BVK members’ total investment portfolio, which at the end of June stood at 3,766 investments acquired at a cost of DM7.782 billion, increased in value by 8.3% during the first half of the year.

These figures paint a picture of an increasingly dynamic investment culture in Germany but they may significantly understate real levels of private equity investment, given the number of overseas players now active in Germany.