The recent blossoming of the German private equity market over the last 18 months has prompted numerous UK groups to establish a direct presence there. Most of these groups are players at the larger end of the buyout market. By contrast, Granville Private Equity Managers, which has just announced the opening of Granville Private Equity Deutschland (GPED) in Hamburg and its first German deal lead, plans to replicate the mid-market focus and concentration on specific industrial sectors that are the hallmarks of its existing business in the German market.
GPED is a joint venture between Granville and Steffens Alvano & Partner (SAP), the independent corporate finance house established in 1990 by Rolf Steffens and Dr Wolfgang Alvano. SAP has extensive experience in the German private equity market, and more than half the companies it has advised in recent years have been acquired by financial purchasers. GPED will be headed by joint managing directors Joachim Muller-Wende of Granville and Dirk Schekerka of SAP, and deals will be executed by a joint team of Granville and SAP executives.
Mike Proudlock, Granville chief executive, said Granville chose to enter Germany via a joint venture with an M&A team with a pipeline of deals “to minimise the gap between creating a presence and being able to start investing”. This strategy paid off: Granville, which began to forge a relationship with SAP at the beginning of 1997, in December closed its first German lead, the financial purchase of ISDN telephone systems manufacturer Elmeg GmbH Kommunikationstechnik (story, page 26), investing DM24.4 million (ecu 12.3 million).
The acquisition of Elmeg, a market leader in Germany with a turnover of DM 90 million, could be said to typify Granville’s investment strategy. Concentrating on transactions with entry valuations in the GBP5-50 million (ecu 7.5-75 million) range, Granville has opted to focus closely on the IT, telecommunications, outsourcing and transport and logistics sectors and over the years has built considerable expertise in these industries. Granville sees this sector specialisation as the key to successful entry into other markets within Europe. Mike Proudlock said: “It is our belief that these sectors transcend geographic boundaries, though obviously lines of communication are all important. Granville is keen to cover the whole of Western Europe, but will place a particular emphasis on Spain, France and now Germany, where the group has local offices: it is all-important not too stretch lines of communication too far”. He added that, in Granville’s experience, sector specialisation has proved a considerable asset in the mid-market niche where the group operates, enabling it to avoid the beaten path and secure a deal flow the majority of private equity firms are not in a position to access.
Up to 30% of Granville’s current fund, the o82 million Granville Private Equity Fund V, which closed late last year, can be invested outside the UK. In all probability, Granville will go out to the market with a larger successor vehicle during the first half of 1998 since, if current levels of investment are maintained, GPEF V will be 70-90% invested by the second quarter. Meanwhile, the 20% limit on non-UK investments in GPEF V will not restrict Granville from pursuing further investments in Germany in the immediate future, since a number of both existing and prospective investors have expressed an interest in co-underwriting German deals.