Annual Report

50 years of DBAG

Magazin Foto

The company's initial public offering in 1985 was a historic step, giving private investors access to the private equity investment class for the first time.


The new service soon met with demand: the investment in Eberle-Werke, a family-owned company in Nuremberg, in 1966 was the third investment following DBG's foundation the previous year.


For over 50 years, we have supported successful small and mid-sized companies, the backbone of the German economy, with private equity. Deutsche Beteiligungsgesellschaft mbH was founded in 1965 and renamed Deutsche Beteiligungs AG in 1985. Ever since then, we have contributed to countless success stories. We have helped far-sighted entrepreneurs and committed managers to take the next step forward in a globalised world. At the same time, this has enabled us to develop and shape the investment business in Germany. To the benefit of all: our shareholders, our partners at the companies we invest in, and not least the future viability of Germany as a place to do business.



IN 1965,

Seen from today’s perspective, Deutsche Bank’s decision to found “Deutsche Kapitalbeteiligungsgesellschaft mbH” (DBG, renamed Deutsche Beteiligungsgesellschaft mbH shortly afterwards) on 23 September 1965 was a pioneering step. Because even though the Company’s first real investments in small and mid-sized companies at the time ranged from around 0.5 to 2.5 million deutschmarks, they were something completely new and innovative in the German financial and capital market of the 1960s. The Federal Republic of Germany was already well established both politically and economically. Following the economic miracle, there was full employment. The country owed its increasing prosperity not least to the "Mittelstand", the large number of small and mid-sized companies, many of them family-owned, that put German products on the global map under the seal “Made in Germany”. However, some of these companies were only able to finance their growth from classical capital sources to a limited extent. And so the idea was born of setting up a company to provide these companies with equity.


Ludwig Erhard, Minister for Economic Affairs and subsequently the second Chancellor of the Federal Republic of Germany, is considered the father of the economic miracle.

Pioneering work without real role models

In the early years of private equity financing, there were very few examples on which an investment company like DBG could model itself. Two investment companies that started up at around the same time as DBG had already funded established mid-sized companies as silent partners. In this respect, the service they offered was therefore still similar to the traditional lending business of banks. Shortly afterwards, the two companies withdrew from this still young market. DBG had to find its own way. Its objectives were clear: to improve the equity structure of mainly mid-sized companies and generate growth, on the one hand by strengthening these companies’ innovativeness and competitive edge, and on the other by achieving an adequate return on the invested capital.



was the average amount invested in small and midsized companies by DBAG at the time.




Companies in Germany funded with private equity (2013, by annual revenues)
Source: PEREP Analytics. Only includes companies with known revenues (377 companies)



A great idea catches on

Today, half a century later, more than 20 billion euros of equity capital has been invested in over 6,400 companies in the German economy. The revenues of companies financed with private equity correspond to 8.2 percent of Germany’s gross national product. This underlines just how important private equity is for the country’s economy. Fifty years after being introduced to the market, it has become established in the German economy and is now indispensable. DBAG and its competitors are sought-after whenever the financial resources of owners or internal financing with corporate profits are insufficient to allow companies to take the next step in their development in a globalised market.

This benefits the entire economy, as the figures show: more than 90 percent of companies financed with private equity in 2013 in Germany were in the category “less than 500 million euros in annual revenues and fewer than 1,000 employees”. Private equity, especially when it comes from Germany, finances German SMEs.



the average amount invested in MBOs nowadays by DBAG alongside DBAG Fund VI.


The oil crisis largely took Germany by surprise and laid the foundation for greater energy efficiency.


Growth of assets managed/advised by DBAG from 1965 to 2013/14


IN 1975,

In the 1970s, the environment was somewhat unfavourable for the equity business: the shock following the two oil crises in 1974 and 1979 weighed heavily on the economy. Rising oil prices made production more expensive and even hit small and mid-sized companies that had previously been robust. Despite this, their good reputation remained untarnished, even internationally. Anglo-American private equity companies decided to take advantage of the situation and attempted to enter the German market. However, they were hindered in this by the economic and social climate with its critical attitude to entrepreneurship and pursuit of profit as well as competition from the state with its venture capital scheme to promote investments (ERP-Beteiligungsprogramm), which was subject to strict conditions. None of the foreign companies managed to gain a foothold in the German equity business. At the end of 1975, the German equity market had a volume of just 420 million deutschmarks. DBG led the market among German private equity companies with a market share of around 18 percent.

In the early 1980s, German companies’ equity base had been declining for years despite the economic upswing. This prompted a political reaction: a law on special investment companies (Gesetz über Unternehmensbeteiligungsgesellschaften– UBGG) was initiated to simplify the process for companies to borrow equity. It governed the activities of private equity companies for the first time with the aim of making it easier for unlisted SMEs to receive external financing.


Private equity secures earnings and creates jobs. Synergies captured through takeovers, on the other hand, often result in job losses.



Advising and managing assets worth 1.3 billion euros

Today, German SMEs are highly sought-after by international private equity companies. Measured by the volume invested, the German market has grown strongly – and with it Deutsche Beteiligungs AG: at the balance sheet date for the 2013/14 financial year, DBAG advised and managed assets worth 1.3 billion euros with a portfolio of 19 investments. Its partners are open and discerning managers as well as owners of family businesses who not only expect equity from their financial investor, but also business expertise, a first-rate network and in-depth understanding of their products and markets.

It is clear that over the years, there has been a fundamental change of mindset. Today, the function of private equity companies, namely of creating a kind of exchange, is widely understood. This is available as a capital market for families who want to dispose of their company, corporations that have lost interest in their non-core business or to finance further growth. After all, not all business models can be floated on the stock exchange. If there were no financial investors, then basically the only potential buyers left for these companies would be their competitors. And they would only be interested in creating “synergies” – one sales team instead of two, making one of two research divisions superfluous, and taking advantage of this to invest abroad on a large scale. Because not all companies want to accept this prospect, this results in investment opportunities for companies like DBAG. With experience gained from investments in more than 300 German SMEs, it is today one of Germany’s leading private equity companies.


The fall of the Berlin Wall in 1989 set things in motion in economic terms, too.


A historic moment: DBAG's initial public offering in 1985 made private equity accessible for private investors.


IN 1985,

In the middle of the 1980s boom, DBG’s Supervisory Board and Board of Management decided to act. The management had already given some thought to financing the investment business on the capital market in future. Now was the right time: Deutsche Beteiligungs AG (DBAG) was founded on 10 December 1984. With an equity base of 60 million deutschmarks and the most attractive investments from DBG’s portfolio in terms of profitability and growth opportunities, DBAG was the first German private equity firm in accordance with the UBGG. The initial price for its share was set on 19 December 1985. The timing was good: in 1985, the business volume of the German investment industry passed the one billion deutschmarks threshold for the first time. The growth of the entire industry gathered momentum, promoted on the one hand by strong economic growth in the 1980s and on the other by the effects of Reunification towards the end of the decade.

Still successful and in demand after 30 years on the stock exchange

From being an oddity on the exchange list, DBAG grew steadily over the following years to become a gem in the depots of many private and institutional investors. Even today, purchasing a DBAG share is the only way for investors to supplement their investment portfolio with a German prime standard value that invests in the most promising unlisted German SMEs based on the value-enhancing approach of a private equity investor. It does this by means of proven criteria and transparent objectives. Private equity for the price of one share.

This also makes it accessible for private investors, who normally do not have access to this investment class: private equity funds, which institutional investors use for capital allocation, require minimum investments that only few private investors can afford.


LPEQ, an amalgamation of 18 private equity companies listed on various European exchanges, and LPX Group as a financial services provider in the area of alternative asset classes support the private equity business with analyses, indices and exchange-traded funds.



An important building block for a diversified private equity portfolio

Worldwide, there are some 250 listed private equity companies, mostly in Europe. Their investment strategies vary: they invest either directly in companies or in private equity funds, prefer specific industries, countries, company sizes or investment phases. Investors can therefore combine a selection of these shares to create a diversified private equity portfolio – diversified in terms of geographic distribution, private equity investment style (buyout, venture capital or growth financing) and financing form (equity or mezzanine), among others. Unlike in the case of closed-end funds, investors who buy a private equity share invest in an existing portfolio. They can end the investment at any time or remain invested indefinitely. Just as in other segments of the equity market, listed private equity includes open-end investment funds and exchange-traded funds (ETFs), and there are even listed private equity indices calculated on the stock exchange. Thirty years after going public, Deutsche Beteiligungs AG’s share is included in a number of such funds, ETFs and indices.


The development of DBAG's share since going public on 19 December 1985 (= 100); until 31 October 2014, its value increased by around 9.6 percent p.a.


Management buyouts secure the future of small and mid-sized companies.


At the beginning of the new millennium, changes in regulations resulted in banks hiving off their private equity business.


IN 1995,

After the fall of the Berlin Wall and the Iron Curtain, the 1990s were characterised by the huge economic effort to reconstruct the eastern German states. For DBAG, too, this heralded the dawn of a new era and the most exciting decade in its history so far. The impact of the fall of the Berlin Wall on the German economy was also felt by small and midsized companies. In addition, Europeanisation and the start of globalisation were making their mark. Corporate structures were transformed, producing more split-offs and spin-offs, and demand for management buyouts (MBOs) increased as the next generation in family-owned companies took over. In addition, it emerged that the credit requirements would become stricter for small and medium-sized companies in particular – leading years later, in 2004, to the regulations known as “Basel II”. This also generated new opportunities in the private equity business.

Strategic consequences from a turbulent decade

These fundamental changes offered salaried managers the chance to become entrepreneurs themselves – with the help of financial investors to fund the MBO. From around the mid-1990s, interest in MBOs grew significantly. After the German capital market opened, private equity became more popular here and demand grew considerably. DBAG was one of the first German financial investors to recognise this and make acquisitions structured as buyouts part of their strategy. By concentrating on German SMEs in traditional sectors with exceptional potential for development, DBAG established the framework for its activities, which basically still applies today. This paid off: until the turn of the millennium, the DBAG Group multiplied its portfolio volume fivefold to around 500 million euros in the course of this decade of rapid growth.




Management buyouts – majority interest in a company together with its management board – now dominate DBAG's portfolio.

MBOs as an attractive form of investment

Not least thanks to this important strategic decision in the 1990s, DBAG is well established today as a preferred partner for SMEs and has made its mark as one of the leading German buyout investors.

Since 1995, DBAG has structured 31 management buyouts in Germany. Twenty-one of these investments have since ended, most with considerable success, not only for the companies themselves, but also for investors and DBAG’s shareholders. The MBOs that have already ended yielded more than double the capital invested. With an average holding period of less than five years, a (gross) capital multiplier of 2.9 presents an attractive return. Its in-depth knowledge of successful MBOs acquired over many years will continue to contribute to the attractiveness and performance of DBAG and its shares in future.



Overview of DBAG's funds


FROM 2005,

Thanks to its strong position, DBAG emerged from the economic crash at the beginning of the new millennium relatively unscathed. The group net income was not always positive during these years. However, thanks to its disciplined investment and financing management, it was able to lead its portfolio companies safely through the crisis. Even in its worst year it generated substantial capital gains; a comparably sound equity base took care of the rest.

Banks, once the founders of investment companies, no longer wanted to include private equity in their balance sheets to the same extent as at the turn of the millennium due to its sector-specific volatility in periods of excessively high prices on the stock exchange. In addition, regulatory changes made investments in private equity companies seem less attractive for banks. Deutsche Beteiligungs AG was prepared for this challenge. It has always entered into investments either exclusively via funds or – after DBAG was founded – as a co-investment with funds. In 2002, DBAG established a fund whose members not only comprised shareholders of DBAG or partners of DBG for the first time. Deutsche Bank only contributed 13 percent of investment commitments to this DBAG Fund IV. That was the last time it took a stake: when DBAG Fund V was established in 2006, it did not participate at all. In 2007, Deutsche Bank sold its remaining 15 percent share of DBAG.

At the time, DBAG had long grown out of the need for a strong parent company. It had matured and become independent, and no longer relied exclusively on direct investment as its mainstay. With its strategy of managing and offering advice on closed-end private equity funds for institutional investors, it not only opened up a second source of financing, but also established a second earnings pillar. DBAG’s success could be seen not only in the growing volume of funds, but also in the expansion of its products to include a fund for growth financing, which was established in 2011. DBAG Fund VI was the largest buyout fund of a German private equity company in 2012 with a volume of 700 million euros.


All investment decisions by Deutsche Beteiligungs AG are made at its headquarters in Frankfurt/Main, not far from the Frankfurt Stock Exchange.


Annual rate of return of different asset classes over a ten-year period from 2004 to 2013, based on comparable cash flows and taking into account the initial and the end value of each private equity fund
Source: “2013 Pan-European Private Equity Performance Benchmarks Study”, European Private Equity & Venture Capital Association (EVCA), Brussels, June 2014 (page 21)



Only the best is good enough

The investment universe in which DBAG finds new candidates for its portfolio comprises around 4,000 unquoted German SMEs. The Company has sufficient funds for this – a total of 800 million euros from its own balance sheet and from investment commitments from its fund investors (31 October 2014). In addition, it has one of the largest and most experienced investment teams on the market.

DBAG’s network is unique, and the success of its business with a 15.3 percent return on equity on average over the past ten years speaks for itself. The “locust” debate in Germany that raised its head in April 2005 gave DBAG the opportunity to set itself apart from the competition: measured by the private equity sector, its listing on the stock market provides it with an exceptionally high degree of transparency for entrepreneurs and managers in SMEs, for shareholders and business partners as well as for all those who are interested in the business of DBAG. This also benefits the companies in DBAG’s portfolio, putting them in a position to take the next step in their development. Comparisons with listed companies or family-owned businesses have repeatedly shown that companies financed with private equity grow faster, pursue a clearer strategy, have a better financial structure, and ultimately secure existing jobs and create new ones. This offers good prospects for further successful decades in the life of Deutsche Beteiligungs AG. And proof of the farsightedness of those who laid the foundation for institutionalised private equity capital 50 years ago.