Industrialization through investments – DACH industry structure and success factors for direct investments

26 June 2018

Prof. Dr. Christian Aders

0

1,000

2,000

3,000

4,000

5,000

2014 2015 2016 2017

Germany Switzerland Austria

0

1,000

2,000

3,000

4,000

5,000

2014 2015 2016 2017

Germany Switzerland Austria

Economic basis: Strong GDP in the DACH region (Germany, Austria and Switzerland)

Source: Statistisches Bundesamt, UBS, WKO, IMF.1) Gross domestic product (GDP) is a key measure of the economic performance of a national economy and includes all goods and services produced within the geographical borders of aneconomy in a given period and valued at market prices, apart from intermediate goods used to produce other goods and services.2) No data available for Switzerland in 2017; figures from previous year were assumed.

June 2018 2

Total GDP1) in DACH region (EUR bn) GDP DACH w/o infrastructure & financial services2) (EUR bn)

3,789 3,977 4,100 4,212

3,184 3,340 3,447 3,571 2)

3,000

5,000

4,000

2,000

1,000

02014 2015 2016 2017 2014 2015 2016 2017

Growing GDP (ca. 4% p.a.) in DACH region exceeded EUR 4,200 bn in 2017.The largest GDP share is contributed by Germany.

3,000

5,000

4,000

2,000

1,000

0

Four strategic approaches exist to accelerate industrialization and know-how transfer into Arab world

1) Direct investments are defined by equity participations over 20%, which allow to influence company strategy, e.g. to invest in foreign production facilities to realize market synergies inforeign markets.

June 2018

Direct investments1) in foreign companies

Own investment in R&D, HR and production facilities

Industrialization and know-how transfer

Purchase of products and services from foreign companies and

inbound investments of them

Joint Ventures with foreign companies

High demand from foreign investors for companies “made in DACH” region due to leading edge technology & production know-how is one of the key drivers for M&A activity in the region.

3

A case study: The public takeover of a leading automotive components provider GRAMMER by a Chinese investor for about 0.8 bn

Source: Börsenzeitung, June 12, 2018.

“Jifeng is under pressure to succeed.

Their expansion is a building block in Beijing's strategy to significantly improve the quality

of its own economy.

The automotive industry is a key factor here. Therefore, Jifeng could possibly finance the

takeover with loans from Chinese state banks.”

June 2018 4

Foreign investors do continuously direct investments to accelerate know-how transfer.

0

20

40

60

80

100

120

140

160

2014 2015 2016 2017

Germany Switzerland Austria

0

500

1.000

1.500

2.000

2.500

3.000

2014 2015 2016 2017

Germany Switzerland Austria

Overall transactions in the DACH region of the last four years show a stable high volume and number of M&A transactions

Source: S&P Capital IQ, ValueTrust Analysis.

June 2018

Deal volume of DACH-M&A transactions in last 4 years (EUR bn) Number of DACH-M&A transactions in last four years

2,338 2,446 2,446 2,338

Large number of overall M&A transactions in DACH region.

Ø EUR 105 bn p.a. Ø 2,400 transactions p.a.

Ø EUR 45 m per target

108.7100.9

69.3

140.3

5

3,000

1,500

1,000

500

0

120

100

40

20

0

2014 2015 2016 2017

60

80

140

160

2,000

2,500

2014 2015 2016 2017

0

400

800

1.200

1.600

2014 2015 2016 2017

Germany Switzerland Austria

Transaction landscape shows a decreasing deal volume when excluding real estate and financial targets as well as two Swiss mega transactions

Source: S&P Capital IQ, ValueTrust Analysis; 1) excl. real estate & financial target; excl. EUR 41 bn Syngenta and EUR 27 bn Actelion transaction in Switzerland in 2017.

June 2018

Deal volume of DACH-M&A transactions in last 4 years (EUR bn)1 Number of DACH-M&A transactions in last 4 years1

1,4651,575 1,628 1,571

Stable amount of transactions of which about 30% are inbound.

Ø EUR 55 bn p.a. Ø 1,600 transactions p.a.

Ø EUR 35 m per target

0

20

40

60

80

2014 2015 2016 2017

Germany Switzerland Austria

77.2

59.4

45.739.2

6

1,600

1,200

800

400

0

80

60

40

20

02014 2015 2016 2017 2014 2015 2016 2017

0

400

800

1.200

1.600

2014 2015 2016 2017

Germany Switzerland Austria

0

20

40

60

80

2014 2015 2016 2017

Germany Switzerland Austria

High and persistent levels of inbound M&A transactions into DACH region

Source: S&P Capital IQ, ValueTrust Analysis; 1) excl. real estate & financial target; excl. EUR 41 bn Syngenta and EUR 27 bn Actelion transaction in Switzerland in 2017.

June 2018

46.5 47.1

34.3 31.5

446505 528 495

Higher deal volume of 80 m per target for inbound M&A transactions in DACH region.

Deal volume of DACH-M&A transactions in last 4 years (EUR bn)1 Number of DACH-M&A transactions in last 4 years1

Ø EUR 80 m per target

Ø EUR 40 bn p.a. Ø 500 transactions p.a.

7

1,600

1,200

800

400

0

80

60

40

20

02014 2015 2016 2017 2014 2015 2016 2017

Most inbound M&A transactions are small sized and within three industries

Source: ValueTrust Analysis, S&P Capital IQ.

June 2018

About 75% of all inbound M&A-targets are operating in the industries industrials, IT and consumer goods. More than 50% of deals are below EUR 50 m.

Targets by industry Size classes of targets in EUR (by number of deals, 2014-2017)

Industrials & chemicals

34%

IT & telecom26%

Consumer goods22%

Healthcare14%

Energy & utilties4%

< 25 m43%

25 m - 50 m13%

50 m - 250 m26%

250 m - 500 m7%

> 500 m11%

8

Healthcare (14%)

Energy & utilities (14%)

Industrials and chemicals

(34%)

IT and telecom(26%)

Consumergoods(22%)

25 m – 50 m(13%)

50 m – 250 m(26%)

250 m – 500 m(7%)

> 500 m(11%)

< 25 m(43%)

M&A activities focus on the hot spots in the DACH region. The “Hidden Champion Belt” is an attraction point for domestic and foreign investments

Source: ValueTrust Analysis, S&P Capital IQ; 1) Data over the last 4 years, excl. real estate and financial targets.

Geographical distribution of targets in DACH region1)

North Rhine-Westphalia as the most populous

state of Germany shows high M&A activity

Berlin is one of Europe’s greatest hubs for start-up and IT companies, displaying high M&A activity in this domain

In Austria the focus of M&A transactions is on

the cities Vienna, Salzburg, Innsbruck and Graz

M&A activity in Switzerland focuses on the northern part and

peaks in the Zurich area

The “Hidden Champion Belt“ stretches from southwest Germany

and northern Switzerland across Munich area to Vienna

Inbound transactionsIntra-DACH-transactions

The “Hidden Champion Belt” has a high density of world-leading SME technology companies, which attracts large domestic and foreign investments.

June 2018 9

0% 20% 40% 60% 80% 100%

Europe (excl. DACH) North America

Asia / Pacific Others

Arab world

Mainly Europeans and Americans - investing in diverse range of industries

1) ”Arab world” defined as Ghorfa members.

June 2018

1)

Investments from Arab world1 are falling massive behind. The second largest seller group Private Equity (PE) is a natural source of deals to catch up

fast and to buy well developed and excellent performing companies.

59% 26% 12% 1%

Buyers by geography Sellers by type

0% 20% 40% 60% 80% 100%

Corporate (private) / owner / family

Private Equity

Corporates (public)

10

35%42% 23%

0% 20% 30% 40% 50% 60% 0% 20% 30% 40% 50% 60%

Small-Cap Large-CapMid-Cap

DACH region provides a diverse universe of Private Equity funds as potential deal sources

June 2018

Source: ValueTrust Analysis, S&P Capital IQ.

DACH

Global

Europe

11

Local Other PE firms

95

8680

71

0

10

20

30

40

50

60

70

80

90

100

2014 2015 2016 2017

Large number of acquisitions shows stable interest in DACH companies from Private Equity (PE)

Source: ValueTrust Analysis, S&P Capital IQ; Note: 1) According to number of acquisitions.

June 2018

DACH Private Equity funds have stable investment portfolios throughout recent years and exit investments due to their business model on average after 5 years.

Total number of DACH PE fund acquisitions (2014-2017)1) Number of acquisitions per Top 10 DACH PE funds (2014-2017)1)

12

42

17

15

14

14

14

13

11

11

10

0 20 40

Partners Group

Gimv NV

Deutsche Beteiligungs AG

Hannover Finanz GmbH

Montagu Private Equity LLP

Ufenau Capital Partners AG

AFINUM Management GmbH

Waterland Private Equity GmbH

VR Equitypartner GmbH

Gilde Buy Out Partners AG95

8680

71

2014 2015 2016 20170

10

20

30

40

50

60

70

80

90

100 10

11

11

13

14

14

14

15

17

42

0 20 40

Gilde Buy Out Partners AG

VR Equitypartner GmbH

Waterland Private Equity GmbH

Afinum Management GmbH

Ufenau Capital Partners AG

Montagu Private Equity LLP

Hannover Finanz GmbH

Deutsche Beteiligungs GmbH

Gimv NV

Partners Group

32

13

11

11

10

10

9

8

8

8

0 20 40

Gimv NV

Partners Group

Hannover Finanz GmbH

capiton AG

Waterland Private Equity GmbH

Deutsche Beteiligungs AG

Gilde Buy Out Partners AG

BayBG mbH

FSN Capital Partners AS

Mutares AG

Divestments universe of Top 10 DACH Private Equity (PE) funds shows stable number of divestments

Source: ValueTrust Analysis, S&P Capital IQ; Note: 1) According to number of divestments.

June 2018

Stable number of DACH Private Equity (PE) divestments can be used as an entry point for investors from Arab world.

Total number of DACH PE fund divestments (2014-2017)1) Number of divestments per Top 10 DACH PE funds (2014-2017)1)

63

56

63

53

0

10

20

30

40

50

60

70

80

90

100

2014 2015 2016 2017

13

6356

63

53

2014 2015 2016 20170

10

20

30

40

50

60

70

80

90

100 8

8

8

9

10

10

11

11

13

32

0 20 40

Mutares AG

FSN Capital Partners AS

BayBG mbH

Gilde Buy Out Partners AG

Deutsche Beteiligungs AG

Waterland Private Equity

Capiton AG

Hannover Finanz GmbH

Partners Group

Gimv NV

Divestment universe of DACH Private Equity (PE) funds shows focus on three main sectors

Industrials; 27,4%

Non-basic Consumer Good;

20,0%

Information Technology; 9,5%

Materials; 10,5%

Bas ic Consumer Good; 5,3%

Healthcare; 12,6%

Others ; 14,7%

Industrials; 25,4%

Non-basic Consumer Good;

19,7%

Information Technology; 18,3%

Materials; 8,5%

Bas ic Consumer Good; 7,0%

Healthcare; 9,9%

Others ; 11,3%

Source: ValueTrust Analysis, S&P Capital IQ.

June 2018

Divestments as a basis for Arab world’s direct investments in the most relevant target industries: industrials, consumer goods and IT.

Divestment industries of all DACH PE funds (2014) Divestment industries of all DACH PE funds (2017)

2014 2017

14

Others (14.7%)

Healthcare (12.6%)

Basic consumer

goods (5.3%)

Materials (10.5%) IT

(9.5%)

Industrials (27.4%)

Non-basic consumer goods

(20.0%)

Others (11.3%)

Healthcare (9.9%)

Basic consumer goods

(7.0%)

Materials (8.5%)

IT (18.3%)

Industrials (25.4%)

Non-basic consumer goods

(19.7%)

Success factors for Arab investors to do direct investments

June 2018

Industrialization and know-how transfer

15

Key success factors are a local acquisition team with competence to make quick decisions and an acquisition strategy, which is based on Arab world’s industrialization strategy to be

the “Best Buyer” with highest synergies and a competitive bid price.

▪ A bidder is only successful if he can position himself as “Best Buyer"▪ Valuation of synergies is a critical aspect for the right offer price ▪ Focus on focus industries in order to consistently evaluate synergies

▪ To be informed of transactions in time▪ Grant access to decision-makers in target

companies and sellers as well as gatekeepers (e.g. lawyers, investment banks and PE funds)

▪ Image and PR campaign to be "on the radar"

▪ Knowledge of local characteristics of M&A process ▪ Process typically takes about six months with clear structures ▪ Process knowledge leads to better assessment and control ▪ Critical decisions should be made quickly

Network Local process knowledge

Synergies

Follow us:

ValueTrust Financial Advisors SETheresienstrasse 180333 MunichGermany

www.value-trust.com