Current German Legislation on Improving the Financing Environment for German Enterprises
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Current German Legislation on Improving the Financing Environment for German Enterprises 3rd Norface Seminar on „Entrepreneurial Finance“ Berlin, May 21st, 2007. Univ.-Prof. Dr. Christoph Kaserer Lehrstuhl für Finanzmanagement und Kapitalmärkte &

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Current German Legislation on Improving the Financing Environment for German Enterprises

3rd Norface Seminar on „Entrepreneurial Finance“

Berlin, May 21st, 2007

Univ.-Prof. Dr. Christoph Kaserer

Lehrstuhl für Finanzmanagement und Kapitalmärkte &

Center for Entrepreneurial and Financial Studies (CEFS)

Technische Universität München

Anlass

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Largest PE Firms worldwide by capital under management (2006)

Capital under management in US$ mm

No.

Name

Location


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Largest European PE Firms by capital under management (2006)

Capital under management in US$ mm

No.

Name

Location


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Largest VC Firms worldwide by capital under management (2006)

Capital under management in US$ bn

No.

Name

Location


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Largest European VC Firms by capital under management (2006)

Capital under management in US$ bn

Location

No.

Name


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Private Equity Investment in Europe

Private Equity investment 2005Volume: EUR 47bn

Country of destination

Country of management

United Kingdom

France

Sweden

Germany

Spain

Netherlands

Italy

Denmark

other

Source: EVCA (2006)


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Private Equity Fundraising in Europe

Private Equity fundraising 2005Volume: EUR 71,8bn

Country of origin

Country of management

United Kingdom

USA

other Europe

France

Germany

Asia

Netherlands

other

Source: EVCA (2006)


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Private Equity Investment in Europe

Economic Significance of Private Equity

Investment(Dest.)/GDPPE Environ.(right scale)

Investment(Mgmt)/GDPPortfolio/Market Cap.

Sweden

Denmark

Netherlands

EU 15

France

Euro zone

Norway

Portugal

Italy

Finland

Switzerland

Germany

Ireland

Belgium

Poland

Austria

Greece

United Kingdom

Spain

Source: EVCA (2006), Eurostat


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Equity Ratios in Europe

Small companies

Mid-size companies

Spain

Finland

Belgium

France

Netherlands

Portugal

Sweden

Denmark

Italy

Germany

Source: BACH-Datenbank, Eurostat


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Equity Ratios in Germany

Small

Mid-size

Large

All companies

Small

Mid-size

Large

All companies


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Importance of Geographical Distance (Martin et al. 2005)

Importance of close distance for Venture Capital firms (mean)

Portfolio company

Investors

Other VC firms

Other external sources of capital for portfolio company

Research institutes

Large urban area

Highly important

Unimportant

Germany (N=107)

United Kingdom (N=60)


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Employment Effects after Buyout Transactions

Buyout in family firms

Secondary Buyout

Going private buyout

Spin off buyout

Turnaround buyout

All buyout target companies

Source: CEFS (2005)


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Median Return (IRR) and Risk of Private Equity Investments

Source: CEFS (2005)


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Median Return (PME) of Private Equity Investments

Source : CEFS (2005)


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Valuation and Financial Structure in European LBOs

Source: Standard&Poors (2006), Thomson Financial, Eurostat, CEFS


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Purchase Price Multiple Europe

Purchase Price Mult. Germany

Debt Multiple Europe

Debt Multiple Germany

Leverage Germany

Leverage Europe

Valuation and Financial Structure in German LBOs

Source: Standard&Poors (2006), Thomson Financial, Eurostat, CEFS


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Valuation and Financial Structure in European LBOs

Source: Standard&Poors (2006), Thomson Financial, Eurostat, CEFS


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Taxation of Carried Interest


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VAT on Management Fees


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Recommendations for Taxation

  • Guaranteed tax transparency for Private Equity Funds. These funds may be structured in different legal forms as corporations or partnership.

  • Exemption from taxation for all services rendered between the fund as separate assets and its management companies, which will be comparable to EU-regulated OGAW / UCITS

  • Continuation of tax rules regarding Carried Interest with an internationally competitive tax rate

  • Amendment to § 8 Abs. 4 KStG (resp. § 8c KStG-E) to allow loss carry forward.

  • Tax exemption for capital gains resulting from Seed- or Start-up-financing for a closely defined group of young technology companies and for specified holding periods


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Recommendations for Company Law

  • Amendment and revision of UBGG

  • Minimum capital requirement of EUR 1 million.

  • Object of the company: Direct or indirect equity investments (including fund-of-funds) and mezzanine capital

  • Restriction of each single investment to 30% of the fund’s assets (but not applying to the first three years from the funds’s vintage year)

  • Permit investments in listed companies, if at least 5% (2%) of nominal capital is acquired

  • Holding period restriction for investments (e.g. 12 years)

  • After 5 years no single shareholder should own more than 40% of the fund


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Recommendations for Sector Supervision

  • Registration (certification) of Private Equity Funds combined with

  • Registration of fund managers

  • Implementation of (voluntary) commitment of funds and fund managers to industry-wide common rules of conduct and continuing education

  • Supervision by central supervisory authority

  • Fund shares may be marketed to qualified investors only (e.g. minimum investment EUR 125k; EUR 10k in the case of fund-of-funds)

  • Revision of rules regarding a Pension Fund’s ability to invest in alternative assets


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Technische Universität München

Center for Entrepreneurial and Financial StudiesTU München | Arcisstrasse 21 | 80333 München   

Tel: +49 89 289 25483Web:www.cefs.de

www.ifm.wi.tum.de

Email:[email protected]

Univ.-Prof. Dr. Christoph Kaserer

Tel: +49 89 289 25489

Email: [email protected]


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