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58. Uncovering Trusts – Deutsche Beteiligungs (DBAN): Succession deals and a discount opportunity in DACH private equity
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In this episode, our director of content for investment companies, Milosz Papst, talks about Deutsche Beteiligungs (DBAN), a German-based listed private equity and fund management company focused on mid-sized DACH businesses, often through succession-driven management buyouts. Milosz covers DBAG’s Q126 update, including a 3.0% NAV decline driven by lower valuation multiples amid the Middle East conflict, alongside FY26 NAV-per-share guidance of €36–40. He discusses the portfolio’s shift away from traditional industrials towards IT services, software and private debt, recent deals such as the Hipp Technology Group buyout, and strong realisations including the duagon exit. Milosz also touches on DBAG’s underappreciated fund services platform, its €1.00 per share dividend, and a share price discount to NAV of over 30%.
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About ‘Uncovering Trusts’
'Uncovering Trusts': is a podcast run by Edison analysts released every two weeks. Subscribe to hear analyst interviews on how investment trusts maximise returns while managing risks for investors.
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Edison covers around 50 investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
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Transcript
Introduction to Investment Trusts
00:00:06
Speaker
Hello and welcome to Uncovering Trusts, the Edison Group podcast where we explore interesting investment trusts and other listed close-ended investment companies.
Discussion on Deutsche Betailungungs (DBAG)
00:00:14
Speaker
I'm your host, Limo Bern, and today I'm joined by Miloš Paps, Director of Investment Company Content at Edison, to talk about Deutsche Betaligungs, usually referred to as DBag. Its frank Frankfurt ticker is DBAN. Milos, as always, great to have you with us.
00:00:28
Speaker
Thanks, Liam. Good to be
DBAG's Investment Strategies and Assets
00:00:30
Speaker
here. think it's been more than two years since we last spoke about DBAG, so um this is a good time to reintroduce it, I guess. So starting with the basics then, what is Deutsche Betailungungs and how does it differ from other listed private equity vehicles we've covered before?
00:00:47
Speaker
Yes, so DBAG is a German-based listed private equity investment and fund management company. um It invests in mid-sized companies in Germany and neighboring countries, um mainly through management buyouts and growth capital financings.
00:01:02
Speaker
and Its distinctive feature is a two-part model, balancing investments and fund investment services. DBAG invests alongside third-party investors in DBAG-branded private equity funds and, since acquiring a majority stake in health capital, private debt funds as well.
00:01:19
Speaker
At the end of 2025, it had around 2.7 billion euros in assets and management advisory. including DBAG's own investments and generated 48.5 million euros of fund services income in FY25.
00:01:33
Speaker
Great, thanks. That's a nice introduction to kick us off. So where does DBAG find its
Target Companies and Market Challenges
00:01:40
Speaker
opportunities? um DBG's sweet spot is the DAH private equity mid-market, so Germany, Austria, and Switzerland. ah Typically companies with enterprise values between 50 million and 250 million euros at entry. um Now, importantly, many opportunities are family or founder-owned businesses facing succession questions, ah you know rather than assets already owned by other private equity firms. For instance, at the end of 2025, 25 out of DBHG's 37 holdings were previously family owned or founder led, which I think reflects its you know local network, research center and in-house succession database. And DBHG published a first quarter update in May covering the three months to the end of March, 2026. Could you perhaps walk us through some of the key takeaways? Yes, of course, the headline was a 3% decline in NAV per share €35.29, leaving the 12-month NAV total return at 0.4%.
Impact of External Conflicts on DBAG
00:02:39
Speaker
ah This was driven almost entirely by lower public market multiples used to value DBHG's unlisted holdings after the market sell-off around the Middle East conflict with um a negative €26.6 million euro valuation impact.
00:02:55
Speaker
Underlying portfolio company earnings momentum was positive, contributing 8.6 million euros. The company recently updated its FY26 NAF per share guidance to between 32 and 36 euros, down from 36 to 40 euros previously. um It highlighted that this metric was impacted as of the reporting date, primarily by the development of the valuation multiples of the peer companies.
00:03:19
Speaker
ah Its shareholders approved a 1 euro per share dividend at the June AGM. You touched briefly there on the market sell-off around the Middle East conflict. How exposed is DBAG to the conflict and also and the broader German economic backdrop? Well, DBEG has no direct portfolio exposure to the region, but the conflict has weighed market sentiment through lower listed company valuation multiples and a more cautious deal deal environment.
00:03:47
Speaker
um Activity across global PE markets started picking up in the second half of 2025 and into early Q1 26, but the war in the Middle East resulted in a pullback in activity. However, I would note that KPMG recently said that so with you know many markets back to pre-war levels, there is cautious optimism that the PED on market will improve and result in a stronger year than expected you know when the war started.
00:04:15
Speaker
I think that the potential for higher deal making is underpinned by the $1.3 trillion dollars of global dry powder, most of which comes from funds raised in 2022 and 2023, so putting pressure on GPs to deploy capital.
00:04:30
Speaker
On the other hand, the most possible turn in the US interest rate cycle may act as a restraining factor. Now, in terms of Germany, GDP rose just 0.2% in 2025, but expanded 0.3% quote-on-quote in Q1 2026. The IMF forecasts German GDP growth of 0.7% in 2026 and 1% in helped by infrastructure and defense
Portfolio Evolution Towards IT and Infrastructure
00:04:58
Speaker
spending. Okay, great. And moving on to the portfolio itself, how has its composition evolved over time?
00:05:06
Speaker
Well, the sector mix has changed materially over the last decade. At the end of March 2026, IT services and software was DBAG's largest sector at 29% of portfolio value, um up from 24% at the end of 2025. Industrial and industrial technology followed at 21%, business services at 15%, environment, energy and infrastructure at 15%, and healthcare at 10%.
00:05:31
Speaker
That shift away from traditional industries has been deliberate. um Around a decade ago, industrial holdings made up roughly 80% of the portfolio. Now, today, DBHG's IT and software exposure is mostly in service-led businesses such as IT consulting, custom software, systems integration, and digital transformation. um Management argues that this is less vulnerable to AI disruption than um pure licensed software and may benefit from AI adoption. Portfolio Holdings, Aquinets, Solvarez and Fryhead.com were all trading about budget in Q1. I would also note that the private debt um through Elf Capital is another important change representing around 12.7% of the portfolio, which is within DBAG's 10 to 20% target range.
00:06:19
Speaker
What about leverage across the portfolio companies? Is it is that a concern given where rates have been? It is this worth watching, but ah to me, it does not look like an immediate pressure point.
00:06:31
Speaker
At the end of March, around 57% of the EBG's portfolio value set in companies with a debt to EBITDA multiple of four times more. um The increase was mainly linked to Congatech's debt funded acquisition of Jamtech rather than broad based stress. Management says that there are no refinancing issues currently and Carton Plus recently closed the €230 million euro infrastructure market refinancing, reducing borrowing costs and improving its maturity profile.
Strategic Investments and Financial Health
00:07:01
Speaker
Okay, great. So we've discussed the portfolio composition and also the leverage across the portfolio companies. Could could you maybe now you talk about some examples of TBAG's recent investments that they've made?
00:07:11
Speaker
Yes, with pleasure. um In June, TBAG closed an investment in HIP Technology Group, acquiring majority stake through a management buyout. um HIP is a developer ah sorry a development partner and contract manufacturer in regulated medical technology with more than 80% of revenues from areas such as implantology, surgical instruments and robotic surgery systems. um It expects to generate around 95 million euros of revenues in 2026.
00:07:38
Speaker
What I found interesting is that the deal was sourced before a competitive process, helped by an introduction from the management of Kraft & Bauer, which is a former portfolio company of the EVAG. And the value creation plan follows DBAG's usual playbook, so international expansion, add-on acquisitions, and operational improvements.
00:07:56
Speaker
Separately, in the same month, DBAG ECF4 fund agreed to acquire a majority stake in um a TNL GroupM. an environmental planning and permitting consultancy for powerline, wind, solar and traffic infrastructure projects. I would also highlight DBHG's recent minority long-term investment in Bug Bounty Switzerland, which is a profitable cybersecurity testing platform um combining ethical hackers with AI technology. Together, the deals reinforce DBHG's access to proprietary or bilateral opportunities. Right. So DBAG has clearly had a busy start of the year. Has there've also been activity on the disposal side as well?
00:08:36
Speaker
Yes, very much so. DBAG collected 86.4 million euros of realisation proceeds in Q1 2026, equivalent to around 13.5% opening NAV. Largest contributor was the Duagon exit to which completed in January and deliver ah delivered a multiple on invested capital of more than The BAG also completed the sale of Kraft and Bauer to SYNGROTH capital, um generating a multiple of around two times after more than seven years. Finally, um the BAG agreed the sale of Mageba at around half of original cost, but in line with its last carrying value as part of ah its cleanup of all the industrial vintages. um Several mature holdings remain in sales processes, including Freiheit.com, Green Data Hub and Von Polymobilien, although, um well, IT and software disposals may be delayed until sector valuations recover.
00:09:31
Speaker
And with all that cash coming in, how does the balance sheet look? Comfortably placed, at the end of March, the BAG had 61 million euros of financial resources, ah so cash and short-term investments, plus 91.5 million euro undrawn on its credit facility against 35 million drawn. So available liquidity was roughly 152 million euros, covering the majority of its 189 million euros of outstanding investment commitments. This liquidity also supported capital returns. um as i've As I mentioned previously, there was the the one euro per share dividend for fy twenty five was approved at the June AGM. And then on buybacks, the program was originally extended to the end of July. But by mid-June, DBHG had effectively used the full 20 million euro authorization, repurchasing shares at an average price of about 25.03 euros. Because the shares trade below NAV, these repurchases should be NAV accretive for remaining shareholders. Turning to performance and valuation, then how is DBHG done over the long term? And how does the market currently rate the shares
00:10:41
Speaker
Well, over the five years to the end of March 2026, DBHG's NAV total return in euro terms was 24.9%. This was the ahead of the German small cap SDAX and the mid cap MDAX index, but behind the DAX, Stocks Europe 600 and the listed private equity peer average. largely reflecting the weak German macroeconomic backdrop. The share price has been weaker still, down 18.8% over the five years to March. um So its shares now trade at a discount to an AV of over 30%. But interestingly, before 2022, DBAG's shares traded at an average premium to an AV of around 18%, which um I think reflected the market valuing the fund services business, a value which is not captured in reported an AV.
00:11:27
Speaker
um Given the portfolio's shift towards IT services, software, healthcare and infrastructure related sectors, plus plus private debt, the current discount to NAV may be considered wide.
00:11:40
Speaker
Before we wrap up, can you also cover
Financial Performance and Market Position
00:11:43
Speaker
the fund services outlook, the dividend and the cost structure? Yes, of course. Fund services income rose modestly in Q1 2026 €12.6 million from €12.1 million year earlier, but EBITDA fell to €3.1 million from €3.8 million due to higher personal costs placement fees.
00:12:04
Speaker
Management's FY26 EBITDA guidance stands at between 9 and 11 million euros, and management expects an increase to between 11 and 17 million euros by FY28 once so fundraising begins for DBAG's next flagship management buyout fund, likely from late 2026, but depending on realizations from existing funds. On the dividend, the policy remains an annual payment of at least one euro per share. At recent prices, that equates to a yield of around 4.5%. I would note that DBEG is internally managed, so investors should consider the cost base together with the economics of the fund services platform rather than as a conventional external management fee model.
00:12:47
Speaker
Fantastic. So to finish, then how would you summarize the investment case for Deutsche Betaligungs? I would highlight four things. First, the BAG offers genuine diversification within listed private equity um as you know a dark mid-market focus built on family succession deals, um a portfolio that has shifted decisively away from traditional industrials and towards IT services, software, healthcare, infrastructure-related businesses and private debt.
00:13:16
Speaker
Second, the fund services business is a real but underappreciated asset. DBHG manages or advises around 2.7 billion euros of assets, including its own investments, creating recurring largely fee-based income, um a business segment that does not show up directly in reported on AV.
00:13:35
Speaker
Third, the near-temperature is one of active portfolio rotation. The BEG has banked significant realisation proceeds from Duagon and Kraft & Bauer. It is cleaning up all the industrial holdings and it is redeploying capital into areas such as medtech, cybersecurity and energy transition infrastructure services.
00:13:53
Speaker
And fourth, with the shares trading at a wide-discount to NAV, the market does not appear to be fully recognising either the quality of the portfolio or the value of the fee-generating platform. Investors should still watch the German macro backdrop, portfolio leverage and the pace of exits, but DBAG has several levers to close the gap over the time. Milos, thank you very much for that comprehensive introduction to Deutsche Betaligungs.
00:14:18
Speaker
Thanks, Liam. You've been listening to Uncovering Trusts, a podcast by Edison Group. For more information on DBAG and other investment companies we cover, please visit www.edisongroup.com. to