DBAG’s deal flow is improving

The Middle East conflict lifted energy prices and inflation expectations and added to market uncertainty, while private equity (PE) exit activity remained subdued in H126. However, DBAG highlights that, while the PE mid-market is sending mixed signals in 2026, it has seen a steady improvement in deal flow, which suggests that the market is normalising. Deal flow in the medium term is supported by the expected 186k of mid-market business successions in 2026–30, according to Institut für Mittelstandsforschung (IfM) Bonn.

Why consider DBAG now?

The high share of domestic revenues in DBAG portfolio means that future returns are partly dependent on the German economy (which is yet to resolve its structural growth issues). DBAG has been broadening its portfolio, which historically was dominated by traditional industrial holdings, into sectors where it sees structural growth tailwinds. Around 28% of DBAG’s portfolio is in IT services and software, mostly providers of services in areas such as IT consulting, development of complex, customised, end-to-end software solutions, software integration and digital transformation, where downside risk from AI disruption appears lower. It has also invested in healthcare and environment, energy and infrastructure businesses. Its current wide discount to NAV of 37.6% provides scope for re-rating if DBAG offsets the impact of macroeconomic headwinds with these secular growth opportunities.

Reduced FY26 guidance amid weaker listed company valuations

Deutsche Beteiligungs reported a 4.7% NAV per share decline in TR terms in H126 to €33.65, as its portfolio valuations were negatively affected by a contraction in the peer multiples used to value its holdings. The change in multiples reduced DBAG’s gross portfolio value by €58.5m in H126. These headwinds were particularly substantial in Q126, when DBAG’s NAV fell by 3.0% amid a market-wide sell-off triggered by the war in the Middle East.

Public peer valuations did not rebound in Q226 alongside the broad public equity market and remained particularly depressed in the software and IT services sector (see Exhibit 1), which we attribute to the indiscriminate de-rating seen across the broader software sector over AI fears. We have covered this theme extensively in our research coverage of HgT, a private equity investment company focusing on B2B software and tech services. DBAG’s management highlighted that earnings growth remains strong across its software and IT services portfolio. The sector had the largest share in DBAG’s portfolio at end-June 2026, making up 28% of its value (see Exhibit 2). Management aims to keep its share below 30% and therefore is unlikely to make new investments in this area given the potential value accretion from existing holdings’ earnings growth.

As a result of the subdued valuation multiples, management updated its FY26 guidance on 16 July, reducing NAV per share to €36–40, from €32–36, implying an FY26 NAV TR of between c -9% and 2%.

The earnings of portfolio companies had a moderate €16.1m positive portfolio impact in H126 (2.1% of opening gross portfolio value), aided by M&A, especially in the software and IT services sector, and was partly offset by a €9.1m reduction from the change in debt of portfolio holdings (see Exhibit 3).

On our measure of operating value creation, which nets earnings changes against movements in portfolio-company debt, the aggregate contribution has remained modest in recent years. However, the debt component partly reflects acquisition financing rather than weaker underlying trading, see Exhibit 4. Still, DBAG is yet to see a contribution from company-specific growth, operational improvement and ‘buy-and-build’ initiatives across its aggregate portfolio at a level that could offset the weak economic conditions in Germany, where DBAG’s portfolio companies generate most of their revenues (c 80%, according to the management’s ballpark estimate). The proportion of sales generated domestically is now higher than back in FY19 when DBAG’s portfolio was mostly composed of industrial companies, according to DBAG’s management. We also note that, in general, mid-sized businesses backed by mid-market PE investors such as DBAG are typically characterised by a greater domestic focus than listed large-cap businesses.

While DBAG is mostly focused on Germany in its search for scalable models in structurally growing markets, it also invests selectively across the DACH region and in Italy, as illustrated by its recent investment in Bug Bounty Switzerland, a profitable cybersecurity testing platform combining ethical hackers with AI technology, and earlier investments in Italy such as Great Lengths.

German real GDP rose 0.2% q-o-q in Q226 and 0.9% y-o-y, and Q126 q-o-q growth was revised to 0.4% from 0.3%. Two consecutive quarters of expansion point to a modest cyclical recovery. The International Monetary Fund (IMF) forecasts (as of July 2026) GDP growth of 0.7% in 2026, followed by 1.0% in 2027. Geopolitical uncertainty associated with the war in the Middle East and trade tariffs are exerting pressure on Germany’s export-driven economy. In addition, the Bundesbank expects output growth to be constrained by demographics, skilled-labour supply and non-wage labour costs.

Adding to structurally growing sectors

DBAG’s portfolio additions amounted to €63.2m in H126 and included investments in Hipp Technology Group, a development partner and contract manufacturing company active primarily in regulated medical technology (€25.8m invested from DBAG’s balance sheet), a €21.6m follow-on investment in the DBAG Solvares Continuation Fund alongside DBAG Fund VIII to support the Totalmobile acquisition, and Bug Bounty Switzerland (€6.6m), from which it also expects some benefits for other portfolio companies. We discussed the investments in Hipp Technology Group and the DBAG Solvares Continuation Fund in our previous research. This was coupled with further add-on acquisitions, for example made by MAIT and operasan.

DBAG also agreed a €15.1m investment in TNL Group, an environmental planning and permitting consultancy for power lines, wind and solar projects and traffic infrastructure, which it expects to close in Q326. DBAG believes that the company will benefit from the energy transition, grid and infrastructure expansion, coupled with rising environmental and permitting requirements. It highlights TNL Group’s blue-chip clients, deep technical expertise, long-standing relationships and high customer stickiness. It argues that demand for qualified environmental-planning services is largely independent of economic cycles because permits are required for power lines, renewables and transport infrastructure. DBAG also highlights the high fragmentation of TNL’s market, providing scope for a ‘buy-and-build’ strategy. The TNL Group transaction was executed bilaterally, pre-empting a competitive bid process (similar to the Hipp Technology Group investment). While this does not necessarily provide a more attractive entry price, it allows for a more detailed due diligence process, according to DBAG’s management.

Large exit in Q126, muted activity in Q226

DBAG recorded a robust level of disposals in H126 of €94.6m, which came primarily from closing of the full exit of duagon at the beginning of the year (c €80m), as well as Kraft & Bauer (closed in Q126) and mageba (agreed in Q126 and closed in Q226). All three transactions were discussed in our May 2026 update note.

DBAG continued the process of cleaning up its portfolio from older-vintage industrial holdings, agreeing the disposal of Silbitz (the owner of foundries producing castings on a steel and iron basis) in H126 and removing Braun Connectivity Solutions (a producer of cable systems and interior vehicle lighting) as a result of insolvency after the reporting date. Braun Connectivity Solutions had been already fully written down before it left the portfolio. Following these transactions, we believe that DBAG’s portfolio will include only a few older-vintage industrial holdings, for instance, Oechsler, a producer of plastic components acquired in 2015, which is part of the top 16–35 holdings bucket (this group accounts for 27% of total portfolio value). The Kraft & Bauer disposal was completed above the end-2025 carrying value, while the mageba disposal and agreed Silbitz sale were below their respective end-2025 values. duagon’s sale price (which resulted in a substantial exit uplift) had already been reflected in its end-2025 carrying value.

DBAG’s portfolio remains relatively concentrated, with the top five holdings making up 35% of portfolio value at end-June 2026, which is a function of their strong performances relative to other portfolio holdings. However, we note that two of these companies, Cartonplast (a provider of a pool system for the rental of reusable plastic layer pads) and freiheit.com (an IT services and software holding), are currently in a sales process. Moreover, management considers two further top five holdings, congatec and Itelyum, as strong exit candidates for 2027. DBAG’s management had previously also highlighted von Poll Immobilien and Green Datahub as holdings that are in sales processes but did not provide an update on these assets during the Q226 earnings call.

DBAG’s reported proceeds as a percentage of opening gross portfolio value of 12% in H126, equivalent to c 24% on an annualised basis, a figure more aligned with the three- to five-year holding period targeted historically by PE managers. However, it was materially boosted by the duagon exit, which was one of DBAG’s largest realisations in recent years. DBAG reported lower annual average proceeds to opening gross portfolio value of c 11% between FY21 and FY25 (excluding the short financial year to end-December 2024; see Exhibit 6), which was against the backdrop of a subdued environment across the broader PE markets.

Realisations in Q226 alone were modest at c €8.2m, and management reiterated that exit activity remains constrained by macroeconomic conditions. DBAG highlighted that it agreed the disposal of another (undisclosed) portfolio company in July 2026 (the disposal price was already reflected in the end-June 2026 NAV). We believe that the recent slower exit activity, together with good cost control and growth in assets under management (AUM), was one of the reasons management raised the FY26 EBITA guidance for DBAG’s fund services business in July 2026 to €9–11m, from €5–9m (slower exits mean a slower reduction in fee-generating AUM). DBAG's assets under management or advisory increased by 6.0% from end-2025 to €2.86bn, supported by continued investment activity, higher bridge financing and the DBAG Solvares Continuation Fund fund-raising. The fund services segment reported income of €25.2m in H126 (up from €24.0m in H125) but a slightly lower EBITA of €6.8m versus €7.1m in H125, mainly due to non-recurring placement agent fees for the DBAG Solvares Continuation Fund.

DBAG’s available liquidity at end-June 2026 stood at €97m (including €55m of financial resources and €41m of undrawn credit lines), which covers the majority of its €158m investment commitments outstanding at end-June 2026 (down from €210m at end-2025 following the solid investment pace in H126). We understand that these commitments are likely to be drawn over several years. We therefore see no immediate liquidity pressure, although continued realisations will be important to fund commitments in excess of current liquidity in the medium term. DBAG should retain capacity for selective new investments and shareholder distributions. DBAG maintained its dividend policy of paying out at least €1.00 per share but has not announced a new share repurchase programme following the completion of the last programme in June 2026. DBAG’s management said that it will examine possible share buyback programmes on a regular basis.

Wide discount to NAV persists

DBAG’s NAV TR in euro terms between end-June 2021 and end-June 2026 reached a modest 15.6%, or c 2.9% per year, which is slightly ahead of the return posted by the German small-cap index (SDAX) of 2.4% per year, as well as the German mid-cap index (MDAX), which fell by 7.6% over that period (see Exhibit 7). We consider listed small-cap companies and the lower end of listed mid-cap companies as a useful, albeit imperfect, comparator for DBAG’s portfolio given its focus on businesses with enterprise values between €50m and €250m at entry (up to €400m when DBAG Fund VIII’s top-up fund is used). Listed German and European large-cap companies performed better than German small- and mid-cap companies over that period, as illustrated by the returns of 10.0% and 10.7% per year posted by the DAX and STOXX Europe 600 indices, respectively.

DBAG’s five-year NAV TR is behind the PE peer average (see Exhibit 10 below). Meanwhile, its share price was down 5.0% in TR terms, leading to a discount to last reported NAV of 37.6% currently (see Exhibit 8). We note that, before 2022, DBAG’s shares traded at a premium to NAV (18% on average over the five years to end-2021), which we believe was due to the share price reflecting the additional value of DBAG’s fund services business, which manages c €2bn of third-party capital, the value of which is not directly captured in DBAG’s reported NAV. Given this, DBAG’s portfolio changes in terms of sector exposure and the increasing share of private debt investments (which likely bear a lower risk than PE investments), the current discount to NAV may be considered wide. That said, DBAG’s recent subdued performance may partly explain the wide discount.

We consider it instructive to examine the market-implied valuation of both DBAG segments in two scenarios: 1) using the implied value of PE investments, assuming fund services are valued in line with peers; and 2) using the implied value of the fund services segment, assuming that PE investments are valued in line with peers. For peers in DBAG’s fund services segment, we use a group of listed asset managers with exposure to alternative unlisted assets: Blackstone, Bridgepoint, Hamilton Lane, Blue Owl Capital, StepStone Group, EQT, Partners Group and CVC Capital Partners. We acknowledge that these companies have assets under management that are an order of magnitude larger than that of DBAG, which may distort the analysis. In the case of PE investments, we use the peer group shown in Exhibit 10, excluding 3i.

Assuming the fund services segment is valued in line with peers (on an 18.4x earnings multiple) and using DBAG’s current market capitalisation, the implied value of DBAG’s PE investments would be c €237m (58% below its end-June 2026 NAV, which we conservatively adjust for the intangibles arising from the ELF Capital acquisition), while DBAG’s peers (excluding 3i) currently trade at an average 28.1% discount. If we conservatively assume the lower end of the peer valuation range (13.0x), we arrive at an implied value for DBAG’s PE investment of €273m, a still sizeable 52% discount to DBAG’s end-June 2026 NAV. On the other hand, if we assume that the PE investments were valued in line with peers, then DBAG’s current market capitalisation would imply a negative value for the fund services business.