Target Information

duagon is a prominent provider of hardware and software solutions tailored for safety-critical applications, particularly within the rail industry. Established as a technology leader in embedded railway electronics, duagon has successfully carved out a significant market position amid a rapidly evolving landscape driven by digitalisation, electrification, and substantial infrastructure investments.

Over the years, duagon has strategically enhanced its capabilities through a series of add-on acquisitions, thereby reinforcing its status as a key independent partner for advanced electronics in railway applications. These expansions have bolstered its expertise across various domains, allowing the company to maintain a competitive edge.

Industry Overview in Germany

The German rail market is poised for transformative growth, significantly underpinned by government initiatives. With plans to allocate over 106 billion euros for rail infrastructure through 2029, the sector is set to receive a substantial portion of the national transport budget, which totals 166 billion euros. In particular, approximately 22 billion euros are designated for rail-related projects in 2025, followed by an additional 85 billion euros through 2029. This strategic investment signifies a robust environment for companies operating within the rail sector, far surpassing allocations for road transport.

Additionally, the global rail systems market is projected to experience a remarkable increase from approximately 31 billion US dollars in 2025 to about 48 billion US dollars by 2035, reflecting an annual growth rate of 4.4 percent. Rising demand for integrated IoT sensors, AI-driven predictive maintenance solutions, and digital signaling systems are catalyzing this growth, creating opportunities for specialized firms like duagon.

Such favorable market dynamics are complemented by the industry's shift towards digital transformation, enhancing the need for innovative solutions in railway operations. With duagon at the forefront, the company is well-positioned to capitalize on these trends, driving technological advancements in the sector.

Rationale Behind the Deal

The decision to sell duagon represents a strategic maneuver for Deutsche Beteiligungs AG (DBAG) amid a transformed M&A environment characterized by distinct exit patterns. The transaction to Knorr-Bremse AG not only underscores DBAG's ability to achieve attractive strategic exits but also reflects its commitment to implementing a buy-and-build strategy that has successfully positioned duagon as a leader in embedded railway technology.

This exit is particularly noteworthy, as secondary buyouts have emerged as the predominant exit strategy in the European private equity market, accounting for 40% of disposals. Through this sale, DBAG aims to realize strong returns in a competitive and evolving landscape, demonstrating its adeptness in navigating challenging market conditions.

Investor Information

Deutsche Beteiligungs AG (DBAG) is recognized as a specialist in industrial technology investments across Europe. Since 2019, the firm has strategically focused its portfolio on less cyclical growth sectors, positioning itself to harness the megatrends of digitalization, automation, and Industry 4.0. DBAG has cultivated a reputation for its expertise in succession solutions and its ability to drive strategic buy-and-build initiatives, making it a uniquely qualified investor in this niche market.

The firm's approach has been instrumental in enhancing the value of its portfolio companies, allowing them to adapt and thrive even in challenging periods such as the semiconductor shortage experienced from 2020 to 2023. DBAG's commitment to creating long-term value for its stakeholders was exemplified through its partnership with duagon, ensuring that both entities benefitted from their collaborative growth efforts.

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The deal between DBAG and Knorr-Bremse AG regarding duagon represents a calculated and strategic exit in a transformed private equity landscape. In light of the current investment climate, where secondary buyouts have become increasingly prominent, this transaction showcases DBAG's foresight and ability to adapt its strategy effectively. The successful positioning of duagon as a technology leader within the high-growth rail market further emphasizes the soundness of this investment.

Looking at the performance metrics, DBAG has demonstrated a consistent capability to generate above-average returns across various market cycles. With previous exits yielding profitable outcomes, the sale of duagon aligns with DBAG's track record of realized value creation, reinforcing its reputation as a top-performing player in the European mid-market buyout segment.

Given duagon's strategic market position and the favorable outlook for the rail industry, the deal with Knorr-Bremse AG potentially paves the way for further growth opportunities for duagon as it embarks on the next phase of its development. Consequently, this investment appears to be a prudent decision, and it reflects DBAG’s exceptional management ability and market insight.

In conclusion, the sale is positioned not just as a profit-driven exit but rather as a strategic step towards enhancing duagon's future growth prospects under the stewardship of Knorr-Bremse AG, further solidifying the transaction's merit in the context of long-term investment success.

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