Our busi­ness at sonn­tag corpo­rate finance is domi­na­ted by manda­tes on the sell side — around 85%. We operate in an indus­try-agno­stic manner with a strict focus on German SMEs. Here, there are a large number of estab­lished “old economy” compa­nies facing the issue of succes­sion, but also a considera­ble number of youn­ger compa­nies with tech­no­logy-driven busi­ness models that are in the process of scaling up.

In the case of estab­lished compa­nies, we build bridges between the owner-mana­ged, small and medium-sized company and the private equity inves­tors. We see oursel­ves as advi­sors to our clients and as deal enablers for both parties. First and fore­most, our discreet approach is appre­cia­ted by our clients, who are often market leaders in their niche, and forms the basis for trust in the further process.

In the case of young tech­no­logy compa­nies, it is essen­tial in the bidding proces­ses we manage that the corpo­rate finance advi­sor, in addi­tion to his exper­tise, also has a certain affi­nity for the busi­ness model and the unique­ness of the client company. This is where we leverage the know-how of our teams and bring in the broad acade­mic educa­tion among our employees, which is not infre­quently a combi­na­tion of natu­ral scien­ces or engi­nee­ring and econo­mics or M&A back­grounds. It is precis­ely this fusion of methods from diffe­rent disci­pli­nes that often provi­des clients with the added value that is crucial to the project.

The prono­un­ced confi­dence of high-tech compa­nies in the “small cap” sector is also reflec­ted in our tran­sac­tion history: start­ing in the field of char­ging tech­no­logy for elec­tric vehic­les, to compa­nies in mecha­ni­cal machi­ning that push the limits of the physi­cal possi­bi­li­ties of the process, to laser appli­ca­ti­ons for use in rese­arch or in the high-perfor­mance sector, are among our most recent projects. — In those fields where we have a high level of sector exper­tise, we also act as buy-side advisors.

The M&A market is curr­ently subject to more conflic­ting influen­ces than ever before. New play­ers are ente­ring the market, and the whip effect in the wake of the Corona pande­mic led to highs in the M&A market in 2021. This also applies to our segment.

We see the clas­sic conso­li­da­tion trends in our projects, espe­ci­ally in the old economy sector. Rising cash balan­ces among private equity inves­tors, corpo­ra­tes leading more active efforts toward M&A, and unre­sol­ved succes­sion among owner-mana­ged compa­nies are fueling conso­li­da­tion in occu­p­ied industries.

Away from the old economy, we are also seeing an increased emer­gence of tran­sac­tions in the high-tech sector in our segment. In addi­tion to the commu­ni­ca­ti­ons and colla­bo­ra­tion soft­ware sector, which has flou­ris­hed across all sizes of busi­nesses through Corona, tech­no­logy-driven tran­sac­tions are also driving in fields that are not the focus of gene­ral public and media coverage. Incre­asingly, corpo­ra­tes are shop­ping around for compa­nies with a tech­no­lo­gi­cal edge that can serve as a nucleus or exter­nal impe­tus for their own rese­arch and deve­lo­p­ment efforts and whose products can be scaled via exis­ting struc­tures. It is obvious that these compa­nies are regu­larly valued higher than other compa­nies in the small cap. At the same time, the increased buying inte­rest in these cases also spurs the total number of tran­sac­tions in the small cap.

Howe­ver, it would certainly be too short-sigh­ted to look at tran­sac­tions with highly specia­li­zed compa­nies in the small cap and derive indus­try or sector trends from this. But highly specia­li­zed service provi­ders, compa­nies with proprie­tary products and high added value are curr­ently sought-after targets and bene­fit from high valuations.

At sonn­tag corpo­rate finance, we distin­gu­ish oursel­ves by focu­sing on sales proces­ses for small and medium-sized compa­nies — strictly spea­king, we focus on the smal­lest segment in small cap. Here, the volume of reali­zed tran­sac­tions is usually up to EUR 100 million, but regu­larly below EUR 50 million.

On the buy side, we repre­sent single-family offices as well as private equity inves­tors and corpo­ra­tes. All of the above-mentio­ned candi­da­tes select us on the basis of our previous expe­ri­ence and bene­fit here from our high level of tech­no­lo­gi­cal exper­tise and sensi­ti­vity for the medium-sized target compa­nies, which pays off parti­cu­larly in nego­tia­ti­ons at later stages of the process. As a rule, the inves­tor alre­ady brings in-depth M&A exper­tise and expe­ri­ence, which further unders­cores the rele­vance of the secon­dary role we expect and assume as media­tor for the successful deal.

On the inves­tor side, the spec­trum over­laps with the charac­ters on the buyer side, but MBI inves­tors also appear here as poten­tial inves­tors in smal­ler tran­sac­tions. Our strict focus on the small-cap segment also condi­ti­ons the split of tran­sac­tions. For exam­ple, we were only respon­si­ble for around 20% of inbound cross-border tran­sac­tions, but these account for over 40% of our total tran­sac­tion volume.

PE inves­tors tend to consider smal­ler and smal­ler compa­nies for invest­ment. These compa­nies offer enorm­ous value enhance­ment poten­tial in terms of lever­aging opera­tio­nal poten­tial, but conver­sely require grea­ter opera­tio­nal commit­ment on the part of the inves­tor. We expect that with the dulling blades of finan­cial arbi­trage or finan­cial restruc­tu­ring, lever­aging opera­tio­nal poten­tial will conti­nue to be a key lever and the growth and profes­sio­na­liza­tion of inves­tors in small cap will continue.

3. b) Does the current poli­ti­cal situa­tion (topic Ukraine) affect your activity? 

In gene­ral, we observe that the smal­ler compa­nies are more decou­pled from deve­lo­p­ments in the over­all economy. In our company, for exam­ple, tran­sac­tion projects are less directly affec­ted by the econo­mic conse­quen­ces of the war against Ukraine. Nevert­hel­ess, even our hands as deal enablers are tied when a target company is under pres­sure with a gross margin domi­na­ted by the steel price. — In other cases, the econo­mic conse­quen­ces of the war against Ukraine are not yet reflec­ted in the books, but will affect the perfor­mance of compa­nies sooner or later.

About Fabian Schmidt

Fabian Schmid is a part­ner at sonn­tag corpo­rate finance. After working for the Schunk Group and Bosch Ther­mo­tech­nik, he joined the Sonn­tag Group. Since 2018, Schmidt has been a part­ner and autho­ri­zed signa­tory of the subsi­diary Nach­fol­ge­kon­tor and, as a result of a manage­ment buyout in 2021, a part­ner of the Sonn­tag group of compa­nies. Through his acade­mic and profes­sio­nal expe­ri­ence from natio­nal and inter­na­tio­nal tran­sac­tions, Schmidt is a proven expert in the tech­no­logy, engi­nee­ring and manu­fac­tu­ring sectors.

In addi­tion, Fabian Schmidt mana­ged M&A projects on behalf of banks and listed groups as well as private equity inves­tors and family offices. The spec­trum of tasks ranges from the deve­lo­p­ment and imple­men­ta­tion of acqui­si­tion stra­te­gies to the exami­na­tion of invest­ment oppor­tu­ni­ties and the sale of parts of compa­nies. Most recently, Mr. Schmidt advi­sed on the follo­wing tran­sac­tion: Active Fiber Systems to Trumpf.