Crisis and ESG management at portfolio companies
Sustainable investing is rightly in the spotlight in times of climate change and resource awareness. ESG — i.e. environmental, social and corporate governance sustainability — is of great importance to H.I.G. Capital. We are aware of our responsibility and actively address the issue. I think that private equity in particular can make a positive and significant contribution to society here. ESG already plays an important role in the due diligence process for corporate acquisitions, and I believe it will become even more important in the future.
Companies with a clear and positive ESG profile achieve higher valuations on the market. This will offset or even exceed any additional costs, for example due to the introduction of demanding ESG standards. Another example: already today, some debt funds offer a reduction in interest margins for ESG-oriented companies. At H.I.G. Capital, we are convinced: ESG and attractive returns are not mutually exclusive — on the contrary.
Transparent and fact-based cooperation with portfolio companies is important in highly dynamic phases. The aim is to actively address risks, but also to jointly seize market opportunities. These can be new customer wins, company acquisitions or even the hiring of new employees.
Proactive exchange and the associated transparency vis-à-vis relevant stakeholders are at least as important. Think, for example, of the financing banks, or even the investors in a fund. Finally, decisions must be made consistently and communicated clearly to the management of the portfolio companies and also to the company’s own investment team. Many have never experienced such exceptional situations themselves. — My current experience during the Corona crisis is that the corporate managements of the portfolio companies are absolutely crisis-proof and strongly positioned. This applies both in interaction with customers and suppliers and, for example, in internal communication with managers and employees. Many of our portfolio companies were able to make add-on acquisitions during the pandemic and even achieve earnings growth. Incidentally, I expect a similarly dynamic environment in 2022. And I am sure that various market opportunities will again arise in the portfolio. The old maxim that in every crisis lies an opportunity applies today more than ever.
There are a few — let me pick out two as examples. Firstly, the trend among companies to focus and concentrate on core activities is continuing. Particularly in the case of larger corporate groups, non-core activities are increasingly being spun off and sold. It has been recognized that these units in the Group often do not receive the attention, freedom and investment they deserve. These so-called carve-out situations are where we come in. We have gained experience over decades on how to strengthen, develop and scale these activities. To this end, we draw not least on our extensive industry expertise and global presence. This is where we create real added value — for our investors, of course, but above all for the company’s employees and customers. This is a true win-win constellation.
The same applies — second chance — to succession at many medium-sized companies, which, by the way, often have an excellent position in their markets. But if the next generation does not see their future in the company, another solution must be found. In this situation, respect for the founder’s life’s work is important, as is respect for the culture of the company in question. That’s exactly what we bring to the table. This is because we combine local expertise and experience with the capabilities of a globally active company.
About Holger Kleingarn
Holger Kleingarn is Managing Director and Head of Germany at H.I.G. and has been working in private equity for more than fifteen years. His focus is on buy-outs, growth investments and turnarounds of mid-sized companies within Europe with a focus on the German speaking countries. Prior to H.I.G., Holger was a Partner at London-based Palamon Capital, a PE firm focused on middle-market companies in Europe. Previously, Holger led the MBO of a medium-sized software company as CEO. He started his career at Bain & Company and Roland Berger, most recently as a partner and member of the Financial Services management team.
H.I.G. is a leading private equity firm with over 38 billion euros of capital under management and offices in the USA (Miami, Atlanta, Boston, Chicago, Dallas, Los Angeles, New York and San Francisco), Europe (Hamburg, London, Luxembourg, Madrid, Milan and Paris) and Latin America (Bogotá, Rio de Janeiro and São Paulo). We specialize in equity investments in small and mid-sized companies where we can play a significant role in unlocking the existing value potential.