Current exciting industries in the corporate finance sector
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.