Investments in companies in turnaround situations
INDUC acquires majority stakes in medium-sized companies in the German-speaking region with sales of more than EUR 15 million that are in special situations. The objective is always continuation and value-oriented further development. There is a certain preference for companies with long value chains, such as manufacturing companies in particular, without excluding certain sectors in principle. Since value development is achieved through active management support combined with the injection of financial resources, a number of criteria are important to us. These include not only the possibility of structuring the transaction in a way that is suitable for us, but also our assessment with regard to market developments and the restructuring of external contractual relationships (insolvency administrator, banks, trade unions, etc.). And since a professional investor will not undertake a turnaround without the prospect of a high profit in absolute terms, the return on investment must also be well above average in the event of a positive development.
The causes of the crisis must be clearly identifiable and solvable and should tend to be found within the company rather than in disruptive changes in the market environment. In addition to the generally valid assessments of the industry in terms of size, stability, growth, intensity of competition, level of entry barriers and expected development, special situations also raise the question of the robustness of the core business. What is meant by this is that there must be a healthy core in the product and market position, such as a.o. a solid brand name, distinctive core competencies and a resilient customer base. Prohibitive are the tendencies of broadly declining market shares and continuously declining gross margins that can often be observed in such situations. In addition, we must be able to answer the question positively as to whether our strategy, our experience and the available scope for action will enable us not only to stabilize the company but also to develop it in a way that will sustainably increase its value in order to meet our investment criteria. Finally, it must be possible to set prices that reflect economic realities. One of the most common reasons for the failure of a turnaround transaction is that the debt of the company to be restructured is higher than its expected earnings value after successful restructuring; usually a consequence of crisis situations that have already existed for a long time and are accompanied by a complete loss of value. However, professionally structured insolvency proceedings can open up possible solutions here, for example in the case of pension provisions, for which there is generally no scope outside such proceedings.
A special feature of INDUC is that we initially do not exclude any sectors, but — depending on current developments — we temporarily distance ourselves from certain sectors. At present, for example, this means that we take a critical view of the furniture production, printing and car dealership sectors. At the same time, the approach of not excluding any sectors in principle — except for the critical ones — also means always taking a close look at the respective individual cases. And there are always interesting opportunities here.