3 questions to smart minds
Photo: Frank Herdeg

Management of a company after the acquisition

For this 3 questions to Frank Herdeg

ARGOS in Munich
Photo: Frank Herdeg
9. Octo­ber 2023

There is a clear trend toward exter­nal busi­ness succes­sion. Quite a few company succes­si­ons fail. A failed or unsa­tis­fac­tory succes­sion plan not only jeopar­di­zes the future of the company. It takes a lot of expe­ri­ence and empa­thy to successfully conti­nue running a company after the takeover.

For this 3 ques­ti­ons to Frank Herdeg, Part­ner at ARGOS in Munich,

1. How does ARGOS diffe­ren­tiate itself from other small cap investors?

We only acquire compa­nies in succes­sion situa­tions that are sustain­ably profi­ta­ble with EBITs between EUR 3 and 20 million and are leaders in their market niche. The only reason for the sale here is that the share­hol­ders wish to relin­quish entre­pre­neu­rial respon­si­bi­lity. We are charac­te­ri­zed by the fact that we all have many years of opera­tio­nal manage­ment expe­ri­ence in medium-sized compa­nies oursel­ves and present a succes­sor right at the begin­ning of the sales process, whom the sellers can get to know perso­nally. Succes­sors and new share­hol­ders sit at the table from the first moment, we talk from entre­pre­neur to entre­pre­neur, and can thus make decis­i­ons quickly and reliably.

As we exclu­si­vely invest equity capi­tal of the ARGOS part­ners, we are inde­pen­dent from other decis­ion makers and can solely focus on the entre­pre­neu­rial deve­lo­p­ment of the compa­nies. Unlike private equity compa­nies, which have to sell after a few years due to fund terms, we hold our compa­nies for the long term and have not sold any of our compa­nies since ARGOS was foun­ded in 2001. In contrast to stra­te­gic buyers, we secure the inde­pen­dence and iden­tity and thus the life’s work of the sellers.

2. What signi­fi­cance or rele­vance does the topic of digi­tiza­tion have for you in this context?

Many entre­pre­neurs in succes­sion situa­tions put major invest­ments in digi­tiza­tion topics on hold before handing over the company. Ther­e­fore, as new share­hol­ders and succes­sors, we are often confron­ted with the need to catch up in this area. Nevert­hel­ess, digi­tiza­tion should not be an end in itself, but should enable the achie­ve­ment of speci­fic busi­ness goals. Ther­e­fore, after a busi­ness acqui­si­tion, our initial focus is on opera­tio­nal busi­ness tran­si­tion, a deeper under­stan­ding of key success factors, and the deve­lo­p­ment of busi­ness priorities.

When we talk about digi­tiza­tion in smal­ler SMEs, we often talk about the provi­sion of key busi­ness figu­res, the opti­miza­tion of produc­tion plan­ning, logi­stics and custo­mer service, or a better exch­ange of infor­ma­tion with suppli­ers, sales and field service. Howe­ver, the prere­qui­si­tes for digi­tal solu­tion approa­ches are complete and struc­tu­red basic data, defi­ned proces­ses and stan­dar­di­zed ERP programs, which is usually a major chall­enge in prac­tice. There is no alter­na­tive to laying these foun­da­ti­ons in the long term, but it requi­res energy and patience.

Imple­men­ting digi­tiza­tion topics and the corpo­rate goals they pursue ther­e­fore usually requi­res process adjus­t­ments and thus chan­ges in indi­vi­dual habits. This should be done with a sense of propor­tion and suffi­ci­ent support for the indi­vi­dual. Such change manage­ment takes time and often does not serve a quick increase in value of the acqui­red compa­nies. Howe­ver, it is essen­tial for sustainable value deve­lo­p­ment, which is in line with ARGOS’ long-term entre­pre­neu­rial approach.

3. What role do the many special exter­nal effects that have shaped the economy in the last 3 years play in company valuations?

Many company results in recent years have been influen­ced by various exter­nal factors such as the Corona crisis, mate­rial shorta­ges, raw mate­rial and energy price fluc­tua­tions, or other effects of the Ukraine war. Depen­ding on the sector and busi­ness model, some compa­nies have had to accept considera­ble burdens on earnings, while others have emer­ged as winners. While some deve­lo­p­ments have lasting effects (e.g. energy prices), others are to be clas­si­fied as one-off special effects (e.g. Corona closures).

Against this back­ground, deri­ving a sustainable result as a basis for evalua­tion is not easy and requi­res signi­fi­cantly more substan­tive discus­sions on busi­ness deve­lo­p­ment. On the basis of the company’s long-term earnings deve­lo­p­ment, e.g. over the last ten years, we try to iden­tify gene­ral trends. Perma­nent market chan­ges can be confirmed via market and custo­mer inter­views. In this way, special effects can be adjus­ted (upwards and down­wards) and a purchase price basis can be deri­ved that is fair and trans­pa­rent for all parties.

About Frank Herdeg

Frank Herdeg gradua­ted as an indus­trial engi­neer from the Univer­sity of Karls­ruhe (TU) and earned an MBA from Union Univer­sity (New York). He worked for McKin­sey in Munich and Boston between 1996 and 2003, and then for three and a half years as sole mana­ging direc­tor of Carrier Sütrak, a manu­fac­tu­rer of air condi­tio­ning systems for buses.

Since 2006, Mr. Herdeg has been mana­ging direc­tor at ARGOS ( Under the leader­ship of the two share­hol­ders Dr. Hans Peter Maas­sen and Florian Pape, ARGOS takes over profi­ta­ble medium-sized compa­nies in a succes­sion situa­tion. After the acqui­si­tion, Mr. Herdeg commits hims­elf as succes­sor and mana­ging direc­tor on site.

From 2008 to 2013, he was mana­ging direc­tor of GALFA, a surface coater in Fins­ter­walde, where he still supported the intro­duc­tion of a new ERP system until 2016. Since 2017, he has been mana­ging direc­tor at KEBOTHERM in Oschers­le­ben, a full-service provi­der for windows and doors with instal­la­tion and service. In addi­tion, Frank Herdeg is an active advi­sory board member for other invest­ments, e.g. a special logi­stics service provi­der in Austria acqui­red in 2020.

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