New paths for growth in the SME sector
BayBG/ Bayerische Beteiligungsgesellschaft mbH
17. June 2015
1. Which paths will be preferred for corporate financing in the SME sector in the future?
In future, the issue of “equity” will play an increasingly important role in corporate financing. This already results from the Basel III requirements. The financing house banks will therefore press for a higher equity ratio. But entrepreneurs will also try on their own initiative to build up more equity capital than in the past. The global financial crises of the past have shown entrepreneurs that higher equity offers more security. Private equity and mid-market investment companies can make a major contribution here.
2. Will the status (favoritism) of private equity in the DACH region change against this background?
Financing via equity capital has proven helpful for numerous companies. Growth financing or company successions are carried out jointly with the principal banks and the investment companies. There is a wide range of financing with equity capital. Private equity companies usually take company shares, i.e. they participate “openly”, and then also by a majority. Medium-sized investment companies, such as Bayerische Beteiligungsgesellschaft BayBG, participate openly, but only as minority shareholders, i.e. below 50%. More often, however, silent partnerships are granted, which means that the entrepreneur remains “master in his own house” and does not have to surrender any shares. Equity financing in open or silent form is increasingly gaining acceptance in German-speaking countries, because the house banks receive another risk partner and the entrepreneurs can realize projects that would not be possible without equity capital. It’s a “win-win” situation for everyone involved.
3. Will IPOs play a bigger role in this?
IPOs are an important channel for raising equity or enabling shareholder changes. However, a “positive stock market environment” is important. Such positive stock market phases can be observed every year, but unfortunately not consistently. Also, IPOs are usually only feasible and sensible with somewhat larger companies; the entry size is 50 — 100 million euros in sales, depending on the stock market segment. These are the ones that generate sustainable profits and can provide investors with sufficient corporate data on a rotational basis. This, in turn, is costly and therefore not feasible for every company. For this reason, IPOs will tend to be the exception in the DACH region in the foreseeable future.