3 questions to smart minds

Private equity or IPO for medium-sized companies

For this 3 questions to Dr. Dirk Neukirchen

Photo: Dirk Neukirchen
11. May 2016

Family busi­nesses have very good chan­ces of attrac­ting inves­tors to finance further expan­sion. Owners who want to sell their company, for exam­ple in the course of succes­sion, find part­ners in private equity compa­nies who are very inte­res­ted in taking over and conti­nuing the company. An alter­na­tive for finan­cing growth would be an IPO.

For this 3 ques­ti­ons to Foun­der and mana­ging part­ner of ALLISTRO CAPITAL in Frank­furt am Main, Germany

1. Is an IPO a good decis­ion for medium-sized compa­nies to gene­rate fresh capi­tal to finance growth?

Medium-sized compa­nies are often family-owned compa­nies that have been built up very solidly in a long entre­pre­neu­rial tradi­tion and are mana­ged sustain­ably. In the past, the capi­tal for finan­cing growth was either gene­ra­ted by the company itself or — although usually not as readily — finan­ced via the dome­stic house bank in the form of loans. But the opti­ons for finan­cing growth have impro­ved signi­fi­cantly over the past 20 years. Today, for reasons of “further deve­lo­p­ment”, large family busi­nesses are often recom­men­ded to go public in order to gene­rate the addi­tio­nal plan­ned growth capi­tal in the context of the asso­cia­ted capi­tal increase. Howe­ver, this recom­men­da­tion is too narrow for me, because an IPO is not the only measure for imple­men­ting plan­ned growth acti­vi­ties and is also asso­cia­ted with many disad­van­ta­ges for family-owned compa­nies. A corpo­rate culture that acts sustain­ably over the long term then meets a quar­terly report­ing world that is then “greedy” for short-term success stories. Since these “diffe­rent worlds” only rarely fit toge­ther, entre­pre­neurs must think carefully about going public.

2. Why should a medium-sized company prefer an invest­ment company to an IPO?

There are seve­ral good argu­ments in favor of equity capi­tal from the SME’s point of view. Of course, they also depend on the goals pursued by the entre­pre­neur. If he is concer­ned exclu­si­vely with raising capi­tal, then an IPO may well be a way forward. Howe­ver, it is a diffe­rent world with a strict corset, if you think, for exam­ple, of all the manda­tory publi­ca­ti­ons that have to be fulfil­led at short inter­vals or the secu­ri­ties trading law that then takes effect. For exam­ple, the aspect of insi­der know­ledge must be taken into account. The entre­pre­neur, as mana­ger of a listed entity, simply knows earlier about certain upco­ming issues that may affect the share price. The ques­tion then arises as to how he can recon­cile his know­ledge with his share­hol­dings without making hims­elf suspect of insi­der know­ledge by issuing buy or sell orders. This is a comple­tely new situa­tion for him.

Setting aside hidden reser­ves is also simply more diffi­cult due to public percep­tion. It also adds a whole new dimen­sion and dyna­mic to the tension between sustainable corpo­rate deve­lo­p­ment and short-term acti­vity, earnings and divi­dend policy. Working with share­hol­ders and analysts often means more than just a change in culture. Many entre­pre­neurs think that they have reached their goal with the IPO, but often realize only in retro­s­pect that it was merely the start­ing line after all.

The invol­vement of an invest­ment company offers a good alter­na­tive to an IPO, both for growth finan­cing and for succes­sion solu­ti­ons at share­hol­der level. In both occa­si­ons, depen­ding on which invest­ment company they choose, entre­pre­neurs can “take on board” entre­pre­neu­rial exper­tise as well as capi­tal. In the context of growth finan­cing, this means the basis of an entre­pre­neu­rial part­ner­ship to achieve common goals. In the context of the share­hol­der succes­sion plan, it means knowing that the company’s busi­ness approach and struc­ture will conti­nue to be deve­lo­ped in the future, outside the short-term cycles of reports to be published.

3. What recom­men­da­ti­ons do you have for entre­pre­neurs in this context?

When going public, the family entre­pre­neur will only have to deal with “co-share­hol­ders” who usually pursue a diffe­rent goal with their invest­ment than he does hims­elf. If the entre­pre­neur only needs capi­tal, but also trusts hims­elf and his company to change the culture, then an IPO may well be a good alter­na­tive, provi­ded that the stock market envi­ron­ment is suitable.
When selec­ting an invest­ment company, there are diffe­rent aspects to consider, depen­ding on the finan­cing occa­sion. In the case of growth finan­cing, it depends enti­rely on the needs of the entre­pre­neur: If he is only looking for addi­tio­nal equity capi­tal, but does not need any further input for the further deve­lo­p­ment of his company — from his point of view — then the exper­tise of the invest­ment company plays a subor­di­nate role. The only thing to do here is to compare the condi­ti­ons of the corpo­ra­ti­ons with each other. Howe­ver, if he also sees a need for active support in the context of the plan­ned further deve­lo­p­ment of his company, then he will choose the invest­ment company that not only provi­des the capi­tal but also the desi­red experience.

In the context of succes­sion plan­ning, the indus­trial expe­ri­ence of the acqui­rer beco­mes even more important. Espe­ci­ally if you don’t want to sell to the compe­ti­tor, who is mostly fixa­ted on the custo­mer base to be acqui­red anyway. The candi­date must ther­e­fore secure the inde­pen­dence of the company to be sold and the loca­tion in the long term and thus also feel soci­ally respon­si­ble towards the employees. Indus­tri­ally posi­tio­ned invest­ment compa­nies with a clear indus­try focus offer an ideal solu­tion for entre­pre­neurs willing to sell. Espe­ci­ally if they can demons­trate the neces­sary expe­ri­ence through their indus­try focus. In addi­tion to the neces­sary own know-how and the corre­spon­ding network — also repre­sen­ted by indus­try experts — these offer a good oppor­tu­nity to be conside­red as an acqui­rer. Howe­ver, not only the medium to long-term goals of the entre­pre­neur, inclu­ding their ancil­lary condi­ti­ons, such as the omis­sion of a high purchase price debt finan­cing and the asso­cia­ted repay­ment of the loans as quickly as possi­ble, but also the sustainable further deve­lo­p­ment must be in line with the philo­so­phy of the invest­ment company.

About Dr. Dirk Neukirchen

Dirk Neukir­chen has more than 25 years of expe­ri­ence in the fund busi­ness, in private equity as well as in advi­sing on succes­sion plan­ning and equity finan­cing for medium-sized compa­nies. After gaining expe­ri­ence in indus­try and invest­ment consul­ting, he moved to DG/ DZ Private Equity, where he also held a manage­ment posi­tion. He then built up SIGNAL IDUNA’s private equity busi­ness before foun­ding ALLISTRO CAPITAL in 2010. Since 2010, he has also been a member of the advi­sory board of a large insti­tu­tio­nal private equity investor.


ALLISTRO CAPITAL is an invest­ment company foun­ded by medium-sized entre­pre­neurs with a clear indus­try focus. Our share­hol­ders and indus­try experts on the Fach­bei­trat know the busi­ness from their own many years of expe­ri­ence. We are auto­no­mous and inde­pen­dent. ALLISTRO CAPITAL offers well-posi­tio­ned medium-sized compa­nies a long-term equity invest­ment in the context of growth finan­cing and succes­sion plan­ning under the guiding prin­ci­ple “From medium-sized compa­nies for medium-sized companies”.
ALLISTRO CAPITAL invests the capi­tal of wealthy medium-sized entre­pre­neurs in medium-sized compa­nies in German-spea­king count­ries whose tradi­tion must be preser­ved. The values of medium-sized busi­nesses, combi­ned with entre­pre­neu­rial tradi­tion, form the basis of successful coope­ra­tion for us. We act as an active share­hol­der who contri­bu­tes to the successful further deve­lo­p­ment of the company. This means that our focus is on entre­pre­neu­rial acti­vity and the inde­pen­dence of the acqui­red compa­nies remains secure. We specia­lize in the medi­cal tech­no­logy, plas­tics tech­no­logy, safety tech­no­logy and chemi­cal indus­tries. We are inte­res­ted in all compa­nies whose deve­lo­p­ment depends on these four markets. We focus on compa­nies with a sales volume between € 7.5 and € 50.0 million and loca­ted in the German-spea­king region.

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