Strengths of regional private equity funds
Around 10 years ago, there were (and still are) hardly any providers offering both equity and mezzanine from a single source. In parallel, the proportion of companies offered through M&A advisors continued to rise for both minorities and majorities. At the same time, our location in Leipzig, which is unusual for PE, has enabled us to achieve a high level of market transparency for locally based companies. These companies often had financing issues but, fortunately for us, were not covered by the usual databases and also did not attract investors because of their small size of less than M€ 20 turnover.
Saxony was an exceptional industrial location before the Second World War and in GDR times, and it is again today. We want to leverage this untapped potential. Together with the Free State of Saxony and the three major savings banks in Chemnitz, Dresden and Leipzig, we set up the first 35 million euro fund in 2005, followed by a 60 million euro venture fund in 2008(www.tgfs.de). The new fund is an extension of the Wachstumsfonds Mittelstand Sachsen (WMS), which was launched in 2005 and is now in the deinvestment phase. Süd BG has a total stake in over 70 companies throughout Germany(www.suedbg.de).
Entrepreneurs are looking for solutions to their needs, be it growth, succession planning or financing acquisitions. The founding generation of the post-reunification period is in the process of handing over the companies. However, since almost all entrepreneurs are dealing with their life’s work, (cold) acquisition is a lengthy process that takes several years. Entrepreneurs want to know who they are dealing with.
We are also helped by our approach of initially entering only with mezzanine, and later acquiring shares or realizing an MBI/MBO via familiarization. We also acquire unusual, small minority stakes of 10–20% to offer entrepreneurs the opportunity to achieve a small partial exit for private debt relief or private wealth accumulation. Here, too, the phase after the initial investment is used to get to know each other for further steps.
The heterogeneous professional background of the colleagues and the team helps a lot here, whether in financing with mezzanine or with equity, to establish an above-average close relationship and cooperation with the entrepreneurs. We are consultants and sparring partners for entrepreneurs.
I have already mentioned the proprietary deal flow. In figures: 15 SME and 26 VC investments have been made regionally since 2005. acquired. This is a very good result. In addition, the cooperation with the savings banks, through their even more “local” presence, offers further unbeatable acquisition advantages.
Despite the two crises, the sales of the portfolio companies in the WMS have increased from 170 million euros to 320 million euros today, and the number of jobs in the companies rose from around 1,900 employees after the WMS investment to around 2,500 today. As you can see from the key figures, the value added by the companies also increased, which we attribute to our contribution to the development of the company. The portfolio includes companies that are among the first in their segment.
In addition to the successful acquisition, attractiveness is of course also reflected in the exits. In WMS, we are currently selling two companies due to the high market opportunities; in TGFS, for example, we sold a Multiple 10 company last year after holding it for only 1.5 years.