ALTERNATIVE FINANCING FORMS
FOR ENTREPRENEURS AND INVESTORS
3 questions to smart minds
Photo: C. Vogel | CFH Beteiligungsgesellschaft

Strengths of regional private equity funds

For this 3 questions to C. Bird

CFH Holding Company
Photo: C. Vogel | CFH Beteiligungsgesellschaft
22. Febru­ary 2012

CFH Betei­li­gungs­ge­sell­schaft mbH, a subsi­diary of Süd Betei­li­gun­gen GmbH (Süd BG), has successfully comple­ted the first closing of another regio­nal SME fund with a volume of 35 million euros. This fund, which can invest both equity and mezza­nine capi­tal, prima­rily addres­ses medium-sized compa­nies with their regis­tered office or branch in Saxony. The launch of regio­nal PE funds via CFH, which now have a volume of around EUR 200m, is one of the main focu­ses of the Mittel­stand specia­list Süd BG. — Why do regio­nal funds perform so well and what are their strengths?


For this 3 ques­ti­ons to Mana­ging Direc­tor of Süd Betei­li­gun­gen GmbH and CFH Betei­li­gungs­ge­sell­schaft mbH, Leipzig

1. What is the concept 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).

2. What are your custo­mers or the entre­pre­neurs you finance looking for?

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.

3. Why is the concept of regio­nal funds so attractive?

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.

Subscribe newsletter

Here you can read about the latest transactions, IPOs, private equity deals and venture capital investments, who has raised a new fund, how Buy & Build activities are going.

Get in touch

Contact us!
fyb [at] fyb.de