More than capital: the impact of functional support from investors in SMEs

We create added value by provi­ding concrete support to company manage­ment, for exam­ple in the deve­lo­p­ment and imple­men­ta­tion of growth stra­te­gies (acqui­si­ti­ons, inter­na­tio­na­liza­tion, repo­si­tio­ning of busi­ness units), in the nego­tia­tion and opti­miza­tion of finan­cing or in the recruit­ment of advi­sory boards and mana­gers with indus­try expe­ri­ence. These are well-known private equity levers — many entre­pre­neurs alre­ady know and appre­ciate this added value. 

Howe­ver, we now find oursel­ves in times of high vola­ti­lity and in an inter­na­tio­nal envi­ron­ment charac­te­ri­zed by condi­ti­ons that are diffi­cult to predict. The past few years in parti­cu­lar have shown that these tradi­tio­nal private equity approa­ches are neces­sary but not suffi­ci­ent to achieve the best possi­ble company deve­lo­p­ment. This is why we provide our port­fo­lio compa­nies with so-called opera­ting part­ners: these are expe­ri­en­ced func­tional specia­lists for areas such as procu­re­ment, supply networks, pricing, key figure report­ing, corpo­rate manage­ment or data analy­tics and IT systems. The latter include tasks such as ERP imple­men­ta­ti­ons, the crea­tion of consis­tent data­ba­ses or the estab­lish­ment of a resi­li­ent cyber­se­cu­rity archi­tec­ture inclu­ding monitoring. 

Our opera­ting part­ners work closely with the specia­list depart­ments on a situa­tio­nal basis — control­led by the company manage­ment. The result is an end-to-end opera­ting model that inte­gra­tes data, proces­ses and secu­rity. It crea­tes relia­ble data, dyna­mic pricing logic, robust supply networks and IT and cyber resi­li­ence. Ulti­m­ately, this means measura­ble value crea­tion — not only through growth, but above all through higher and sustainable margins and earnings. 

It is parti­cu­larly wort­hwhile for a private equity firm to deve­lop these support services for the port­fo­lio compa­nies if the port­fo­lio is large, inter­na­tio­nal and broad. Only then will such a func­tional approach scale suffi­ci­ently and the corre­spon­ding lear­ning effects be ancho­red. H.I.G. Capi­tal is one of the worl­d’s leading private equity firms for SMEs and is corre­spon­din­gly posi­tio­ned inter­na­tio­nally with local market coverage, which means that this approach is clearly wort­hwhile for us. 

For SMEs, this exper­tise alone is often diffi­cult to build up effi­ci­ently and adapt quickly if requi­red. The func­tional support is selec­tive and topic-rela­ted, so that compa­nies do not incur any costs for this. Our Opera­ting Part­ners act as a cata­lyst: they acce­le­rate topics such as the moder­niza­tion of IT systems, resi­li­ence to cyber attacks, pricing and finan­cial trans­pa­rency. It is important for us to empha­size that all of this is alre­ady incor­po­ra­ted into our value crea­tion approa­ches during due dili­gence and is deve­lo­ped toge­ther with the manage­ment. This makes subse­quent imple­men­ta­tion much simp­ler and more effi­ci­ent. This is the funda­men­tal diffe­rence to tradi­tio­nal consul­tants: our specia­lists remain on board for the entire dura­tion of the invest­ment, help steer the imple­men­ta­tion and support the company where it makes sense. 

Func­tional experts iden­tify oppor­tu­ni­ties and risks more quickly, prio­ri­tize more clearly and provide struc­tu­red, actionable advice. All this with a high level of effec­ti­ve­ness, because it is not about consul­ting budgets, but about the best possi­ble and most effi­ci­ent imple­men­ta­tion. For exam­ple, in the event of a cyber­se­cu­rity inci­dent or the assess­ment of the impact of customs duties on pricing, purcha­sing or the supply chain, we can react quickly thanks to stan­dar­di­zed action plans, estab­lish inte­rim solu­ti­ons and thus quickly return to normal opera­ti­ons. Our proxi­mity to the company ensu­res calm, orderly cooperation. 

Of course, there are also chal­lenges. Initi­ally, this form of colla­bo­ra­tion costs time and resour­ces. These must be taken into account in the plan­ning from the outset. Howe­ver, the effort pays off in the medium term: The func­tional teams are actively invol­ved, so know­ledge remains within the company. As a result, the company beco­mes more robust and agile, which in turn saves time and resour­ces and secu­res and impro­ves the company’s deve­lo­p­ment in the long term. 

Dr. Holger Klein­garn, Mana­ging Direc­tor and Head of the Hamburg office of H.I.G., has been around for over Dr. Klein­garn has been active in the private equity indus­try for fifteen years. Throug­hout his private equity career, Dr. Klein­garn has focu­sed on mid-market buyouts, growth invest­ments and turn­arounds in Europe.
Prior to joining H.I.G. Capi­tal, he was a part­ner and member of the manage­ment board at London-based Pala­mon Capi­tal Part­ners, a private equity firm focu­sed on mid-market compa­nies in Europe. Prior to that, he was CEO of the manage­ment buyout of a medium-sized soft­ware company. He began his career at the manage­ment consul­tancies Bain & Company and Roland Berger, most recently as a part­ner and member of the manage­ment team for finan­cial services .