Small and medium-sized enterprises on the upswing: what adjustments should be made?

Fort­u­na­tely, most SMEs were able to retain their core work­force during the Corona crisis, thanks in part to govern­ment support programs. On the basis of a well-trai­ned work­force, the top prio­rity remains to correctly clas­sify one’s own company in its compe­ti­tive envi­ron­ment, to build on exis­ting strengths and to use these for growth. In this context, every company must also look at how its own busi­ness model is chan­ging with regard to digi­tiza­tion and actively drive forward any neces­sary adjus­t­ments — if neces­sary with exter­nal support.

Accor­ding to a KfW survey, just under 62 percent of compa­nies were in credit nego­tia­ti­ons, an increase of more than seven percent over the previous year. The decline in equity is caus­ing the compa­nies the most trouble.

Equity can also be used as an alter­na­tive finan­cing instru­ment along­side new debt. Howe­ver, it must be noted that one is depen­dent on the other: because more debt capi­tal can only be raised with a solid equity base For SMEs with solid cash flow and suffi­ci­ent debt service capa­bi­lity, there is also the option of raising subor­di­na­ted capi­tal in the form of mezza­nine, which can qualify as econo­mic equity under certain condi­ti­ons. And finally, there is also the possi­bi­lity of streng­thening the company’s equity base through mino­rity or majo­rity shareholdings.

Ulti­m­ately, the company’s manage­ment must decide how to use the newly acqui­red liqui­dity in the most sensi­ble way. In this regard, I think prio­ri­tiz­ing invest­ments is a good idea. The entre­pre­neur should be convin­ced that the invest­ment made will bring the grea­test opera­tio­nal added value to the company, for exam­ple for opti­mi­zing the “supply chain” or inter­na­tio­na­li­zing the business.

In frag­men­ted markets in parti­cu­lar, it makes sense to acquire compa­nies that meaningfully comple­ment the exis­ting core of the busi­ness model as part of a buy-and-build stra­tegy. It remains essen­tial that the company has an over­all stra­tegy and that the acqui­si­tion really makes sense and gene­ra­tes added value. This also includes a PMI (Post Merger Inte­gra­tion) process so that the acqui­red invest­ment can be successfully inte­gra­ted into the over­all company.

About Peter Sachse
Peter Sachse is Mana­ging Direc­tor of VR Equi­typ­art­ner GmbH and respon­si­ble for risk/portfolio manage­ment, opera­ti­ons, accoun­ting, control­ling, human resour­ces, legal, data protec­tion, audi­ting, IT and opera­ti­ons. Until the merger, he had been Mana­ging Direc­tor of DZ Equity Part­ner since 2010.

Previously at DZ BANK in the Credit divi­sion respon­si­ble for the Struc­tu­red Finance product area with a focus on acqui­si­tion finance.

The company profile of VR Equi­typ­art­ner can be found in the FYB 2021 issue on page 168.