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.