FIN A N CE - Deutsche Beteiligungs AG

FINANCE Studies 

Private Equity 

in Mittelstand 

Companies 

How are financial sponsors 

changing German companies?

IMPRINT 

June 2007 

Disclaimer All data have been thoroughly researched and compiled. Neither 

the editors nor publishers assume any liability for the accuracy 

and completeness of the contents or for any changes made after 

the completion of the publication. 

© 2007 

FINANCIAL GATES GmbH 

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Deutsche Beteiligungs AG 

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Lincoln International AG 

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All rights reserved, including photomechanical copies 

and storage on electronic media 

Project Manager and Editor Michael Hedtstück (FINANCE Research) 

Data generation Michael Hedtstück (FINANCE Research) 

Design Daniela Seidel (F.A.Z.-Institut)

Content 

I Executive summary 4 

II The results of the study 7 

1. The interviewees – top managers talk 7 

2. Retrospective assessment 10 

III Analysis 16 

The participants 20 

FINANCE Studies | Private Equity in Mittelstand Companies 

3

I Executive summary 

Expansion beats cost cuts 

� For almost all companies, expansion becomes 

more important after the buyout. The 

most common tools are: a more openly pursued 

sales strategy and strengthening the 

companies’ market position. Importance is 

also attributed to the internationalisation 

process, even though this process is less important 

than expansion in general. 

� Private equity providers put a high emphasis 

on growth via acquisitions. 

� The management teams of German Mittelstand 

companies often have limited experience 

with acquisitions and react reluctantly 

when investors recommend acquisitions. 

� Corporate development concepts from the 

pre-buyout period are hardly ever continued. 

The existing strategy is either pursued with 

significantly more commitment or the investor 

and the management jointly develop 

an alternative corporate strategy. 

� Investments are scrutinized. Capex is used 

more efficiently, but usually not reduced. 

� Cost or personnel cuts hardly play any role at 

all. On a priority list they rank far lower than 

the implementation of a growth strategy. 

4 

The management decides, 

not the investor 

� The investor offers strategic inspiration and 

presents opportunities. But at the end of the 

day, the management decides on what will be 

implemented. 

� Private-equity investors very rarely influence 

business operations directly. The management 

expects an intervention only in case of 

severe management failure or if there is an 

imminent danger that covenants will be broken. 

Investors do not communicate to the 

management what type of measures they 

would apply if the company entered a crisis. 

� Financial sponsors offer companies access to 

their networks and to external consultants. 

Most entrepreneurs welcome this option. 

Nevertheless, they sometimes remain critical 

of consultants who have been mandated by 

their financial sponsor. 

Efficient organisation and processes 

� Financial sponsors often initiate changes in 

organisational structures. Their objective is 

to create greater transparency and a higher 

degree of accountability for corporate results 

at an individual level across the management 

team. 

� You hardly find 100-day programs or quick 

wins. But often financial sponsors immediately 

strengthen the financial department 

and enhance reporting. 

FINANCE Studies | Private Equity in Mittelstand Companies

Cooperation between management teams and financial sponsors – the management team’s 

view: 

Management teams welcome: 

� The management team shall manage the expansion process, 

not a cost-cutting program. 

� The management team is shown much appreciation and 

receives support from the financial sponsor. The company 

ranks high in the investor’s priority list. 

� A buyout paves the way for necessary changes in a company. 

� Financial sponsors hardly ever intervene with business 

operations. 

� New corporate development opportunities (M&A) 

� Support with due diligence/company valuations 

� Support with cash management 

� Owners show a high willingness to take decisions and a high 

accountability in their decision-making processes. 

� There is only one contact person. 

� Support with financial communication with banks and/or 

capital markets 

� Agreements are generally fulfilled. 

� Willingness to discuss strategic ideas openly and 

spontaneously; quick communication channels and 

approval processes 

� Often managers with industry expertise sit on the advisory 

board. 

� Access to the financial sponsor’s network, exchanging information 

with other entrepreneurs (method transfer) 

� The management is usually not put under any pressure to cut 

costs or to think or act on a short-term basis 

� Performance-oriented incentive 


Management teams criticise: 

� Exaggerated reporting requirements / special data requests 

or analyses 

� Non-fulfilment of agreements made regarding the exit option 

(IPO) 

� Too much pressure to hire external consultants 

� The financial sponsor’s representatives monitor the company 

too strictly in some cases 

� Recaps – “The money should be invested in the company“ 

� (Too) ambitiously set targets 

� Financial sponsors are never satisfied. They always want 

higher returns. 

� Unsubstantiated suggestions, especially regarding M&A 

targets 

� Pressure to come up with an equity story for the investors and 

to perform accordingly 

� Strong focus on financials, limited understanding of business 

operations 

� Tendency to prematurely divest non-performing assets 

Source: FINANCE Research 

5

� Communication and approval processes are 

significantly shortened; decision-making 

processes are optimized 

� Most managers believe that the implemented 

changes have made their companies more 

flexible and more efficient. 

� If the financial sponsor had not invested in 

the company, in many cases these changes 

would not have been made or only made at a 

later point in time. Only one company would 

have seen the positively perceived changes 

without a previous buyout. 

� The majority of the companies had personnel 

changes at the medium or top executive 

level. Often a financial director is put on the 

management board after the buyout. In some 

cases, members of the board have been 

replaced, especially as a consequence of 

unsatisfactory performance. 

� Once financial sponsors feel fully informed 

and have established a relationship of trust, 

they show a high tolerance regarding management 

errors. Most managers have their 

financial sponsor’s backing even in times of 

poor performance. 

6 

Ambitious financing, conservative 

implementation 

� In a buy-out process, companies are usually 

highly leveraged by using standardized 

financing instruments. The financing structure 

is manageable. Special financing tools 

such as high yield funds or bullet financing 

such as PIK notes (Payment in kind) are very 

rare. 

� Total debt is normally strongly linked to 

liquidity and working capital, but hardly ever 

a major cost factor. 

� Key performing indicators and controlling 

tools are cash flow, working capital and 

ebit/ebitda. 

� Financial sponsors remarkably seldomly 

offer new financial know-how to the companies. 

They mainly train the companies on 

how to communicate with banks and how to 

establish their own independent corporate 

financing structures. 


II Study results 

1. The interviewees – Top managers talk 

Interviewees* 

CFO 

3 

* In two cases both CEO and CFO participated in the interview 

n=13 Source: FINANCE Research 

In-depth interviews with CEOs and CFOs of 13 

German Mittelstand companies that have been 

taken-over by financial sponsors between 2002 

and 2006 were conducted for this study between 

February and April 2007. The interviews 

Transaction volume 

Large-cap 

(> 500 mio. Euro) 

4 

Upper mid-cap 

(250-500 mio. Euro) 

1 

CEO 

12 

Small-cap 

(< 50 mio. Euro) 

2 

Lower mid-cap 

(50-250 mio. Euro) 

6 



took between 60 and 90 minutes. Most were 

face-to-face interviews. In exceptional cases interviews 

were conducted by telephone. 

Anonymity was guaranteed to all interviewees. 

The majority of companies (seven companies) 

generated a sales volume of between €100 mil - 

lion and €250 million in 2006. One company 

had a sales volume between €250 million und 

€750 million. F ive companies had sales volumes 

greater than €750 million. W ith six interviewees 

the transaction volume (enterprise value) was in 

the lower mid-cap range (€50-250 million). T wo 

interviewed companies were in the small-cap 

range (< €50 million). One transaction was in 

the upper mid-cap range (€250-500 million). 

Four companies were in the large-cap range 

(more than €500 million). 

When selecting the interview sample, the objective 

was to have a good cross-section of privateequity 

companies that invest in German Mittelstand 

companies. 

Sales volume 

more than 750 mio. 

Euro 

5 

250-750 mio. Euro 

1 

100-250 mio. Euro 

7 


7

In order to reflect the existing market structure 

the sample was to include both financial sponsors 

of German and Central European and Anglo-Saxon 

investors. The following private equity 

companies are shareholders of the interviewed 

companies: 

� 3i 

� Advent International 

� Allianz Capital Partners 

� Axa Private Equity 

� Capiton 

� Deutsche Beteiligungs AG 

� Doughty Hanson 

� Granville Baird 

� Halder 

� Kohlberg Kravis Roberts (KKR) 

� Montagu 

� Odewald & Compagnie 

� One Equity Partners 

� Quadriga 

� Springwater Capital 

� Star Capital 

8 

Two companies have been bought by a financial 

sponsor for the second time (secondary buyout). 

Three other companies (Mauser, M+W Zander, 

Prüm-Garant) have been sold to new shareholders 

after the interview but before the publication 

of this study. 

The 13 interviewed companies operate in nine 

different industries. With four interviewees 

from the mechanical and plant engineering sector, 

this industry is represented strongest. 

Eight companies had been part of a larger corporate 

group before the buyout. Four companies 

had previously been family businesses. One 

company had been sold by the public sector in a 

privatisation process. 

The focus of this study was to retrieve quality data 

during in-depth interviews based on a standardised 

questionnaire. After the interviews the 

information was processed anonymously. Every 

Industry sectors 

Mechanical and plant engineering 4 

Metal-processing industry 2 

Railway infrastructure 1 

Wood-processing industry 1 

Wholesale and retail 1 

Industrial packaging 1 

Pharmaceutical industry 1 

Electronics 1 

Personal transport 1 



Shareholders before the buy-out 

Entrepreneurs/ 

families 

4 

Public sector 

1 

Large corporate 

group 

8 


category was analysed individually. Quantitative 

data was retrieved in the “debt/leverage” section 

and analyzed by means of aggregation. 


9

2. Retrospective assessment 

The concluding opinions of the interviewed 

management teams regarding their buyouts 

were complex. Almost every company underwent 

a number of changes that were implemented 

after the buy-out and received comprehensive 

support by the financial sponsor. 

The management teams found strategic input 

on corporate strategy especially helpful. This included 

strategy sparring during which the management 

teams could discuss and promote ideas 

easily and quickly. They also appreciated the 

transfer of know-how and methods from the financial 

sponsor’s network, which is often used 

to disseminate knowledge gained in existing 

portfolio companies to the newly acquired portfolio 

companies. In many cases financial sponsors 

suggested the use of external consultants 

with whom they had successfully worked before. 

One entrepreneur welcomed the fact that the investor’s 

network opened up resources for special 

projects which the company was unable to supply. 

Furthermore, the management teams wel- 

10 

comed support in M&A transactions, especially 

with regard to enterprise valuations and due diligence 

processes. 

Only one entrepreneur did not regard any of the 

suggestions or the support offered as helpful. 

He explained that the investor knew far too little 

about his market and his business to contribute 

in a constructive way. 

This is also the most often raised complaint. Five 

entrepreneurs complained that their investors 

brought up too many useless ideas or suggestions 

(especially regarding potential M&A targets 

or improvements in business operations), 

which only kept the management teams from 

doing their job since they had to provide comprehensive 

justifications for disapproving of 

these ideas in some cases. 

What type of support from your financial sponsor do you regard as helpful? 

(Several answers possible) 

Input regarding strategy, management issues, public relations etc. 6 

Access to the financial sponsor’s network, transfer of methods 

M&A support/due diligence 

Backing, quick decision making 

Support regarding financing issues 1 

None 1 

Political contacts 

1 

Coaching in capital markets issues 

1 


3 


4 

4

What type of support from your financial sponsor do you consider to be obstructive? 


None 6 

Too many useless suggestions or ideas 

5 

Tendency to supervise management 

2 

Exaggerated focus on financing issues 

1 

Leverage 1 

External consultants creating overly high costs 1 


“Shareholders are 

generally difficult.” 

Two managers felt they were being supervised 

by their financial sponsor. One complained that 

his investor’s focus on financing issues blocked 

a clear view on business operations and strategic 

questions. One criticised an (in his view) overly 

high leverage. While many managers had an 

ambivalent relationship regarding the external 

consultants favoured by their investors, one entrepreneur 

clearly opposed consultants. He said 

that external consultants merely created costs 

and limited management capacities, because 

the management was forced to continuously supervise 

them. In addition, they were of limited 

use, because their analyses were directed primarily 

at the private equity company. 

Overall, the management teams were content 

with their financial sponsor’s support. This also 

applies to the promises that had initially been 

made by their new shareholders (see table). 

Seven out of nine interviewees, who had 


received specific guarantees, confirmed that 

these guarantees had been fulfilled. Only one 

was disappointed by the reliability of his financial 

sponsor. 

What promises did your financial sponsor 

make during the buyout process? 


None 4 

Support with expansion/M&A 4 

Support with financing issues 3 

External consultants can be recruited any time 2 

Full backing of the management strategy 1 

Access to the investor’s network 1 

Future IPO 1 

No interventions with business operations 1 

High appreciation for the company 1 

“Handsales” can be trusted 1 


11

There were similar findings regarding the positive 

and negative changes triggered by the buyout. 

There were more positive than negative aspects. 

The latter covered a wide range (see chart 

on next page). There do not seem to be any typical 

private-equity-induced changes but rather 

only company-specific changes. Again, strategic 

gains are valued higher than technical improvements 

in the financing department or the enhancement 

of processes. 

This positive image is confirmed by the fact that 

eight entrepreneurs said that the buyout had not 

resulted in any negative changes (see chart on 

next page). 

Benefits and drawbacks are often two sides of 

the same medal. One interviewee complained 

about exaggerated reporting requirements and 

the tendency of his investor to supervise him. 

On the other hand he considered it to be an improvement 

that he was much better informed 

Did your investor keep these promises? 

12 

No promises 

were made 

4 

Partially 

1 

No 

1 


Yes 

7 

about his company’s strengths and weaknesses, 

risks and opportunities, because of the many 

analyses and key performance indicators he had 

been forced to work with. 

Another entrepreneur welcomed the fact that 

the buyout had enabled him to pursue the 

growth strategy of his company more aggressively. 

At the same time he criticised the general 

attitude of financial sponsors, who are never satisfied 

and always want to see higher returns 

when the company performs according to plan. 

Overall, positive responses dominate the picture. 

Nine interviewees believed that the numerous 

positively assessed changes in strategy, 

organisation, and process management (see section 

“Decision-making process”) would not have 

been implemented without a buyout or would 

have been implemented significantly later. Only 

one company would have initiated the same 

changes if the buyout had not taken place. 

From the management’s perspective these 

changes also include the fact that they are now 

better able to focus on issues that directly add 

value to the company. Internal communication 

was named most often, especially with the middle 

management, followed by due diligence 

processes of M&A targets (see chart on next 

page). Furthermore, the management teams 

welcomed the fact that they had more time to 

communicate with customers, to bring in new 

business and to focus on new technologies and 

products. Three managers disapproved of the 

fact that they now have to spend more time on 

reporting. They also criticised that financing issues 

and the monitoring of external consultants 

are very time-consuming. 


Three entrepreneurs welcome the fact that they 

need less time to communicate with their shareholders 

(see chart on next page). Complicated 

approval processes in large corporations or family 

businesses with several family members can 

take up a lot of time. One interviewee mentioned 

that he used to spend a great amount of time on 

explaining to several stakeholders why he spent 

so much time communicating with the other 

What has improved as a consequence of 

the buyout? 


The company was given a business perspective 3 

Strategy is implemented more fiercely 

Company became quicker, more flexible with 

3 

more growth drivers 3 

Acquisitions became an option 2 

Professional support of the financial department 2 

Better communication with shareholders 2 

None 2 

Analyses enhance corporate information 1 

Better use of personnel 1 

Access to capital markets 1 

Modern organisation 1 

General quality of management 1 

Shareholders have become more reliable 1 

Stronger awareness of financing issues 1 

The company would not have survived without the buyout 1 

More solid and long-term financing 1 

Increasing R&D ressources 1 

Improved risk management 1 



stakeholders. Today he only has one contact 

person. 

Some entrepreneurs considered it to be a strain 

that they had to spend much time on reporting 

and special analyses at the request of their 

investors. As a consequence they paid less 

attention to business operations, sales and 

corporate strategy. 

A more efficient communication with their 

private equity shareholders apparently does not 

always guarantee that the management can 

focus on what is essential. 

Nevertheless, six interviewees believe that they 

have more power than before the buyout, mostly 

because they can decide independently and 

because their company is geared to a quick 

implementation of decisions. Only three interviewees 

find that they have less power than 

before. The reason: In all three cases the previ- 

What has worsened as a consequence of 

the buyout? 

Nothing 8 

Losing long-term strategic perspectives 

The company is no longer backed by a large 

1 

corporation with great financing power 

Management feels supervised and spends too 

1 

much time with the financial sponsor 

The investor is greedy and continuously aims at 

1 

maximizing returns 1 

Exaggerated reporting 1 


13

On which issues do you spend less time than before? 

Communication with shareholders 3 

Business operations 

Sales and distribution 

1 

Strategy 

1 

Fundraising 1 

Travel 1 

Trouble shooting/project management 

1 

Discussions on key performance indicators, costs and restructuring 

1 


ous shareholders had not monitored them very 

closely. On the one hand the management teams 

could carry out fewer plans than today; on the 

other hand, their performance was hardly ever 

measured or questioned. 

14 

One could assume that an increased decisionmaking 

competence, a better informed and 

more ambitious group of shareholders and the 

personal financial commitment of the management 

teams result in greater pressure on the 

management teams. But the underlying sample 

only seldom confirms this assumption. Merely 

On what issues do you spend more time than before? (Several answers possible) 

Internal Communication 3 

Due diligence of M&A targets 

Analyses/reporting 

Customer contacts/acquiring new customer orders 

Financing issues 1 

Bank communication 1 

Business operations 

1 

Monitoring/Controlling external consultants 

1 

External communication 

New technologies and products 


1 

1 


2 

2 

3 

3

Would the changes have been implemented 

without the buy-out? 

five interviewees confessed that they feel a 

greater pressure today than before the buyout. 

Thus, the increased pressure is a result of increased 

responsibility for the company’s success 

and its employees, because there no longer is a 

Do you have more power now than before 

the buyout? 

No, 

less power 

3 

No 

9 


No difference 

4 



Yes 

1 

Yes 

6 

Partially 

3 

large corporation or charismatic founder behind 

which the management can hide. Those who do 

not feel any increase in pressure attribute this 

fact to the good performance of the company. In 

case of poor performance and an imminent danger 

of breaking covenants, most fear that the 

pressure will increase. 

Do you feel a greater pressure than before? 

No 

8 


Yes 

5 

15

III Analysis 

The general public still considers private equity 

a financing alternative rather than a strategically 

relevant instrument. The findings of this 

study challenge this view. The financial sponsors 

who have invested in Mittelstand companies 

find that the greatest potential to generate 

added value lies at the strategic level. They use 

the time available, in general between three and 

five years, primarily to strategically develop their 

portfolio companies and to create growth stories. 

The establishment of lean organisations and 

processes is merely a tool in order to create the 

best possible prerequisites for a growth in sales 

and profits. Reducing costs or personnel clearly 

ranks behind other objectives on their priority 

list. And it is usually true to say: When a company 

is taken over by a private-equity sponsor, the 

former non-core subsidiary of a corporation suddenly 

becomes core business. Does this mean 

that private-equity financed companies develop 

better than their peers? 

16 

“Someone had to get 

the company 

out of hibernation.” 

In many situations the answer is yes. This is 

proven by the qualitative results of this study 

and the quantitative data of the FINANCE study 

“Economic Impact of Private Equity in Germany” 

(2004). The latter proved with statistical 

methods that private equity-financed companies 

grew faster in Germany between 1998 and 2003 

and hired more employees than their peers. 

However, when interpreting these findings one 

must take a close look at the nature of the Mittelstand 

companies that financial sponsors have 

invested in. The majority were either spin-offs 

from large corporations, which were no longer 

considered to be core business or family businesses. 

In both cases the company’s access to expansion 

promoting resources is limited, either 

because these resources are generally scarce 

(family business) or because they are allocated 

to other business fields (large corporations). In 

addition, dividends to shareholders (either family 

members or parent company) are sometimes 

high. But resources are also limited in buyout 

situations. Dividend payments are replaced by 

debt service. This is tax-deductible, but puts a 

similar strain on the cash flow. 

Private-equity-financed companies do not exclusively 

use the cash flow for debt service, but also 

for acquisitions. Furthermore, some financial 

sponsors are willing to provide additional equity 

capital for attractive acquisition targets. This 

means that buy-out companies are still likely to 

grow in sales and number of employees under 

private-equity shareholders despite increased 

debt financing. 

Better access to financing sources is not the 

main reason why most of the interviewed companies 

perform better after the buyout or why 

some entrepreneurs even perceived the private 

equity investor’s buy-in as a liberating moment. 

The in-depth interviews showed that the management 

teams have significantly better opportunities 

to expand their businesses (also via 

M&A) than before. For financial sponsors M&A 

is daily business. 


They are constantly screening M&A markets. 

They are important business partners for corporate 

sellers or M&A consultants. 

Sponsors often present M&A targets to their 

portfolio companies and they encourage their 

management teams to look for acquisition candidates 

themselves. Expansion issues in general 

and M&A in particular move up on the corporate 

agenda when financial sponsors come into play. 

“Before, the company was 

geared to technology. 

Now it is geared to the market.“ 

This implies is a certain pressure on the management 

teams. Financial sponsors expect a 

growth story – the management team has to deliver. 

If a management team does not seize this 

opportunity, avoids M&A transactions or does 

not identify investment targets for free cash 

flows, shareholders will most likely demand a 

cash-out of the unused capital. 

The willingness of a management team to satisfy 

their financial sponsor’s expansion appetite is 

not the only issue that determines whether the 

two parties cooperate well. The competence of 

the financial sponsor also plays a role. The interview 

results give a clear picture: Only if a 

sponsor has truly developed a deep understanding 

of his portfolio company’s business model 

and the market it operates in can he support the 

management team with his M&A expertise. Private-equity-financed 

companies do not automatically 

have a better chance to expand. 

It is up to the financial sponsor to create the necessary 

parameters. Some try to achieve this by 


having experienced industry experts accompany 

their portfolio companies instead of investment 

managers. Some of the interviewees have a contact 

person with an industry background and 

perceive the communication as fully positive. 

The selection of contact persons for the management 

teams – investment manager or industry 

expert – is only one of the many differences 

between private equity companies. They differ 

greatly, because they emphasise different issues. 

This is seen most strongly in M&A, but also in 

reporting and the degree of involvement in daily 

business operations. While some financial 

sponsors clearly consider M&A as their core 

competence, some value a transfer of methods 

higher. They carry out benchmark analyses 

across their portfolio and try to implement the 

identified best practise methods in as many 

companies as possible. This type of investor is 

less focused on M&A, but rather on process optimization 

and organic growth strategies. They 

generally have higher reporting requirements 

and closely watch business operations. Due to 

these – in part drastically – different approaches, 

management teams should carefully analyse in 

which way the company should develop before 

the buyout and select their investor accordingly. 

“If this were my company, 

I would decide differently.” 

The management teams assume overall responsibility. 

The majority of the 16 private equity 

companies covered in this study understand 

themselves as passive investors, as partners for 

the management teams. They encourage, point 

17

out opportunities, support management in implementing 

its ideas, but they do not force the 

management teams to do anything. They turn 

previous managers into entrepreneurs. However, 

the managers may act like entrepreneurs, but 

they are no true entrepreneurs, because the majority 

shareholder is usually the private-equity 

company. The management teams are still accountable 

to their shareholders. Apparently this 

is not a problem, because financial sponsors tolerate 

mistakes as long as they feel fully informed 

and have a relationship of trust with their management 

teams 

18 

“A good manager is not 

influenced by the fact 

that his own money is at risk”. 

But, if the cooperation proves not to be fruitful, 

financial sponsors prefer to replace the existing 

management team instead of forcing it to comply 

with their preferred strategy. In this respect 

they do not differ from other shareholders who 

do not see themselves as partners of the management 

team. 

Once both parties have reached a good cooperation 

level and established a relationship of trust, 

the management teams have the full backing of 

their financial sponsors. In addition, the managers 

are shareholders themselves and benefit 

from the company’s increase in value. Because 

there are certain incentive packages (“sweet equity”), 

their return is often higher than that of 

the financial sponsor. 

Against this background it is not surprising that 

working under a private-equity company was 

conceived as very positive by all interviewees, 

even if some had minor complaints. But the image 

of private equity in the general public is a different 

one. What are the reasons? 

Private equity does not only stand for freedom, 

but also for a strong performance orientation. 

Many of the interviewed companies went 

through reforms which basically had two objectives: 

a clear individual accountability for results 

at all management levels and the highest possible 

degree of transparency. Only managers with 

a good track record benefit from this transparency, 

because weaknesses are revealed rigorously. 

In large corporations or family businesses 

this performance control is usually less strict. 

When a financial sponsor invests in a company 

there are often employees who do not accept the 

increased performance expectations of their 

new employer. Some of them publicly criticize 

private equity. In addition, this performance 

control is applied to everyone in the company, 

but only a small circle of managers receives a financial 

incentive or holds shares itself. 

“Thanks to the cooperation with 

our financial sponsor the 

overall quality of the management 

team has improved.” 

Another reason is the poor transparency of these 

companies for third parties. While financial 

sponsors very quickly create internal transparency, 

outsiders very rarely find out what they 

have done inside the company. Many people are 

suspicious of the high returns generated by private-equity 

companies. This leads to mistrust 

and stereotypes, which were for the greatest part 


not confirmed by the interviewees. Most managers 

do not feel any pressure to cut costs or design 

cost-cutting programs. There were only few 

cases with personnel lay-offs. The interviewees 

clearly contradicted the existing stereotype that 

financial sponsors achieve their returns primarily 

by means of financial engineering. 

Financial sponsors are much more appreciated 

by their management teams than by the general 

public. This is not surprising. But it is interesting 

to note that this can not be attributed to the 

high financial incentive for management teams 

during a buyout, but rather to the extensive entrepreneurial 

freedom and newly gained opportunities 

to make more of a company than in the 

past. 

Activating unused growth potential seems to be 

the most important leverage for added value for 

Mittelstand portfolio companies – and not the 

elimination of unnecessary costs. It is remarkable 

that financial sponsors and their portfolio 

companies hardly need additional funding: 

With an identical capex, significantly higher 

growth rates are suddenly generated and free 

cash flow is used to acquire other companies, 

which results in higher profits and a reduction 

of the debt/operating profit ratio. 

The methods of private equity companies are 

simple and less sophisticated than often 

claimed. The often restrain themselves to a consequent 

exploitation of growth potential by freeing 

the company and the management from unnecessary 

burdens. The fact that financial sponsors 

additionally burden management teams 

with sometimes very high reporting requirements 

is part of the negative consequences of a 


buy-out. The managers feel that these weigh 

fairly little compared to the liberating effects. 

The management teams have a very professional 

attitude. They know that their investors will 

judge them in the end by how they have improved 

the company’s performance and have 

thereby added value to the company. Increasing 

a company’s valuation remains the overall objective 

of financial sponsors. 

19

The participants 

20 

Industries Sales volume Employees 

Abellio GmbH Passenger Transport 100 mio. Euro 1.000 

A.T.U Auto-Teile-Unger Handels GmbH & Co. KG Wholesretail/Retail/Service 1,4 billion Euro 12.500 

Berkenhoff GmbH Metal processing industry 110 mio. Euro 600 

BOA-BKT GmbH Metal processing industry 170 mio. Euro 1.100 

Borsig GmbH Mechanical and plant engineering 120 mio. Euro 400 

BSN Medical GmbH Pharmaceutical industry 530 mio. Euro 3.300 

Lewa GmbH Mechanial engineering 100 mio. Euro 600 

MAN Roland Druckmaschinen AG Mechanial engineering 2,1 billion Euro 8.750 

Mauser AG Industrial packaging 1 Mrd. Euro 3.000 

Moeller GmbH Electronics 960 mio. Euro 8.500 

M+W Zander Holding Plant engineering 1,9 billion Euro 8.500 

Prüm-Garant Holding Wood processing industry 114 mio. Euro 750 

Rail.One GmbH Railway infrastructure 150 billion Euro 800 


Date of the Date of Secondary Previous shareholders Financial sponsor 

Buy-out Buy-out 

2006 City of Essen Star Capital 

2002 2004 Peter Unger KKR (majority), Doughty Hanson 

2004 ThyssenKrupp AG Granville Baird (majority), 3i 

2005 IWKA AG Odewald & Compagnie 

2003 Babcock Borsig AG Capiton 

2006 Beiersdorf AG, Smith & Nephew plc Montagu 

2005 Ott Family Deutsche Beteiligungs AG, Quadriga 

2006 MAN AG Allianz Capital Partners 

2003 Mauser and Gallay Family; West LB One Equity Partners 

2003 2005 Moeller Family Doughty Hanson (majority), Advent 

2005 Jenoptik AG Springwater Capital 

2004 Hochtief AG Halder 

2006 Pfleiderer AG Axa Private Equity 


21

Contacts 

Deutsche Beteiligungs AG 

Thomas Franke 

Kleine Wiesenau 1 

60323 Frankfurt am Main 

Phone: + 49 (0) 69 / 9 57 87 - 3 07 

E-mail: thomas.franke@deutsche-beteiligung.de 

Lincoln International AG 

Dr. Michael Drill 

Kettenhofweg 29 


Phone: + 49 (0) 69 / 9 71 05 - 4 05 

E-mail: m.drill@lincolninternational.de 

FINANCE editors team 

Michael Hedtstück 

Mainzer Landstraße 199 


Phone: + 49 (0) 69 / 75 91 - 25 83 

E-mail: michael.hedtstueck@finance-magazin.de 

22

FIN A N CE - Deutsche Beteiligungs AG

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