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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
FINANCE Studies | Private Equity in Mittelstand Companies
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
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