This video was made at SEITZ in Langwedel, a BPE portfolio company acquired as part of an MBI in 2015.
Divesting subsidiary companies
Creating ”Mittelstand” businesses
In the mid-1980s, large conglomerates began divesting non-core peripheral activities in order to improve their competitiveness and realise hidden reserves, consequently sparking a wave of M&A transactions.
If the employed management is able to take over the company via a Management Buy-out process and with the help of a private equity firm, this also has an important economic side effect: By adopting this path to independence, the previously employed management has the opportunity to create a ”Mittelstand” company and secure the site and workforce in the long term.
The trend towards spinning off non-core business units and subsidiaries was significantly supported by the improvement in the tax framework for such transactions in Germany.
Since then, the largely tax-free realisation of capital gains on the sale of subsidiaries by corporations has led to a further wave of M&A, particularly in the Management Buy-out segment.
In addition to purely strategic reasons for company divestments, the tax reform has given German conglomerates and corporate groups a further (fiscal) impulse to restructure and accelerate the disposal of peripheral activities.
This is not only beneficial for the large Management Buy-out market segment (enterprise value > € 150 m), but is also particularly beneficial for the segment that BPE focuses on, namely small German “Mittelstand” companies with enterprise values of generally up to approximately € 50 m (small caps).