This video was made at Römheld & Moelle in Mainz, a BPE portfolio company acquired in an MBO in 2014.

Become an entrepreneur

Management Buy-in

The typical succession planning in German ”Mittelstand” companies, mainly pursued by BPE, is characterised by the particular problem that no suitable management is active in the company that can or wants to succeed the entrepreneur as an entrepreneur.

Shareholding succession
is solvable

But who will take over the operational side of the business? A successful entrepreneur and an organisational and management culture which for generations has been heavily influenced by the owner, characterises the owner-managed ”Mittelstand” company.

Such a structure is built on top of a loyal second management, which often has no leadership or entrepreneurial ambitions. Thus, operational succession planning becomes a succession problem. This is an excellent starting point for an external manager who, as an MBI-Candidate, also joins the company as a new co-owner.

As a “newcomer” an external manager can build on the many years of experience of the existing second management level if he succeeds in winning it over. This can more than compensate for the main disadvantage of the MBI, namely the fact that the new manager does not know the company or its intricacies from “inside”. An alliance between the existing management level and the MBI-Candidate, who is characterised by complementary experience and dynamics of change are an excellent prerequisite for a company participation.

A possible second management level participation creates trust and is an acknowledgement of past performance and its significance for the future development of the company.

This makes the existing second management level (continuity) and the new MBI-Candidate (dynamic) a true entrepreneurial management team, further underpinned by a participation in the company as shareholders. Lastly, the succession of the leaving entrepreneur is solved by a new entrepreneur (or entrepreneurial team).

The identification
of potential candidates

The challenge lies in identifying appropriate MBI-Candidates. A candidate with whom BPE is prepared to acquire a company should ideally have been a part of BPE’s network for some time.
In principle, the question of whether we are prepared to jointly acquire a company must already have been clarified. A situation in which the underlying determination to cooperate between the MBI-Candidate and BPE is questioned in the course of a transaction process increases the already high complexity of solving a succession.

BPE and the MBI-Candidate must already act as a buyer alliance. Although this naturally reduces the number of possible MBI-transactions that can be considered, experience shows that it significantly increases the probability of successfully close a transaction.

BPE is your partner, if …

... you are an experienced manager and are interested in becoming entrepreneurially active and investing in a company. BPE has developed the BPE MBI-Initiative in order to get to know a close circle of interested managers on a more profound level so as to potentially engage in a company acquisition with them. They acquire shares in the company at preferential terms and take over the operational management.

Initial situation:
No successor in the own ranks

In many companies succession planning becomes a problem when the existing second management is not able or willing to take over the operational management or the entrepreneurial role of the company.

In these cases where no suitable operational successor is available to take over entrepreneurial responsibility, the succession planning becomes a real “succession problem”.

Watch with sound

SEITZ Heimtiernahrung · Management Buy-in

The outside solution

The solution is known as a Management Buy-in (MBI) and entails that the future managing director and entrepreneur comes from outside the company. However, this does not mean that the second management level cannot be (entrepreneurially) involved additionally.

An owner-managed ”Mittelstand” company is usually characterised by an organisational and management structure tailored to the current entrepreneur. Such a structure is built on top of a loyal second management level, which often has no leadership and/or entrepreneurial ambitions (anymore). This is an excellent starting point for a new external manager. As a “newcomer” an external manager can build on the many years of experience of the existing second management level if he succeeds in winning them over. This can compensate for the main disadvantage of the MBI, namely the fact that the new manager does not know the company from “inside”.

The basis for success

An alliance between the existing management level and the MBI-Candidate, who is characterised by complementary experience and high dynamic of change, is an excellent prerequisite for identifying unexploited opportunities and sustainably increasing company value in the long term. In addition, the participation of the second management level is considered as a recognition of previous performance and thus creates trust.

Strong alliance
with BPE MBI-Candidates

Ideally a candidate with whom BPE acquires a company is well-known and has been a part of BPE’s network for a number of years. However, the question of whether one is prepared to jointly acquire a company must be clarified in advance. A situation in which the determination to cooperate between the MBI-Candidate and the private equity firm is called into question would further increase the high complexity of a succession planning.

Through the BPE MBI-Initiative BPE has – for a number of transactions – been able to successfully form a committed buying alliance with a respective MBI-Candidate. Experience has shown that this increases the probability of actually engaging in a deal and closing a transaction. The buyer alliance between BPE and a suitable MBI-Candidate represents a unique selling proposition. Therefore, access to MBI-Candidates and knowledge of their suitability and willingness to actually carry out an MBI is an important prerequisite for being dedicated to succession problem solutions in the German “Mittelstand”.

Only the best

BPE institutionalised this concept in 2007 and, based on many years of experience, launched the BPE MBI-Initiative. Through regular events tailored to the identification of potential MBI-Candidates (BPE Entrepreneur Day and BPE MBI-Dinner), candidates previously identified through BPE’s extensive network are informed about the exclusive concept and their interest and suitability are evaluated. Only a limited number of approx. 10 managers are subsequently enrolled in the BPE MBI-Initiative. BPE also pro-actively sources possible transaction opportunities for its MBI-Candidates. Some MBI-Candidates identified through this initiative have already been active in previous BPE portfolio companies.

... you are an experienced manager and are interested in becoming entrepreneurially active and investing in a company. BPE has developed the BPE MBI-Initiative in order to get to know a close circle of interested managers on a more profound level so as to potentially engage in a company acquisition with them. They acquire shares in the company at preferential terms and take over the operational management which is thus owner-managed.

Initial situation:
No successor in the own ranks

In many companies succession planning becomes a problem when the existing second management is not able or willing to take over the operational management or the entrepreneurial role of the company.

In these cases where no suitable operational successor is available to take over entrepreneurial responsibility, the succession planning becomes a real “succession problem”.

Watch with sound

SEITZ Heimtiernahrung · Management Buy-in

The outside solution

The solution is known as a Management Buy-in (MBI) and entails that the future managing director and entrepreneur comes from outside the company. However, this does not mean that the second management level cannot be (entrepreneurially) involved additionally.

An owner-managed ”Mittelstand” company is usually characterised by an organisational and management structure tailored to the current entrepreneur. Such a structure is built on top of a loyal second management level, which often has no leadership and/or entrepreneurial ambitions (anymore). This is an excellent starting point for a new external manager. As a “newcomer” an external manager can build on the many years of experience of the existing second management level if he succeeds in winning them over. This can compensate for the main disadvantage of the MBI, namely the fact that the new manager does not know the company from “inside”.

The basis for success

An alliance between the existing management level and the MBI-Candidate, who is characterised by complementary experience and high dynamic of change, is an excellent prerequisite for identifying unexploited opportunities and sustainably increasing company value in the long term. In addition, the participation of the second management level is considered as a recognition of previous performance and thus creates trust.

Strong alliance
with BPE MBI-Candidates

Ideally a candidate with whom BPE acquires a company is well-known and has been a part of BPE’s network for a number of years. However, the question of whether one is prepared to jointly acquire a company must be clarified in advance. A situation in which the determination to cooperate between the MBI-Candidate and the private equity firm is called into question would further increase the high complexity of a succession planning.

Through the BPE MBI-Initiative BPE has – for a number of transactions – been able to successfully form a committed buying alliance with a respective MBI-Candidate. Experience has shown that this increases the probability of actually engaging in a deal and closing a transaction. The buyer alliance between BPE and a suitable MBI-Candidate represents a unique selling proposition. Therefore, access to MBI-Candidates and knowledge of their suitability and willingness to actually carry out an MBI is an important prerequisite for being dedicated to succession problem solutions in the German “Mittelstand”.

Only the best

BPE institutionalised this concept in 2007 and, based on many years of experience, launched the BPE MBI-Initiative. Through regular events tailored to the identification of potential MBI-Candidates (BPE Entrepreneur Day and BPE MBI-Dinner), candidates previously identified through BPE’s extensive network are informed about the exclusive concept and their interest and suitability are evaluated. Only a limited number of approx. 10 managers are subsequently enrolled in the BPE MBI-Initiative. BPE also pro-actively sources possible transaction opportunities for its MBI-Candidates. Some MBI-Candidates identified through this initiative have already been active in previous BPE portfolio companies.

Sample calculation

Company purchase price incl. additional costs € 10,0 m
Debt€ 5.0 m
Equity€ 5.0 m
   consisting of share capital€ 0.1 m
   Share premium/capital reserve€ 2.15 m
   Subordinated loan (interest 7 % p.a.)€ 2.75 m
Participation concept Management participation 20 %
Percentage share of share capital 20 %€ 0.02 m
Percentage share of premium/capital reserve 20 %€ 0.43 m
Percentage share of subordinated shareholder loan€ 0.00
Total acquisition cost for 20 %€ 0.45 m
Management acquisition costs per 1 %€ 22,500.00
BPE participation80 %
Percentage share of share capital 80 %€ 0.08 m
Percentage share of premium/capital reserve 80 %€ 1.72 m
Percentage share of subordinated shareholder loan€ 2.75 m
Total acquisition costs for 80 %€ 4.55 m
BPE acquisition costs per 1%€ 56,875.00
Acquisition cost of BPE
Ratio of acquisition costs per 1%€ 22,500.00 / € 56,875.00
Management/BPE cost ratio1/2,5

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