This video was made at GREIF VELOX in Lübeck, a BPE portfolio company acquired in an MBO in 2018.
Solving succession
Are the prerequisites right?
The succession planning in a ”Mittelstand” company is always a unique process that must be adapted to suit the specific circumstances and respective situation of the entrepreneur.
As this is your life’s work the conditions must be right and the preparation excellent. Give yourself enough time and listen to your intuition.
”Chemistry”
In addition to the pure fundamentals and the economic climate, cultural chemistry plays a decisive role in the choice of the ideal business partner. This applies to the selling entrepreneur, the future management and also to BPE.
A successful partnership is built upon respect and understanding between all parties involved. Considering what is at stake for all parties, the process can become highly emotional. Since a transaction process is inherently long-term in nature, the relationship must be able to withstand crises. Mutual trust and a corporate ethic based on homogeneous values are fundamental to such resilience.
Learn more?
Corporate Ethic
Openness
and fairness
are the essential guiding formulas that characterise our corporate ethics.
During every decision, it is necessary to determine whether decisive information has been communicated to all involved parties. This is of particular importance concerning the sellers of the business and the incoming management as a future partner to BPE. On top, all relevant information must be passed on in a way that is not too specific or technical, but intelligible for everyone.
Openness is the basis for avoiding conflicts. This applies vis-à-vis the seller in (1) the planning of the takeover strategy, which is the essential basis for the decision-making process, as well as (2) the development of the acquired company. If the agreed upon strategy is strictly adhered to and the highest level of commitment and professionalism is maintained, a negative development may be more acceptable and understandable in a business with inherent risks if full openness dominates the relationship. It is the basis for trust for a respective partner. The same applies in relation to the company’s shareholdings and to be more exact, the partners involved.
Fairness is more difficult to define because it is inherently subjective and perceptions of it can be quite different. Generally speaking however, there is a causal relationship between the first guiding principle “openness” and the second one “fairness”. The understanding of BPE implies clarity in the assertion of one’s own interests without over-benefiting compared to the partner. The yardstick for this is a significant deviation from general market standards without an appropriate compensation. Here the connection with openness becomes clear again.
The aim of BPE’s partnership is to be a trustworthy, predictable partner for all relevant business partners. Business ethics and morals are constant companions in a business that is essentially characterised by trust on the investor side, but also on the seller and management side.
The question “Would I like to explain the reasons for my behaviour or my arguments to all parties concerned?” is always used to objectify the subjective assessment of “fairness”.
Moreover, these principles apply not only to the way in which business is conducted but also, more generally, to the nature of the business that it is conducted in.
Industries
Generally, BPE invests in companies in a diverse set of industries. Nevertheless, three broad core segments were defined. These are determined by the experience gained over the past 25 years, the industrial structure of German ”Mittelstand” companies and the growth potential of a respective industry.
BPE primarily invests in companies from (1) traditional German industries, some of which are characterised by century-old traditions. Additionally, markets distinguished by (2) an above-average expected growth potential, due to changes in living conditions and consumer behaviour, are targeted.
Furthermore, BPE seeks (3) products or services that rationalize processes (Software, IT, IoT) or more traditional, established industries that are going through a (partially disruptive) transformation phase or simply are seeing an increase in growth opportunities due to the general trend towards internationalization and/or globalization.
The main focus
1. German “Mittelstand” competences
BPE focuses on profitable companies with established products in stable markets with above-average growth opportunities. Due to the constantly changing global economic environment caused by various megatrends, BPE concentrates on sectors in which German “Mittelstand” companies have unique selling propositions or (internationally) competitive advantages.
These typical German “Mittelstand” core competencies can be found in know-how specific and technology-driven companies, in addition to innovation-based industries with a strong focus on research and development. Particularly, sectors such as mechanical and plant engineering, chemicals and materials, or measurement and control technology benefit from these expertise. However, the German “Mittelstand” core competency of “managing complexity” is also important and additionally directs the focus towards the provision of complex industrial services.
Examples from the BPE portfolio
2. Economically induced growth markets
Global megatrends are creating considerable, profitable growth opportunities for German ”Mittelstand” companies. The emergence of a multipolar world is opening up new markets as well as export and globalisation opportunities. In addition to the “BRIC countries”, the “Next 11” encompassing (emerging) countries such as South Korea, Mexico and Turkey are of increasing relevance (see globalisation opportunities).
Another important megatrend is the current worldwide demographic change. Global population growth and the increasing scarcity of resources are driving demand for “sustainable” products and services, and this, in turn, favours and cultivates growth sectors, such as environmental engineering and technology related to “renewable energies” and “e-mobility”.
When it comes to rising energy and commodity prices, more mature industries are increasingly demanding German innovation, which is characterized by efficiency and effectiveness.
Rationalisation potential and process optimisation through digitalisation are some of the biggest challenges facing German “Mittelstand” companies and even the German industry as a whole. By harnessing the advantages of digitalisation, those companies that are willing to embrace technological change can tap into above-average growth opportunities and further unlock their hidden potential.
Moreover, the societal shift towards an older population that is prevalent in Germany and other industrialised nations, in addition to an increase in per capita income is highly beneficial for the medical technology sector, the health care sector and those areas that focus on quality of life, education and leisure activities.
Examples from the BPE portfolio
3. Opportunities for globalisation
Foreign trade relations are of exceptional importance for the German economy. The international interdependence of production chains, as described by the term “globalisation”, has also opened up considerable growth potential for German ”Mittelstand” companies. Those with a consistent internationalisation strategy benefit on two fronts: by opening up new markets (export orientation) and by exploiting comparative cost advantages by (partially) relocating the value chain to less wage-intensive countries.
The German “Mittelstand” companies with their traditional R&D strength and deep knowledge in innovative manufacturing processes could experience a renaissance, if they are able to successfully overcome the challenges of digital transformation. They will have to successfully utilise digital process transformation that increases efficiency to compensate any comparative cost disadvantages that may result from appropriate requirements for working conditions and environmental protection.
However, “Mittelstand” companies still have potential for improvement in this respect. A study conducted by the University of Göttingen in cooperation with the Institute for “Mittelstand” companies Research (IfM), Bonn, has shown that (1) German “Mittelstand” companies are already highly and increasingly active abroad, (2) and foreign involvement has a statistically significant positive effect on employment, sales growth and earnings. (3) However, they (still) generate a significantly higher share of value in their domestic market compared to large companies.
Additionally, German “Mittelstand” companies face a considerable (pent-up) need to advance the use of digitalisation in management, administrative and production processes.
Examples from the BPE portfolio
Company sizes
Our investment activities mainly focus on profitable German “Mittelstand” companies that are distinguished by significant growth potential and generate annual sales of at least € 20 m.
Sometimes, smaller companies are also taken into consideration, if they generate above-average profitability of approx. 10%+ and are suitable for implementing a growth strategy, possibly also via external growth. In exceptional cases, we deviate from this concept, e.g. if the company in question fits into an already existing portfolio company as an add-on, in line with a so-called Buy-and-Build strategy.
BPE transaction focus
Size criteria
Focus
-
Sales: € 20 m - € 50 m
-
Earnings before interest and tax: € 2 m - € 7 m
-
Enterprise value: € 20 m - € 40 m
Broad interpretation
-
Sales: € 10 m - € 100 m
-
Earnings before interest and tax: € 1 m - € 10 m
-
Enterprise value: up to € 50 m
Documents
and concept
For an initial assessment of a company, all documents that enable us to get a better insight into your company are helpful. Naturally, we are willing to sign a confidentiality agreement. Today, company websites usually provide a great deal of information and a good overview of a company’s field of business and its products. However, in order to assess a company successfully, it is important to learn about the company’s past, present, and future earning’s situation. Annual financial statements for past periods, ongoing reports such as monthly economic evaluations, as well as a corporate business plan for the current year and ideally for future periods are highly useful. Furthermore, we are interested in documents that allow us to draw conclusions about the special features and positioning of your company.
A document summarising the company as a whole and/or the company strategy is helpful, if available. Please refer to our exemplary checklist to see how said document can be structured.
It goes without saying, however, that an initial meeting should take place before any sensitive information is exchanged.
Checklist
-
Description of the company
-
Reason for sale
-
History
-
Market/competition
-
Corporate concept/strategy
-
Production/product development
-
Competitive advantages
-
Unique selling propositions
-
Organisation chart
-
Curricula vitae of the management (team)
-
Balance sheet/profit and loss statement - if possible - of the last 3 years
-
Balance sheet/profit and loss plan for the next 3 years
-
Capital requirements and use
-
Customer and supplier references
”Chemistry”
In addition to the pure fundamentals and the economic climate, cultural chemistry plays a decisive role in the choice of the ideal business partner. This applies to the selling entrepreneur, the future management and also to BPE.
A successful partnership is built upon respect and understanding between all parties involved. Considering what is at stake for all parties, the process can become highly emotional. Since a transaction process is inherently long-term in nature, the relationship must be able to withstand crises. Mutual trust and a corporate ethic based on homogeneous values are fundamental to such resilience.
Learn more?
Corporate Ethic
Openness
and fairness
are the essential guiding formulas that characterise our corporate ethics.
During every decision, it is necessary to determine whether decisive information has been communicated to all involved parties. This is of particular importance concerning the sellers of the business and the incoming management as a future partner to BPE. On top, all relevant information must be passed on in a way that is not too specific or technical, but intelligible for everyone.
Openness is the basis for avoiding conflicts. This applies vis-à-vis the seller in (1) the planning of the takeover strategy, which is the essential basis for the decision-making process, as well as (2) the development of the acquired company. If the agreed upon strategy is strictly adhered to and the highest level of commitment and professionalism is maintained, a negative development may be more acceptable and understandable in a business with inherent risks if full openness dominates the relationship. It is the basis for trust for a respective partner. The same applies in relation to the company’s shareholdings and to be more exact, the partners involved.
Fairness is more difficult to define because it is inherently subjective and perceptions of it can be quite different. Generally speaking however, there is a causal relationship between the first guiding principle “openness” and the second one “fairness”. The understanding of BPE implies clarity in the assertion of one’s own interests without over-benefiting compared to the partner. The yardstick for this is a significant deviation from general market standards without an appropriate compensation. Here the connection with openness becomes clear again.
The aim of BPE’s partnership is to be a trustworthy, predictable partner for all relevant business partners. Business ethics and morals are constant companions in a business that is essentially characterised by trust on the investor side, but also on the seller and management side.
The question “Would I like to explain the reasons for my behaviour or my arguments to all parties concerned?” is always used to objectify the subjective assessment of “fairness”.
Moreover, these principles apply not only to the way in which business is conducted but also, more generally, to the nature of the business that it is conducted in.
Industries
Generally, BPE invests in companies in a diverse set of industries. Nevertheless, three broad core segments were defined. These are determined by the experience gained over the past 25 years, the industrial structure of German ”Mittelstand” companies and the growth potential of a respective industry.
BPE primarily invests in companies from (1) traditional German industries, some of which are characterised by century-old traditions. Additionally, markets distinguished by (2) an above-average expected growth potential, due to changes in living conditions and consumer behaviour, are targeted.
Furthermore, BPE seeks (3) products or services that rationalize processes (Software, IT, IoT) or more traditional, established industries that are going through a (partially disruptive) transformation phase or simply are seeing an increase in growth opportunities due to the general trend towards internationalization and/or globalization.
The main focus
1. German “Mittelstand” competences
BPE focuses on profitable companies with established products in stable markets with above-average growth opportunities. Due to the constantly changing global economic environment caused by various megatrends, BPE concentrates on sectors in which German “Mittelstand” companies have unique selling propositions or (internationally) competitive advantages.
These typical German “Mittelstand” core competencies can be found in know-how specific and technology-driven companies, in addition to innovation-based industries with a strong focus on research and development. Particularly, sectors such as mechanical and plant engineering, chemicals and materials, or measurement and control technology benefit from these expertise. However, the German “Mittelstand” core competency of “managing complexity” is also important and additionally directs the focus towards the provision of complex industrial services.
Examples from the BPE portfolio
2. Economically induced growth markets
Global megatrends are creating considerable, profitable growth opportunities for German ”Mittelstand” companies. The emergence of a multipolar world is opening up new markets as well as export and globalisation opportunities. In addition to the “BRIC countries”, the “Next 11” encompassing (emerging) countries such as South Korea, Mexico and Turkey are of increasing relevance (see globalisation opportunities).
Another important megatrend is the current worldwide demographic change. Global population growth and the increasing scarcity of resources are driving demand for “sustainable” products and services, and this, in turn, favours and cultivates growth sectors, such as environmental engineering and technology related to “renewable energies” and “e-mobility”.
When it comes to rising energy and commodity prices, more mature industries are increasingly demanding German innovation, which is characterized by efficiency and effectiveness.
Rationalisation potential and process optimisation through digitalisation are some of the biggest challenges facing German “Mittelstand” companies and even the German industry as a whole. By harnessing the advantages of digitalisation, those companies that are willing to embrace technological change can tap into above-average growth opportunities and further unlock their hidden potential.
Moreover, the societal shift towards an older population that is prevalent in Germany and other industrialised nations, in addition to an increase in per capita income is highly beneficial for the medical technology sector, the health care sector and those areas that focus on quality of life, education and leisure activities.
Examples from the BPE portfolio
3. Opportunities for globalisation
Foreign trade relations are of exceptional importance for the German economy. The international interdependence of production chains, as described by the term “globalisation”, has also opened up considerable growth potential for German ”Mittelstand” companies. Those with a consistent internationalisation strategy benefit on two fronts: by opening up new markets (export orientation) and by exploiting comparative cost advantages by (partially) relocating the value chain to less wage-intensive countries.
The German “Mittelstand” companies with their traditional R&D strength and deep knowledge in innovative manufacturing processes could experience a renaissance, if they are able to successfully overcome the challenges of digital transformation. They will have to successfully utilise digital process transformation that increases efficiency to compensate any comparative cost disadvantages that may result from appropriate requirements for working conditions and environmental protection.
However, “Mittelstand” companies still have potential for improvement in this respect. A study conducted by the University of Göttingen in cooperation with the Institute for “Mittelstand” companies Research (IfM), Bonn, has shown that (1) German “Mittelstand” companies are already highly and increasingly active abroad, (2) and foreign involvement has a statistically significant positive effect on employment, sales growth and earnings. (3) However, they (still) generate a significantly higher share of value in their domestic market compared to large companies.
Additionally, German “Mittelstand” companies face a considerable (pent-up) need to advance the use of digitalisation in management, administrative and production processes.
Examples from the BPE portfolio
Company sizes
Our investment activities mainly focus on profitable German “Mittelstand” companies that are distinguished by significant growth potential and generate annual sales of at least € 20 m.
Sometimes, smaller companies are also taken into consideration, if they generate above-average profitability of approx. 10%+ and are suitable for implementing a growth strategy, possibly also via external growth. In exceptional cases, we deviate from this concept, e.g. if the company in question fits into an already existing portfolio company as an add-on, in line with a so-called Buy-and-Build strategy.
BPE transaction focus
Size criteria
Focus
-
Sales: € 20 m - € 50 m
-
Earnings before interest and tax: € 2 m - € 7 m
-
Enterprise value: € 20 m - € 40 m
Broad interpretation
-
Sales: € 10 m - € 100 m
-
Earnings before interest and tax: € 1 m - € 10 m
-
Enterprise value: up to € 50 m
Documents and concept
For an initial assessment of a company, all documents that enable us to get a better insight into your company are helpful. Naturally, we are willing to sign a confidentiality agreement. Today, company websites usually provide a great deal of information and a good overview of a company’s field of business and its products. However, in order to assess a company successfully, it is important to learn about the company’s past, present, and future earning’s situation. Annual financial statements for past periods, ongoing reports such as monthly economic evaluations, as well as a corporate business plan for the current year and ideally for future periods are highly useful. Furthermore, we are interested in documents that allow us to draw conclusions about the special features and positioning of your company.
A document summarising the company as a whole and/or the company strategy is helpful, if available. Please refer to our exemplary checklist to see how said document can be structured.
It goes without saying, however, that an initial meeting should take place before any sensitive information is exchanged.
Checklist
-
Description of the company
-
Reason for sale
-
History
-
Market/competition
-
Corporate concept/strategy
-
Production/product development
-
Competitive advantages
-
Unique selling propositions
-
Organisation chart
-
Curricula vitae of the management (team)
-
Balance sheet/profit and loss statement - if possible - of the last 3 years
-
Balance sheet/profit and loss plan for the next 3 years
-
Capital requirements and use
-
Customer and supplier references