Family Capi­tal — On the Value of Values

The German SME sector is often refer­red to as the “back­bone of the economy”. And rightly so, because family-owned compa­nies in parti­cu­lar, inclu­ding many hidden cham­pi­ons, shape our busi­ness loca­tion, which is envied world­wide for this: 90% of German compa­nies are family-owned, they account for just under 60% of employees in the private sector and for more than half of total sales. And depen­ding on the survey, there are up to 1,500 proud global market leaders in the Fede­ral Repu­blic. One of the secrets of success of German family busi­nesses is certainly the strong value system, whose foun­da­tion is based on the long term and sustaina­bi­lity. This includes ambi­tion, far-sigh­ted manage­ment and forward-looking plan­ning as well as the desire to preserve the life’s work for future gene­ra­ti­ons. The focus is not on short-term growth and the pursuit of profit, but on the successful exis­tence of the company for as long as possi­ble. Closely inter­wo­ven with this is the often firm rooting in the home region — a sense of tradi­tion, employee well-being and social commit­ment conti­nue to play an important role even in times of global expan­sion. In addi­tion, contrary to popu­lar belief, it is family-owned compa­nies that invest parti­cu­larly heavily in inno­va­tion and orga­nize modern working models, because after all, top perfor­mers have to live up to their claim of leading market posi­tion time and again.

Howe­ver, those who want to be successful on the market, and above all against nume­rous new global risks, need capi­tal and know-how. Just about all family busi­nesses today need to proac­tively address stra­te­gic chal­lenges: Digi­ta­liza­tion, expan­sion and inter­na­tio­na­liza­tion, talent manage­ment and quali­fi­ca­tion, product deve­lo­p­ment, diver­si­fi­ca­tion and brand expan­sion. In this situa­tion, invest­ment compa­nies are now more in demand and more respec­ted as part­ners of SMEs in succes­sion and growth than they were a few years ago. Howe­ver, family busi­nesses are rightly very selec­tive in who they part­ner with and do not sell at any price, even in the face of valua­tion peaks. The chemis­try must be right. Like­wise, the perspec­tive and the effect both intern­ally and extern­ally. Because for many owners, their compa­nies hold enorm­ous emotio­nal value for the family and the local commu­nity, which could be put at risk by a suppo­sedly face­l­ess finan­cial world. Because selling to a stra­te­gist is often not an option either due to the loss of inde­pen­dence, very many owners are looking for a part­ner who has a simi­lar under­stan­ding of sustaina­bi­lity and a sense of respon­si­bi­lity and wants to achieve the future viabi­lity of the company.

Dialo­gue and understanding

Along­side insti­tu­tio­nal inves­tors, family offices have long been the most important finan­ciers of tradi­tio­nal invest­ment funds, have become corre­spon­din­gly profes­sio­na­li­zed and have incre­asingly appeared on the market as direct inves­tors in recent years. For them, direct invest­ments are part of their family ethos, in the sense of their own entre­pre­neu­rial spirit and a close connec­tion to the common wealth.

There are now a good 25 large fami­lies active in Germany, which are in no way infe­rior to conven­tio­nal fund compa­nies in terms of profes­sio­nal orga­niza­tion from the search to the moni­to­ring of their port­fo­lio compa­nies and their level of acti­vity. Your family capi­tal usually has a very entre­pre­neu­rial and value-orien­ted back­ground and can be inves­ted for the long term without the usual rapid pres­sure for returns. So the often decisive plus point when choo­sing entre­pre­neurs: fami­lies find it easier to reco­gnize the DNA of fami­lies. They talk to company foun­ders and mana­gers at eye level and know the plea­sure and burden of stee­ring a company.

Capi­tal and partnership

One family whose entre­pre­neu­rial orig­ins date back to the mid-19th century and which has also been invol­ved in the invest­ment busi­ness for almost 20 years is the Brenn­inkmei­jer family. Its COFRA Holding includes, among others, the textile retailer C&A, the real estate mana­ger Redevco, Anthos Fund & Asset Manage­ment and the Bregal Invest­ments group — which bund­les invest­ment compa­nies in Europe and North America. Laun­ched in 2015, Bregal Unter­neh­mer­ka­pi­tal focu­ses on invest­ments in medium-sized compa­nies in German-spea­king countries.

The German arm of the family inves­tor curr­ently mana­ges around 2.5 billion euros (assets under manage­ment), of which 1.2 billion euros are available for new invest­ments. With its now second fund, Bregal Unter­neh­mer­ka­pi­tal has alre­ady become one of the most active medium-sized inves­tors in the DACH region. Around 80% of Bregal Unternehmerkapital’s invest­ments to date have been so-called prima­ries — i.e. first-time or direct sales of shares by company owners. For them, the combi­na­tion of the tradi­tio­nal value system of a family busi­ness that has grown over gene­ra­ti­ons, the ability to make complex, long-term and custo­mi­zed direct invest­ments, and stra­te­gic know-how played the decisive role.

This is because, in addi­tion to pati­ent capi­tal that is inde­pen­dent of finan­cial markets, Bregal offers parti­cu­larly high commer­cial and ethi­cal stan­dards, an expe­ri­en­ced team with proven value crea­tion exper­tise and privi­le­ged access to an inter­na­tio­nal network of 1,900 top mana­gers and entre­pre­neurs. Initial meetings ther­e­fore quickly turn to an open dialo­gue about how Bregal can help compa­nies trans­form and protect for future gene­ra­ti­ons, in addi­tion to price and process nego­tia­ti­ons. The actual constel­la­tion is almost secon­dary: Bregal’s flexi­bi­lity in the share­hol­ding struc­ture allows majo­rity and mino­rity share­hol­dings, pure equity or bank-finan­ced share purcha­ses. Some­ti­mes it also happens in the process that a mino­rity sale origi­nally envi­sa­ged by the entre­pre­neur deve­lops into some­thing more.

Toge­ther to the goal

Bregal Unter­neh­mer­ka­pi­tal only enters into invest­ments when a trust­wor­thy dialo­gue has been estab­lished and there is a common under­stan­ding of their value propo­si­tion. Manage­ment plays a central role in this — the manage­ment of the port­fo­lio company invests in compa­nies on an equal footing with Bregal and thus beco­mes a share­hol­der; the mana­gers of Bregal, in turn, are also invol­ved in the invest­ment funds and thus have a special connec­tion to their invest­ments once again. With pati­ent capi­tal, entre­pre­neu­rial action and part­ner­ship thin­king, Bregal focu­ses on the success of its invest­ments and the achie­ve­ment of sustainable values — in line with a high family ethos.

Private equity and, in parti­cu­lar, pati­ent family capi­tal can ther­e­fore signi­fi­cantly increase the chan­ces of success and secure a company’s exis­tence in the long term. Profes­sio­nal family inves­tors have come to stay in this context. With their values, struc­tures and rules, they will conti­nue to have a lasting impact on the parti­ci­pa­tion land­scape. The Finan­cial Year­book takes their incre­asing importance in the German market into account with this edition for 2020 and intro­du­ces a new market parti­ci­pant cate­gory for them for the first time.

 

Enjoy reading and looking up the FYB 2020!

 

Florian Schick