Most Read Contributor in Luxembourg, February 2017
Ah, the mid-market. A source of pride for generations of
entrepreneurial families and founder-managers. The locomotive of
the economy, backing and stabilizing growth, fostering innovation,
and combining business acumen with generosity for decades and
decades. Not headquartered in shiny towers in the middle of
metropolises, but instead providing confidence – and
employment – for society in rural areas. Every investor's
Big is beautiful?
Let's define terms first. If you were to define the
mid-market by enterprise value, it would comprise entities/groups
with an enterprise value between EUR 50m and 500m, which – in
today's environment – may well comprise entities with
EBTIDA between EUR 6m and 60m. One might think these are peanuts
compared to the mega buyouts that receive the majority of press
attention, such as
Cinven's and Advent's interest in the Stada group
– which is currently said to be valued at EUR 4,800m based on
EBITDA of EUR 390m.
All those deals have one thing in common: they are rare –
but also complex, and risky. In an environment that is usually
summarized with the key term uncertain", LPs might not
necessarily be tempted to allocate much of their capital to
mega-buyout funds, as the capital that is being deployed right now
relates to funds that had been closed before the period of
political upheaval we are now seeing in in a number of countries
over the world.
"But we have always done it like this?"
Going back to the initial question – what makes the
mid-market so attractive?
It's certainly not the romantic view of medium-sized
enterprises as the "good side of capitalism" that is
sparking investors' interest. Part of the success of the
mid-market as a highly sought after segment of the buyout market is
its fragmentation, particularly in Europe. Companies might have a
great product, a committed leadership, a well-respected brand, and
a local footprint. But they may also lack the expertise to access
the capital markets, lack strategies to attract and retain talent,
and may not necessarily have a strategy to "think outside the
box" in order to identify alternative distribution channels,
different product pricing strategies, etc. etc.
Lots of opportunities exist for General Partners, or GPs, that
have the local expertise, but are well prepared to support
enterprises in their internationalization: streamlining processes,
increasing operational efficiencies, optimizing the capital
structure, and finding further enterprises in order to
buy-and-build the business.
It's the ideal playground for any ambitious PE house that wants
to demonstrate its unique approach to value creation
vis-à-vis its investors – and that's pretty much
irrespective of where the headquarters of the potential target are.
Certainly, some strategies may work out in Spain that might not
work in Hungary, but it is exactly the interrelatedness between all
those factors mentioned above which make this market so
Company for sale, only 20% premium – hurry up, prices are
Too good to be true? Well, there is in fact one caveat: it's
not exactly a secret. There's a myriad of GPs out there who
claim to be the experts focusing on the "Mittelstand",
being a "partner" for entrepreneurs. Why is that?
In short – demographics! With declining birth rates in
general, the "pool" for potential successors in
family-owned businesses is becoming increasingly limited. In many
companies, it's also a possibility that the only son or
daughter may not even be interested in taking over the CEO role in
the family business ("How dare you!?") So as baby boomers
are about to retire, it's only natural that more of them start
see Private Equity investors as "partners" rather than
"locusts". And even in rather conservative jurisdictions
such as the DACH-area, calls from PE houses for initial discussions
are now being returned by founder-managers.
The question is, if everyone is looking after the same targets and
thus pushing up prices, is there still room for value creation, or
are we all about to buy at peak levels, and will we possibly need
to take the hit 2 years from now?
As the banking industry continues to be shaped by technological and regulatory forces, we’ve gathered our European Central Bank (ECB) experts to hold a conference about this changing landscape. KPMG’s ECB desk from Frankfurt will join our Luxembourg banking partners to unpack the latest news from the ECB, including regulations that will affect the future of banking.
We would be very pleased if you could attend this event, which will be held at our Luxembourg headquarters in Kirchberg on 30 March. The talk will begin at 5:00pm and last until 6:00pm, at which point the evening will be turned over to a networking session with drinks.
Please let us know if you are able to attend by using the registration button above (by 27 March, if possible).
We look forward to seeing you there!
Here in Luxembourg, LPEA are holding an event which will offer new initiatives by bringing General Partners (GPs) and Limited Partners (LPs) together to examine and speak on the industry from the “360” perspective, leaving no stone unturned. We are a sponsor of the event, as well as having a speaker present. David Capocci, Partner and Head of Alternative Investments will be offering his own insight on the industry nowadays.
Confidentiality of corporate documents and information is one of
the key attractions of incorporating a company in the BVI. A
company search of the BVI Registrar of Corporate Affairs will only
disclose certain information and documents.
The primary sources of regulation of M&A in the British Virgin Islands are the Business Companies Act, 2004 (the "Companies Act") and common law.
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