After a nine-month search, the time had come on April 1: 29-year-old Benny Hahn and 28-year-old Christian Bopp took over as successors at provantis IT Solutions in Ditzingen, a specialist in time recording software. To do this, they used a method from the USA that is not very common in this country – a so-called search fund.
In this financing and mentoring model, young entrepreneurs, who have often completed master's degrees at excellent business schools, and experienced investors join forces. Those enable the head aspirants to search for and buy a medium-sized company whose owner would like to find an external successor.
Before the two found their Search Fund Bopp in July 2021
During their search, they identified companies in German-speaking countries that were willing to hand over the goods - "preferably from software and technology," says Bopp. The main channel was a personally written letter to the owners. Hahn: "You have to be in the right place at the right time, because we were looking for a special successor situation."
In September 2021, Bopp and Hahn first got in touch with the two provantis founders, one of whom wanted to withdraw from the management in the medium term. Six months and several appointments later, the takeover was agreed. The investors behind the Search Fund have made additional capital available for the financing – in return for shares in the company.
Bopp
Suitable means: The medium-sized companies should be stable and profitable, generate sales of between five and 15 or a maximum of 30 million euros and, according to Rilling, "be active in growing markets".
In view of the forthcoming generational change in medium-sized companies, the search funds are the proverbial drop in the bucket. According to estimates by the Institut für Mittelstandsforschung (IfM) in Bonn, around 190,000 companies will need to be replaced in the next five years because the owners are retiring from management due to old age, illness or death. Among them are 13,200 companies with sales of five to 25 million euros.
"The search funds will not solve the succession problem in Germany," admits Rilling. But they are a "good alternative for many entrepreneurs" from which "all sides benefit." Reasons: The owners do not hand over their business to a financial investor or competitor, but to a young top manager who is supported by experienced investors with a long-term investment horizon. According to Rilling, the future bosses can “realize their dream of entrepreneurship” without having to start a business.
Older owners could counter that the future managing director was too inexperienced. But Rilling doesn't see that as a disadvantage: "A young boss brings incredible strength to a company." Holger Habermann from the Kern corporate succession consultancy in Munich doesn't see any disadvantages either, because the successor entrepreneurs would know "how medium-sized companies tick." If only they had investors in the background, whose experiences they could access.
Michael Keller emphasizes that the search fund principle is very popular with family businesses and is an alternative to selling to an investor. "It stands or falls with the chemistry between young entrepreneurs and owners," says the Frankfurt consultant for takeovers and mergers.
Rilling sees “an upward trend in Germany as far as search funds are concerned.” The only thing that is still slowing down the market is the number of German talents. In Spain, Italy and France there is already "strong growth". In Spain, for example, there are currently ten to 15 search funds. And in Anglo-Saxon countries, the concept is already established.
Principle of the Search Funds: Young entrepreneurs collect capital in two steps. According to Rilling, the top priority is the search capital, which is intended to finance the two to three-year company search. In Germany, individual searchers, as the bosses are called in technical jargon, raise around 400,000 euros from ten investors and teams of two raise 550,000 to 650,000 euros from 20 investors.
In the second step, they seek acquisition capital to finance the purchase of the company. "30 to 40 percent of the purchase price" comes from the bank, according to Rilling, and the rest from the investors who have already paid for the search.
How do small and medium-sized enterprises (SMEs) in Germany react to search funds? "There is a seller's market," observes Gernot Eisinger. "Good companies" are written to every day asking if they want to sell. The managing partner at the Munich investment company Afinum invests his private money in search funds. Fast-growing small companies usually have younger bosses: "They are around 50 years old and are more open to search funds."
Two current searchers are based in Vienna: With their company Alpinuum Nachnahme, Richard Haymerle (31) and Nikolaus Blaschke (34) have been looking for a profitable medium-sized company in German-speaking countries since October 2021, which "is in a typical succession situation", says Blaschke. You write a letter to suitable owners to establish initial contact. Haymerle: "Consciously down-to-earth and personal."
They don't use the term "search fund" because "many company owners mistakenly immediately think of private equity," says Blaschke. Your GmbH is just a financing vehicle, he adds, "we want to buy a company and run it as operational directors in the long term."
Incidentally, about a third of the search funds end the search without having found a successor. One of them, who wishes not to be named, benefited from his time as a searcher. After all, he gained insights into many industries and explained to "300 to 400 owners who are much older" why he was a worthy successor. The biggest problem during the search was the experience-oriented way of thinking of the German entrepreneurs. He was repeatedly asked how many years of management experience he had.
What should SMEs pay attention to when dealing with searchers? Benjamin Schöfer, specialist in succession at the Deutscher Mittelstand-Bund in Düsseldorf, recommends that owners of SMEs, before talking to searchers, are clear about what is important to them when it comes to selling and the different parameters such as the selling price, company vision and the future of the employees to adjust.
Eisinger from Afinum advises checking "whether the searchers fit the company." To do this, they should be brought together with the second management level in a workshop. "If possible without the boss," says Eisinger, so that a better exchange can succeed.
