Mittelstand Financing - Latest 2014 Report

The dri­ving force in the Ger­man eco­nomy is the Mit­tel­stand, or fa­mily-ow­ned, small to mid­size com­pa­nies. The long-term suc­cess of these busi­nes­ses de­pends on se­cu­ring so­lid fi­nan­cing. But how ex­actly do Mit­tel­stand com­pa­nies ob­tain fi­nan­cing? What are the cur­rent trends and chal­len­ges? What are the uni­que fea­tures of Ger­many's Mit­tel­stand com­pa­nies? Eb­ner Stolz and Wolff & Häcker Fi­nanz­con­sul­ting AG re­cently publis­hed a re­port ad­dres­sing these ques­ti­ons.

© Fotolia

In re­cent years, Ger­many's Mit­tel­stand com­pa­nies have fur­ther ce­men­ted their po­si­tion and rai­sed their pro­file. Strong for­eign de­mand for Ger­man pro­ducts cou­pled with very fa­vor­able fi­nan­cing terms for com­pa­nies with good cre­dit ra­tings have contri­bu­ted to the fur­ther growth of Mit­tel­stand com­pa­nies, in­crea­sed their fi­nan­cial sta­bi­lity, fil­led their cof­fers with cash, and im­pro­ved their equity ra­tios. In short, the si­tua­tion is po­si­tive for these small and mid­size fa­mily-ow­ned com­pa­nies.

In terms of the ca­pi­tal mar­kets, howe­ver, the re­port's re­sults point to disap­poin­ting per­for­mance for Mit­tel­stand com­pa­nies: high ex­pec­ta­ti­ons for Mit­tel­stand bond mar­ket seg­ments have not been ful­fil­led, and the stock mar­ket also re­mains lar­gely un­tap­ped as a source of fi­nan­cing, de­spite its out­stan­ding per­for­mance.

Ul­ti­mately, it can be said that Mit­tel­stand com­pa­nies cur­rently have little trou­ble ob­tai­ning ca­pi­tal in the short term. Around half of the com­pa­nies sur­veyed are plan­ning to in­cur ad­di­tio­nal ca­pi­tal ex­pen­ditures in view of low in­te­rest ra­tes. For the most part, they ob­tain their fi­nan­cing in the form of bank lo­ans, fac­to­ring and lea­sing, as well as share­hol­der lo­ans. Mo­re­over, in re­cent years Mit­tel­stand com­pa­nies have bols­te­red their equity base by re­tai­ning earnings and ob­tai­ning ad­di­tio­nal share­hol­der lo­ans.

Al­ter­na­tive forms of fi­nan­cing, such as pro­fit-sha­ring rights (Ge­nuss­rechte) or bonds, are in­si­gni­fi­cant in com­pa­ri­son. Ac­cor­din­gly, ma­na­gers ra­rely look into fi­nan­cing al­ter­na­ti­ves. In ad­di­tion, they har­bor con­side­ra­ble re­ser­va­ti­ons about pri­vate equity. This fi­nan­cing op­tion is of­ten as­so­cia­ted with heavy pres­sure to show re­turns, a fo­cus on op­ti­mi­zing short-term re­sults, and the dan­ger that com­pa­nies will be bro­ken up. Stra­te­gic be­ne­fits like syn­ergy ef­fects, know­ledge gain, and stream­li­ned ac­cess to qua­li­fied em­ployees, or es­ta­blis­hing suc­ces­sion plans, are hardly ta­ken ad­van­tage of.

Fur­ther­more, these com­pa­nies ex­pect to­day's stable and fa­vor­able in­te­rest rate le­vels to be main­tai­ned. Some even ex­pect in­te­rest ra­tes to drop fur­ther. In other words: the Mit­tel­stand is ope­ra­ting in a com­for­ta­ble busi­ness en­viron­ment.

No­nethe­less, these com­pa­nies should not rest on their lau­rels. At­ten­tion should be paid to the pos­si­bi­lity of in­te­rest ra­tes jum­ping shar­ply in the next five years. In this con­text, mea­su­res must be ta­ken to se­cure cur­rent low in­te­rest ra­tes for the long term, for ex­am­ple, by ta­king ad­van­tage of long-ma­tu­rity op­ti­ons for cor­po­rate fi­nan­cing. Ad­di­tio­nally, Mit­tel­stand com­pa­nies should re­vi­sit their in­vest­ment stra­te­gies on an on­go­ing ba­sis and con­sider di­ver­si­fy­ing their fi­nan­cing risks. Cur­rent con­di­ti­ons are po­ten­ti­ally very good for an in­itial fo­ray onto the ca­pi­tal mar­ket – par­ti­cu­larly for large Mit­tel­stand com­pa­nies.

Mo­re­over, the ro­bust eco­nomy could be le­ver­aged to in­crease equity ra­tios – and thus ad­di­tio­nal op­por­tu­nities for growth – th­rough out­side ca­pi­tal.

De­spite the ex­cel­lent ca­pi­tal mar­ket con­di­ti­ons at the mo­ment, we be­lieve the key is to al­ways stay on the ball. Af­ter all, in the next five to ten years, fi­nan­cing for Mit­tel­stand com­pa­nies will change in many ways. They will face op­por­tu­nities as well as dif­fi­cul­ties and risks that can­not be ad­dres­sed suf­fi­ci­ently at this time. Due to glo­ba­liza­tion and the high pro­por­tion of Mit­tel­stand com­pany sa­les at­tri­bu­ta­ble to ex­ports, in­ter­na­tio­nal fi­nan­cial and ca­pi­tal mar­kets will be­come more im­port­ant. And, be­cause of their ex­cel­lent re­pu­ta­tion, Ger­many's Mit­tel­stand com­pa­nies are con­side­red a very pro­mi­sing in­vest­ment tar­get.

The fact re­mains that Mit­tel­stand com­pa­nies need to care­fully mo­ni­tor fi­nan­cing con­di­ti­ons. New de­ve­lop­ments must be ana­ly­zed and the re­sponse tailo­red to each com­pany's si­tua­tion. We would be happy to help you in this re­gard by ana­ly­zing your ca­pi­tal struc­ture and de­ve­lo­ping sui­ta­ble fi­nan­cing plans, im­ple­men­ting struc­tu­red fi­nan­cing, se­cu­ring fi­nan­cing in dif­fi­cult busi­ness si­tua­ti­ons, as­sis­ting your com­pany with see­king out and rai­sing ca­pi­tal, op­ti­mi­zing in­ter­nal fi­nan­cing (par­ti­cu­larly working ca­pi­tal) as well as struc­tu­ring funds (in­clu­ding the pro­spec­tus) and ne­go­tia­ting un­der­wri­ting agree­ments and ac­qui­si­tion loan and col­la­te­ral agree­ments.

The re­port can be re­ques­ted from Mi­chael Eu­ch­ner (mi­chael.eu­ch­ner@eb­ner­stolz.de).