Interview with Dr. Heiko Frank, CEO of Kloepfel Corporate Finance
There is movement in the financial market – and this also applies to Kloepfel Corporate Finance: by strategically expanding its team and locations, the M&A boutique is strengthening itself for international business deals. Dr. Heiko Frank, Managing Director of Kloepfel Corporate Finance, tells us what is important when selling companies, what impulses the new colleagues bring with them and how the Corona crisis is affecting the M&A business.
Mr. Frank, what are the main focuses of Kloepfel Corporate Finance?
We are an M&A boutique and focus on the purchase and sale of medium-sized companies or parts of companies. We also accompany companies to the stock exchange. In doing so, we offer the quality and expertise of multinational investment banks with the personal touch and integrity of a small team.
What are the advantages of a small team?
Our experts are always fully involved in the entire process, which means that our clients have the same contacts throughout the entire process, which can sometimes take up to a year. This starts with the first presentation and ends with the signing of the contract at the notary. For us, our clients are more than just another number; they receive personal attention and are individually guided through the entire transaction process. We stand for this not only with words: Our fee is 80 percent success-based, and our contingency fee is only paid after the notary appointment. We are therefore in the same boat as our client and have the same interests. The Americans like to say: “M&A is an art, not a science” – and art is very individual and therefore more suitable for small teams.
On what occasions do clients seek the support of Kloepfel Corporate Finance?
There are a wide variety of reasons why a company should be sold in whole or in part. For example, if a company is growing strongly but does not have the financial means to finance this growth from its own cash flow. Or: Often, unresolved succession situations also lead to a company sale, if no suitable successor can be found for the management of the company and thus the jobs of the employees are endangered. Or it happens that a partner or a shareholder base is bought out and the company shares that become free are to be taken over by the other partners or shareholders.
For which companies is Kloepfel Corporate Finance interesting?
Companies that want to turn to a partner-led and specialized M&A consultancy, with consultants who also take personal ownership of the project. However, we use the same processes and use global databases, such as Standard & Poor’s Capital IQ, for our research, which are also used by multinational investment banks. In addition, our consultants have experience from their previous jobs, for example with companies such as PwC, Deloitte, UniCredit and others. And we can’t do without a network: We have built up the right connections and have been cultivating them for more than two decades in order to approach interested parties discreetly – whether on the buy or sell side.
In the German medium-sized businesses, our focus is on owner-managed companies and family businesses as well as smaller groups. Typically, our clients generate annual sales of between 30-250 million euros and have a positive EBITDA. In terms of industries, we see our strengths in the B2B sectors of German industry, e.g. in mechanical and plant engineering, in the automotive sector, in the electrical industry, in the technical services sector as well as in the food industry and all types of service companies, i.e. from IT, media to consulting companies.
How does Kloepfel Corporate Finance proceed with a project?
The procedure is designed individually according to the needs of our clients but is always based on a transaction process that is very common internationally. Let us take our main business area, the sale of companies: Here we first talk to the companies or their partners or shareholders about what goals they are pursuing. Is it to be ensured that the company will continue to operate for as long as possible? Is the focus on optimizing earnings? Is the preservation of employees’ jobs important? Once we have worked out these key points together with our clients and identified their goals and needs, we automatically narrow down an investor universe that fits the criteria. We then design the actual three phases of the sales process: 1. preparation of the sales process, 2. marketing and approaching investors, and 3. due diligence with contract negotiation for the sale of the company.
What is necessary to prepare for the sale of a company?
Part of the preparation is a basic analysis of the company and its environment. This includes the understanding of the value chain & products or services, the knowledge of market drivers and trends, the analysis of competitors, the processing of financial data and, depending on the company, other factors to be determined individually. On the basis of these analyses we develop in cooperation with our client an anonymous teaser, which presents the company profile in a condensed form and the so-called information memorandum – this is a comprehensive marketing document similar to a sales prospectus. In parallel, we draw up a longlist of potential strategic and/or financial investors. Together with our client, we then narrow these down to a shortlist – this then contains all the investors to be approached.
Parallel to these activities, we create a so-called virtual data room. This means that we sift through all the documents that need to be examined to assess the company, structure them, blacken them if necessary and store them in a structured manner in a data room. After signing a confidentiality agreement, selected investors who have agreed with the client will find all relevant information on the company here, from contracts and key financial figures to patents, technologies used or necessary approvals. Once the finalization of the teaser and information memorandum, the strategy for the shortlist as well as the preparation of the data room is completed – the marketing phase starts.
What characterizes the procedure for marketing and approaching investors?
The marketing phase usually starts with the investor approach with the anonymized teaser – the discreet approach via effective investor access is particularly important here. The initial approach does not necessarily have to be made via the management. Channels such as the supervisory board or via the tax advisor are also possible. Identifying and using the most effective approach during the initial approach is an art in which expertise is clear. This is also one of the points in which we can clearly distinguish ourselves from other corporate finance and M&A providers in terms of quality.
If potential investors show interest, a mandatory non-disclosure agreement is signed first, followed by the comprehensive information memorandum, a kind of sales prospectus. In the next step, after the investors have had time to review the information memorandum, the so-called “educational calls” are made. On the one hand, these serve to clarify the investor’s questions so that he can subsequently submit an initial indicative offer. On the other hand, educational calls can already provide indications of the interests and seriousness of an investor. Until the conclusion of the education calls, there has been no direct contact between the seller and the potential buyer; this will only begin at a later stage and will give our client sufficient time to continue to look after his company operationally.
Together with our client we decide which investors will be invited to a management presentation of the company – this is the first direct contact between the seller and the potential investors. As with every first meeting, this is of decisive importance for the further process and for the submission and amount of the confirming offers following the management presentation. If, after the presentation, the investors make a confirming offer that is attractive to the sellers, the next step is due diligence – the true examination of the company. Here, the entire data room is reviewed by the interest-side experts, who usually consist of tax, financial, strategy and legal advisors. They meticulously review every document in the data room and request additional documentation if necessary. If the potential investor and his advisors do not encounter any significant issues or problems here, the contract negotiation begins.
What are the basis and objective of the negotiations?
The contract negotiation normally begins with the submission of the draft purchase agreement at the end of the due diligence phase. This draft contract is usually prepared by the seller and negotiated in several loops with the potential investors. Ideally, the negotiations then lead to the sale of the company – at least on a pro rata basis. Sales of 100 percent of the company’s shares are not that common anymore; it is also possible to sell only 80 percent. The reasons for this can be many and varied: For example, a manager is involved in the company so that his interests are aligned with those of the company, or the sellers take a smaller percentage back in the company.
Kloepfel Corporate Finance has recently been pursuing an expansion strategy. How did this come about?
Our expansion is the next logical step. We have primarily used the last few years to build up a sustainable profile in the market. Especially in the last 12 months we had accompanied very interesting company sales and there it is only logical that we now want to use this potential to generate further growth. We are convinced that we will be able to approach this goal even better with additional new colleagues – especially because each of our employees has his or her own distinctive expert profile.
Location expansion also plays a role – in Germany, we will further expand our market position with a location in Frankfurt as of this month, in addition to Munich and Düsseldorf. The decision to take this step is because Frankfurt is an international financial center and that, in addition to Munich, most of the private equity funds relevant to us are based there. Our new locations will allow us to position ourselves as Kloepfel Corporate Finance more prominently in the market. With our new partner Sven Roger von Schilling, we have a competent contact in Frankfurt, who himself worked as CFO for many years and has a perfect command of the financing and M&A business.
What challenges do you face with the team expansion?
Our team is growing together right now – of course, we already made sure that performance and character fit us when selecting our new additions. This has proven successful, because we started right away at full speed and in the process it has become apparent: everything harmonizes, the chemistry is right and the colleagues work together effectively and efficiently even in stressful and time-critical project phases. Another point is the expansion of our internationalization and the cultivation of network partners – our new colleagues are ideally positioned for this and have all studied at renowned universities in Germany and abroad and have worked for international companies. Thus, by expanding our team, we were able to build a platform for further, also international growth, which also serves as a basis for cross-border deals, i.e. transactions with foreign investors.
What are the goals? What does the future look like?
With additional colleagues, we want to develop in an even more industry-specific way; the relevant expertise is in-house. We are also focusing on M&A 4.0, driving forward the digitalization and automation of our processes and structures. More industry-specific depth is also on the agenda. In addition, we want to work even further in a more international environment because the number of cross-border deals will continue to rise. This is an important growth topic for us.
How is the Corona crisis affecting the M&A business?
One thing is certain: good companies are still being sold now. Just the past few weeks, we have assisted in the sale of a company worth around 80 million euros. However, we also must state that valuation factors are currently falling slightly, even for good companies. Across all sectors, the EBITDA multiple has fallen by a factor of 0.5 to 1.5 in some cases. Where we were previously at a factor of 9 from the EBITDA value, we are now at 8 or 7.5, for example. So, Corona is having an impact. What will now increase are distressed deals – in many sectors, sales, earnings and liquidity are declining and banks are currently finding it difficult to provide sufficient financing for medium-sized companies or their conditions are so drastic that they are of little commercial interest to the entrepreneur. In this respect, this type of transaction will probably increase, unfortunately. As an “ailing” company, you can also protect yourself against this with a partner like us. Fear is not a good advisor and with us at your side you can (re-)act from a strong position.
Dr. Frank, thank you for the interview.
Press contact
Kloepfel Consulting GmbH
Gerrit M. Schneider
Press officer
T: +49 211 / 882 594 17
Mail: rendite@kloepfel-consulting.com