Private Equity – AFINUM outlines bricks and clicks’ for the Mittlestand

A new independent fund advisor, AFINUM Management GmbH of Munich, has just begun fund raising for a private equity fund that will aim to capture value by taking old economy’ companies into the new economy’. The AFINUM Private Equity Fund hopes to raise DM200 million (A102 million) to acquire majority holdings in around 10 to 15 companies across German-speaking Europe. AFINUM will concentrate on micro caps’, which it defines as companies with annual sales of DM200 million or less.

AFINUM’s founding partners boast 30 years’ transaction experience in the fund’s target segment. Two are Dr Tomas Buehler, previously a member of TA Triumph-Adler’s managing board, and former Triumph-Adler partner Dr Gernot Eisinger. Another partner will shortly announce his move from a leading private equity group in Germany. A fourth partner with extensive M&A experience – at present the CFO of a publicly quoted company – will join AFINUM full-time next January. In the interim, this unnamed executive is providing conceptual, rather than operational, input to AFINUM.

As outlined by Dr Gernot Eisinger, AFINUM’s investment strategy combines elements of the familiar Mittelstand management of succession’ rationale with technological and e-commerce components. “There is growing convergence between old economy and new economy companies. Many old economy companies realise the need for support to become part of the new economy”, says Dr Eisinger. The degree of support such companies might require varies widely – as, indeed does the nature and extent of the transformation.

“What we want to do is to apply an [information] technology approach in the most appropriate manner. In some industries, this may simply involve moving companies into the business-to-business or business-to-consumer e-commerce arena”, Dr Eisinger explains, adding that AFINUM will also be prepared to support more fundamental and complex technological and strategic overhauls: “We want to offer the right solution for each individual company, and you don’t use a big bullet for a small bird”.

While AFINUM expects corporate spin-offs and divestments prompted by the forthcoming Capital Gains Tax reform to generate a significant proportion of deal flow down the line, its typical target is more likely to be a private company with an ageing owner-manager. “Many of these owners, in their 50s and 60s, are aware of the need for change to address the new economy but they don’t want – and they may not have the resources – to do it themselves”, says Dr Eisinger. AFINUM is confident of securing deal flow from this segment of the market thanks to what Eisinger describes as a dense network of more than 300 active intermediary contacts in the microcap sector’, built up by the partners over many years. This source of deal flow should be augmented by the investment banking contacts the third partner brings from his previous role.

AFINUM believes itself to be the first group in German-speaking Europe specifically targeting companies that can be transformed from old’ to new’ economy – although this consideration must inevitably form part of every serious private equity house’s investment management strategy.

Marketing for AFINUM Private Equity Fund began in early April. Dr Eisinger reports that the partners are currently talking to institutions in the UK and Germany with the aim of securing a cornerstone investor. The group, which expects to concentrate its marketing effort within Europe, has also already approached a number of funds-of-funds. If, as it hopes, AFINUM succeeds in signing up a cornerstone investor within the next couple of months, the fund could hold a first closing as early as September this year.