Deal in Focus: SIP wins over Mittelstand company

In 1986, German entrepreneur Uwe Schüschke founded an eponymous business supplying washbasins for aircrafts, which he has managed ever since. In 2014, at the age of 58, Schüschke began thinking about succession. With no immediate family members able to take the business over from him, he made the decision to sell.

The founder mandated Warth & Klein Grant Thornton to find potential buyers and entered talks with a pool of eight organisations, a mix of private equity firms as well as corporates. Schüschke had a hard time finding a buyer that would agree to his requirements: "Of course it was a priority for me to successfully sell the business, but it was just as important for me to safeguard the production site and the jobs that depend on it." As the founder, he felt a responsibility towards his employees to secure the long-term continuation of the factory.

Finding a buyer that would guarantee this level of security proved difficult, and even more complex as the business operates two separate divisions. As well as its washbasin production activities for the aircraft industry, Schüschke also makes sanitary equipment for customers in the public and industrial sector: "Some prospective buyers would have outsourced one of the businesses, which was not acceptable for me."

SIP had not had any interaction with Warth & Klein prior to this process, and was therefore not made aware of the opportunity in the first instance. Instead, the GP heard of the deal through their network and joined the group of bidders when one of them withdrew.

Schüschke eventually decided to sell to SIP because the GP agreed to his terms: "Their concept to further develop and grow the company, instead of just squeezing the profits out of it, convinced me."

Not so cyclical
For, SIP the washbasin producer is seen as a safe investment: "At first glance, the aviation industry seems like a cyclical market," explains Philipp Amereller, managing partner at SIP. "But aircraft producers usually have a huge order backlog, so the production is stable over years." Indeed, Airbus, a customer of Schüschke's, currently has orders worth €1bn. In addition, as aircrafts in use typically last for 20-30 years, they require interior overhauls every five years.

Besides the safe aircraft business, for which an owner can rely on steady organic growth, SIP plans to improve Schüschke's remaining business portfolio. "We would like to make acquisitions over the next few years. Suppliers of other components used in airplane washrooms as well as sanitary fittings for buildings and other industries, including yacht production, are markets in which we see great potential for expansion," Amereller says.

Instead of investing via a limited partner fund, SIP works on a deal-by-deal basis. This allows the investor to keep a company for a longer time than GPs with a traditional fund structure: "We hold a company for as long as we can add value. Our investors prefer to stay committed to a successful investment for longer, instead of taking their money back to a fixed deposit account, which currently offer very low interest rates."

This long-term perspective was one of the other reasons as to why SIP won the Schüschke deal. The inability to have longer holding periods offers one explanation for why private equity has struggled to invest in the German Mittelstand in a meaningful way. For many owners of small and medium-size companies, stability and continuity remains an untouchable value.

People
Schüschke – Uwe Schüschke (managing director).
Silver Investment Partners – Philipp Amereller (managing partner).

Advisers
Equity – Rödl & Partner (Financial due diligence); King & Wood Mallesons (Legal, tax).
Company – Warth & Klein Grant Thornton (M&A); Esche Schümann Commichau (Legal, tax).

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