The financial investor’s perspectiveLewa’s strong management led the way: developing technologies, expanding the product portfolio and internationalising the sales network6 July 2009: Four years after our investment, we sold our stake in Lewa GmbH. Headquartered in Leonberg, Germany, Lewa has set technology standards for more than 50 years in metering and process diaphragm pumps and end-to-end pump systems as used in the process industry. Lewa’s new owner is its preferred partner, and the new constellation will now allow the company to move forward and become a global leader in the manufacture of pumps. This exit concludes an investment process that perfectly illustrates the way Deutsche Beteiligungs AG works. It is a process through which, ideally, everyone wins: the company, its staff, its clients, its local partners, and the investors. For Deutsche Beteiligungs AG, entrepreneurial scope is the priority issue – the platform for its portfolio companies’ profitability and longterm viability. Profitability is crucial, since it is the purpose and key driver of every successful enterprise. Long-term viability is equally important, since only a sustainable business model will ensure profitability over time. By focusing on these two goals, we automatically create the requisites for a profitable investment: aligning the interests of all the constituents involved. Our contribution: equity, time and expertiseDeutsche Beteiligungs AG has more than 40 years of experience in private equity. In backing companies for a period of four to seven years, we bring a number of key strengths to our partnerships, in addition to financial resources. For instance, a finely tuned sense of timing as to when decisions must be taken, and a wealth of handson expertise deriving from over 300 transactions in Germany’s ‘Mittelstand’. The equity we provide, moreover, often comes at a critical time for many investee businesses. It creates new avenues for taking action, such as when family-run companies lack a successor, when borrowings require new sources or when growth plans need funding. Equally important for the success of an investment, however, is that an investee company starts down the right route at the right time. The key momentum comes at the onset of our investment, when we work together with management to draw up a framework for the coming years. Timing plays a central role here, too – for example, when defining time lines for the agreed objectives. Our pro-active partnership extends over the entire holding period until we exit the investment – the day when we entrust the company to others who can do more at that point to move the company forward. For Lewa, we found a new partner who ideally meets these needs.
What we look for
The companies we focus onAs an equity investment firm, we concentrate on identifying and developing corporate potential. Such potential was clearly present at Lewa: The market for high performance pumps is inherently a growth market – and one in which Lewa has long been a technology leader. Lewa is one of those enterprises whose products make their client’s business more profitable. Such enterprises can stay resilient across all business cycles, and opportunities will open up for them to grow – by adapting their technologies to other applications or entering new regional markets. Lewa also met the criteria we consider vital: The company had a proven business model and it held an outstanding market position in one of our preferred industries. Ultimately, our role is not to reconstruct a company, but to clear the hurdles blocking the path to further development. As an investor in industries subject to cyclical trends, we are well aware that the path to progress may not always be smooth and straight. We backed Lewa for a period of four years. During that time the company made such excellent progress that, in the end, its performance significantly outpaced forecasts. The favourable business environment was undoubtedly conducive to this. But the decisive driver was our ability to create a high-end strategy together with the company’s forward-looking management and to have then set the stage to implement that strategy in a collaborative effort with all stakeholders. Lewa – a prime example
The path to value growthThe acquisition phase is key for us. This is when, together with management, we agree objectives and define the cornerstones of the strategy. Lewa was no exception: In our role as the lead investor, and working closely with the new management team, we developed an economically feasible forward-looking concept in 2005. Our wide-ranging network of contacts in industry and our many years in the market ensure an ongoing stream of new investment opportunities. Our recently expanded research team plays a critical role in analysing their potential. In the following phase, we back management through active work in supervisory bodies – either by taking offices on the supervisory board or, as was the case for Lewa, on an advisory council. Lewa made excellent progress in its pursuit of the agreed objectives. The company increased sales, streamlined its managerial and workflow organisation and became considerably more profitable. A glance at the figures shows the degree to which Lewa developed. In the 20-year period before Deutsche Beteiligungs AG and its co-investment fund entered into the investment, sales increased by an annual average of 3.5 percent. During the time of our investment, sales growth averaged 15 percent annually. The trend in earnings, formerly reaching less than five percent, was even more impressive: it surged more than 20 percent. Fuelling this process was a fortified, pro-active management team who knew how to work the levers for creating value in an industrial enterprise, namely: internationalising the sales organisation and transferring proprietary technology to new fields of application. In our experience, another major factor for success is management’s co-investment in the company. A management buyout turns managers into co-owners – a status that underscores their credibility in the operating business and promotes a sound enterprising approach. At Lewa, the responsibility principle was reinforced vertically by introducing co-investment programmes at second and third management levels. Profitable realisationIt is particularly rewarding when several suitable exit options exist concurrently. This was the case for Lewa: Based on its impressive development and position, the company was an attractive acquisition candidate for a number of strategic investors. After a round of negotiations, the decision was reached to sell the company to management’s preferred partner, Japan-based Nikkiso Co., Ltd. The new ownership will create optimal access to the global market for Lewa and excellent opportunities for developing along the envisioned lines. |
Our decisions are taken based on experience and knowledge. For four decades, we have been focusing on companies whose business models are rooted in the outstanding quality of their products and associated services. Such enterprises are frequently found in the mechanical and industrial engineering sectors, in the automotive supplies industry and other industrial fields – companies that will frequently have a global presence and that offer significant potential for future development. We are very familiar with how such companies operate and we maintain a tightly knit network of contacts. In working with Lewa, these assets proved very helpful in settling the succession issue for the company’s top management position.
