Business plans in check: SMEs fit for private equity?
Preface
A European private equity company plans to invest in medium-sized companies with high growth potential and a strong market position. At the same time, it is important that the target company has a significantly high share of international value creation in order to be able to flexibly compensate for locational disadvantages in Germany and to dynamically realize integration into global value chains. The aim is to identify companies that are both financially sound and strategically well positioned to generate long-term value creation. Another important criterion is to use the succession plan of the target company for professionalization. In order to make well-founded investment decisions, a project is to be carried out to evaluate the business plans of medium-sized companies.
In the past, we had carried out project missions for the PE company with iMB.Solutions and I personally. This project mission took place in the second half of 2023 in the German-speaking region of Europe (Germany, Austria, Switzerland). The transaction volume of my client is between EUR 25 million and approx. EUR 60 million.
European private equity firms invest significantly in family businesses. In 2023, the total value of all private equity transactions in Europe amounted to around EUR 260 billion. Family businesses represent a significant source of private equity investment as they account for the largest share of the sector.
social media cover image, designed by iMBdigital.Gallery_, São Paulo, Brazil, February 2025 - all image rights exclusively with iMB.Solutions, São Paulo, Brazil, February 2025
Objectives of the project
Identification of medium-sized companies with strong growth prospects and attractive return potential.
Analyze and evaluate the business plans of target companies to assess their strategic direction, profitability and growth opportunities.
Develop recommendations for the private equity firm regarding potential investments and strategic partnerships.
Project tasks
I was qualified for this project mission as an interim manager with extensive experience in international business development, particularly in emerging markets and new markets. As part of the project to evaluate business plans of medium-sized companies for the private equity client, I was to carry out the following tasks:
Market analysis and evaluation: I conducted a thorough analysis of the target markets to evaluate their attractiveness for the SME company in question. This included the investigation of market growth, competitive situation, regulatory framework and potential risks.
Business model assessment: As project manager, I analyzed the business models of the target companies to identify their strengths, weaknesses, opportunities and threats (SWOT). This included assessing the competitive position, differentiation strategies and profitability.
Due diligence of partnerships and supply chains: In my role as interim project manager, I verified existing partnerships and supply chains of the target companies to ensure they were robust enough to support the planned growth. This included assessing contracts, supplier relationships and potential supply chain risks.
Develop business development strategies: Based on the results of the market and business model analysis, I defined strategic recommendations for the target company to maximize its growth potential. This included the identification of new market opportunities, the development of expansion strategies and the optimization of sales and marketing activities.
Risk management and exit strategies: Working as a team with the private equity firm, we worked with the target companies to develop risk management strategies and prepare exit strategies in line with the private equity client's interests. The focus here was on identifying risks, developing risk mitigation measures and evaluating potential exit scenarios.
Expected results
Identification of attractive investment opportunities in medium-sized companies with strong growth prospects and solid business models.
Evaluate and select target companies that meet the private equity firm's investment profile and return objectives.
Development of sound recommendations for the private equity firm to make strategic investment decisions and generate long-term value creation.
Benefits for the private equity company
Identification of lucrative investment opportunities that diversify the company's portfolio and increase returns.
Minimizing investment risks through a thorough analysis and evaluation of target companies and their business plans.
Achieving long-term value creation through strategic investments in medium-sized companies with strong growth potential and attractive return prospects.
Challenges and risks in the project process
Various risks arose during the project mission for my client, the private equity company.
Incomplete or inaccurate data in all target companies: The availability of incomplete or inaccurate data impaired the ability to make informed decisions and accurate recommendations at an early stage. The workload on the part of the target companies was considerable.
Market uncertainty: Market uncertainty can be particularly high in emerging markets and new markets. Unforeseen political, economic or social events can affect the business plans of the target companies and jeopardize the investment prospects of the private equity client. We have been able to overcome these scenarios quickly and in great detail through creative scenario generation techniques and the use of specific generative AI tools.
Currency risks: When investing in foreign markets, there is a risk of currency fluctuations, which can affect the return on the investment. Here I was able to make a lasting contribution with very profound lived experience from emerging markets.
Management quality: The ability of the target company's management to implement the business plans and run the company successfully could represent a risk. A lack of experience or skills in the management team can affect the investment's chances of success. It is noticeable that many German management levels no longer have the same level of market knowledge and market conditions as they did around 15-20 years ago. Language skills in German companies are also clearly declining and are limited to a very good level of English.
Competition risk: In many sectors and markets, there is a high level of competitive pressure. The ability of target companies to hold their own against the competition and gain market share can influence the investment risk. It is striking that the traditional German strategy of concentrating on so-called niches is no longer sustainable. In many target companies, historical market analysis has clearly shown that the so-called niches are now also being attracted by competitors from other countries.
Exit strategy risks: The private equity client normally planned to sell its stake in the target companies at a later date. There is a risk that the planned exit strategy cannot be implemented as expected, which could adversely affect the return on the investment. As a result of various location risks in Germany, in particular the shortage of skilled workers vs. an ageing society vs. inflexibility in the pension system, the risks are considerable.
In order to minimize these risks, thorough due diligence, careful analysis and comprehensive risk assessments were required. I worked very closely with my private equity client's teams to identify potential risks and develop appropriate risk mitigation measures.
Key Performance Indicators
In a project focused on evaluating business plans for mid-sized companies on behalf of a private equity client, various Key Performance Indicators (KPIs) can be used to measure progress and success. Below are some relevant KPIs applied in this mission:
Revenue and Profit Growth: An increase in revenue and profit is a critical indicator of a company's success. Comparing projected revenue and profit growth from the business plan with actual results allows for assessing the company's performance.
Market Penetration: The market penetration rate measures the percentage of the total market captured by the company. An increase in market penetration signals success in acquiring new customers and expanding market share.
Customer Retention and Satisfaction: Customer retention and satisfaction are crucial for long-term success. KPIs such as retention rates, the Net Promoter Score (NPS), and customer satisfaction surveys can be used to measure these aspects.
Product Performance: The performance of the company's products or services can be assessed using various KPIs, such as product quality, production costs, innovation rates, and product positioning compared to competitors.
Profitability and Capital Efficiency: Profitability and capital efficiency indicate how effectively the company utilizes its resources to generate profits. KPIs such as Return on Investment (ROI), Return on Equity (ROE), and capital efficiency ratios can be employed for evaluation.
Achievement of Milestones and Goals: Meeting milestones and goals outlined in the business plan serves as a KPI to measure the company's progress toward achieving its objectives.
The selection of KPIs should align closely with the company's objectives, strategies, and the requirements of the private equity client. It is essential to choose meaningful and relevant KPIs that provide a comprehensive insight into the company's performance and help identify potential issues early.
Key Considerations for Conducting Such a Project in the German Mid-Sized Industry
When evaluating business plans of mid-sized companies in the German industry, several specific aspects should be considered:
Focus on Quality and Precision: The German industry traditionally values quality and precision. Business plan evaluations should ensure these aspects are adequately addressed and that proposed business models meet high German quality standards.
Labor Shortage and Demographic Shift: The German industry increasingly faces labor shortages and demographic challenges. Evaluating business plans must consider the implications of these trends on workforce planning and long-term competitiveness.
Competitive Landscape and Internationalization: German mid-sized companies often operate in highly competitive markets and are increasingly affected by internationalization. Understanding the competitive landscape and evaluating the companies' internationalization strategies is crucial.
Regulatory Requirements and Compliance: Germany has stringent regulatory and compliance standards, especially in areas like environmental protection, labor law, and data privacy. Business plans must ensure compliance with these regulations and address potential risks.
Long-Term Perspective and Sustainability: German mid-sized companies often prioritize long-term perspectives and sustainability. Evaluations should ensure that proposed business models are viable over the long term and adequately consider ecological and social aspects.
By addressing these specific aspects, projects evaluating business plans in the German mid-sized industry can maximize the potential for sustainable value creation for all stakeholders.
What Qualified Me for the Mission?
An internationally experienced interim manager with profound knowledge in business development and reorganization can bring many essential strengths to a private equity project:
Extensive experience in market analysis and evaluation
Deep expertise in optimizing business models
Proven track record in reorganization and restructuring
Long-standing experience in international expansion across diverse markets
Proficiency in performance monitoring and reporting
Broad experience in talent management and leadership development
Summary
The project to evaluate business plans of mid-sized companies offers the private equity client an opportunity to identify attractive investment opportunities and make well-informed decisions to generate long-term value. By conducting a thorough market analysis, selecting target companies, and developing strategic recommendations, the project can help maximize returns and strengthen the portfolio.
As an experienced interim manager with deep knowledge in business development and reorganization in foreign and emerging markets, I delivered significant value to my private equity client. I contributed to enhancing the performance and profitability of target companies, ultimately fostering long-term value creation.
Would you like to read more about business development in international project missions?
Discover BizDev Circular: Your Gateway to Global Business Insights
Welcome to BizDev Circular, the ultimate blog for business enthusiasts and professionals looking to expand their horizons. Published on Blogger, BizDev Circular offers a wealth of knowledge on international business development, with a special focus on contextual intelligence and market-specific strategies.
Why BizDev Circular?
In-Depth Analysis: Dive into comprehensive articles that explore the intricacies of doing business in diverse markets, such as Brazil and Mexico. Understand the cultural, economic, and political factors that influence business success.
Expert Insights: Learn from seasoned professionals who share their experiences and strategies for navigating global markets. Whether it's adapting management practices or understanding local consumer behavior, BizDev Circular has you covered.
Timely Updates: Stay informed with the latest trends and developments in the global economy. From election impacts to trade policies, our blog keeps you ahead of the curve.
Practical Advice: Get actionable tips and tools to enhance your business operations. Our content is designed to help you implement effective strategies and achieve your business goals.
Join the BizDev Circular community today and start your journey towards global business excellence. Visit the blog and and subscribe for regular updates!
>>> hit the BizDev Circular blog cover and read the blog!
