Ownership of companies in the creative industries is set to change dramatically. At one of Europe's largest investor congresses in Berlin last week, leading market players discussed possible investment opportunities, refinancing and sustainability. Small and medium-sized companies in particular are increasingly becoming the focus of attention. Deal flow, i.e. the number of transactions, was one of the most important topics. The average holding period is being extended due to a lack of new investments. Many investors are also concerned about refinancing their investment volumes and are therefore coming under increasing pressure to invest. This is an opportunity for SMEs and also for the film industry.
While companies in Germany are traditionally financed via bank loans, sometimes backed by subsidy programmes, in the rest of the world private individuals and professional investors invest in companies. In addition to shares, there are many opportunities for this, including investments in unlisted, smaller companies. Regulation and experience are not stopping the trend towards equity investments in Germany either. However, the risk/reward profile and independent, advisory support pose individual challenges for private individuals.
In joint structures, such as investment companies, funds or investment companies, professionals take over asset management. Investors benefit from the state regulation of the former grey capital market. Company investments also harbour operational risks, but at the same time offer opportunities for returns that regularly exceed the inflation rate in the long term. The popular ETFs or actively managed funds offer a good alternative to avoid a cluster risk with just a few shares. With business knowledge, direct participation in a company can also be interesting. The state also offers incentives for this, for example via the BAFA Invest programme.
Financial professionals from this segment meet regularly at the Superreturn Internationalwhich took place again last week in Berlin. The business of capital investors is quickly explained: they buy shares in various companies with growth opportunities. After the acquisition, further similar companies are "added", unprofitable business areas are sold off or a strategic reorganisation is initiated. After a holding period of a few years, the remaining shares are either acquired or the existing shares are sold on. Market participants have specialised in the various strategies and phases and approach investors with the respective risk/reward profile. The capital raised in this way is often increased via loans, i.e. leveraged.
The system works well when bank interest rates are low and economic data is high. In recent years, this sector has therefore already had to accept severe cutbacks. An opportunity for potent companies that could now directly take over market competitors. Based on their own substance or through the possibility of contributing specialist resources, synergies and expertise, several small players may form larger ones that then benefit from better negotiating and market power. Their resilience and efficiency increase.
The PE market (private equity = equity investors) is now facing the challenge of only slowly falling interest rates in Europe and a stable interest rate situation in the USA in the short term. The economic downturn is preventing major growth in a short space of time and the risks are increasing. More capital is required to exert influence in a large company than for an investment in a smaller one. However, the effort involved increases with the review of smaller structures, as not only the number eats up resources, but also the poorer data quality the smaller a company is. However, AI now compensates for the latter and thus enables smaller companies to gain access to new investors.
The aforementioned investment pressure means that there are realistic opportunities to further develop your own company. There are various "ticket sizes", i.e. investment volumes, which in turn are managed by specialists. We provide a brief overview:
A large number of entrepreneurs have organised themselves in investment clubs and via smaller platforms. With investments and equity-like subordinated loans, they usually offer investments of between € 100,000 and € 1.5 million.
Traditional PE structures and institutional investors were generally only approachable from a size of € 50 million. Since the coronavirus pandemic, investments starting at € 20 million have been scrutinised. The latest development only opens up the broad market for tickets starting at € 5 million. If several different companies are already offered as a portfolio with a joint concept in order to land in a price segment of over € 10 million, the chances of attracting corresponding attention increase significantly.
The requirements for companies are not complicated. Firstly, a realistic market value assessment should be carried out. Here, the company value is determined using traditional methods and adjusted to the individual risk/reward profile. Sustainability and compliance play an essential role here. Your own tax advisor can provide support, but usually only serves as an initial indication based on objective criteria. They should not determine the subjective value for potential investors.
Both the developments in the USA as well as the recently reported mergers and, on the other hand, the increasing number of insolvencies of small companies in Germany mean that we will also have to prepare for major changes in ownership structures here. German companies will not be able to remain competitive internationally in future due to the more difficult access to bank loans, which are always to be repaid from the company's taxed net profit.
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(Author: Markus Vogelbacher)