Germany's Mittelstand

Search Funds To The Rescue

  • Why it matters

    Why it matters

    Small and mid-sized companies drive the German economy, but many are not able to find successors . This could hurt the economy in the long run. A new trend in investment – search funds – could help find new managers to take these firms into the 21st century.

  • Facts


    • Some 27,000 small and medium-sized companies in Germany are searching for new management or ownership, with many of the original owners and founders dropping out due to old age, sickness or death.
    • More than half of German company owners look for a successor exclusively within their own families, while another 17 percent of companies are managed by an employee.
    • Search funds are growing in popularity in the U.S. although there are only four or five in Germany at the moment.
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Konjunktur in Niedersachsen
Workers at one of Germany's archetypal Mittelstand companies, Bergmann Automotive in Hanover. Source: DPA

Twenty-six-year-old Manuel Hein has always wanted to buy a company belonging to the “Mittelstand” – Germany’s catch-all term for small and medium-sized companies. While he hasn’t yet singled out an enterprise to take over, Mr. Hein is sure of one thing: He is not interested in founding his own business or working for a large corporation. Mr. Hein has previously studied mechanical engineering and production technology, worked for Mercedes Benz and earned his MBA at Columbia University in New York. His abilities, he explains, lie more in taking a great idea and making it even greater. “There are ideas like that in the Mittelstand. It’s an incredible driver of innovation,” says Mr. Hein.

In today’s tech-driven economy, where start-up moxy is lionized and company founders are placed on pedestals, managing a small or medium-sized company might seem like a modest ambition. However, Mr. Hein’s longtime goal is actually part of a larger investment trend known as search funds, which are gaining popularity in the United States. There, graduates of top business schools are pursuing investors to support them in their full-time search to purchase and manage suitable companies.

Jürgen Rilling, 48, a financial investor at Mirablau Investment Management, is helping Mr. Hein realize his dream. Along with other investors, Mr. Rilling has contributed a total of €360,000, or about $381,600, to a fund for Mr. Hein, who has been given two to three years to find a company to purchase. Should he find one, the investors will finance the purchase price in return for a 70 percent stake in the company.

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