Due diligence refers to a risk assessment carried out by the buyer before they acquire a stake in a company. GESCO has its own experienced staff who carry out the due diligence process with the support of external auditors. Where required, other exerts may be involved – for example in environmental assessments or market studies. A lot of information can be provided using so-called “data rooms”. However, a part of the due diligence process always takes place at the company itself. That allows us to get a first-hand impression of the company. Along with facts and figures, factors such as corporate culture play a part in the decision making process. And, however carefully we inspect a company, trust always plays a part in every acquisition.
No. Private equity companies (PE) are short-term partners: They often invest in companies in phases of significant growth before selling their stake. The lucrative resale of their holding (the “exit”) is their stated aim from the beginning.
We, on the other hand, purchase companies we intend to keep. GESCO lives from the profit distributions of its subsidiaries, not profits from the resale of companies.
The fact that GESCO AG, as the acquiring holding company, finances the acquisition itself is another significant difference. In contrast to acquisitions in the private equity world, our operational subsidiaries are not burdened with interest or the repayment of the purchase price, which can cause particular problems in periods of economic difficulty.
GESCO lives from the profit distributions of its subsidiaries. Together with the management, we assess the situation of the respective company, including the need for investment, before agreeing the amount of the profit distribution. That means the ability to distribute profits is an important criterion in our decision regarding the acquisition. We are therefore often interested in companies that do not expect significant growth, but that are well positioned and generate consistent income.
Because the ability of a subsidiary to distribute profits is an important criterion for GESCO, key earnings figures such as EBITDA and EBIT are less relevant. Earnings after municipal trade is typically an important metric in the evaluation. As a long-term investor we are particularly interested in sustainable earnings, adjusted for unusually strong or poor individual results. Those sustainable earnings are multiplied by a factor based on criteria such as market position, potential for growth and risk. We also take the capital ratio of the company into account.
As a listed company, we offer the greatest possible transparency. The annual financial statements of GESCO AG and the GESCO Group are available online. They show that acquisitions are generally financed using existing liquid assets. The use of additional external capital is decided on a case-by-case basis. That means GESCO AG can make offers without having to deliberate about financing and give the seller maximum transaction security.
The identity, structure and existing corporate culture of a company is maintained and developed. We do not plan to merge the companies we acquire. New subsidiaries are integrated into the reporting, controlling and risk management systems of GESCO. The investment manager responsible visits the company each month. A strategy meeting takes place annually at every subsidiary. We also actively promote exchanges within the GESCO Group – all our managing directors come together at an annual company meeting.
Where there is no new managing director at the company, the seller usually remains in place until his successor has been found and trained. Then the former owner is recognised appropriately before they depart, leaving the new managing director to run the company. After a mutual acquaintance period they take on a 10 to 20 percent share in the company. That means the end of one entrepreneurial career is the beginning of another.
GESCO AG currently only purchases companies that are headquartered in Germany. The subsidiaries engage in international business to various degrees. They are also free to make international acquisitions. For more details regarding industries and sales volumes see our acquisition criteria.
We acquire established, successful companies on a stand-alone basis. Synergies do not generally play a role in the acquisition process. Where opportunities later become apparent, we explore them. Decisions regarding partnerships within the group are made by the managing directors.
GESCO was founded in 1989, almost 30 years ago. At its core, the company’s business model has not changed. We purchased our “oldest” subsidiary, Haseke GmbH & Co. KG, in 1990. It is still part of the group. To us, long-term means open-ended.
We are not a restructuring company and don’t engage in operational activities.
In exceptional circumstances we may consider acquiring companies that require restructuring or that are close to insolvency, but only if they complement one of our subsidiaries.