Investment Approach

Industrial21‘s strategy is right at the heart of the German market, thus addressing a large deal-flow in the segment „SME companies + Privately owned + Industrial Sector“

Germany is ...

1. The largest and strongest European economy 

  • Largest European Economy (25% of EU27 GDP) with >3.8trn$ GDP
  • Strongest economic growth (over last 10y) of large European countries

2. Dominated by SME companies (“Mittelstand“) 

  • Largest number of privately owned medium-sized companies in Europe
  • #11k companies with >250 staff (thereof 40% in industry segments) vs. #6k in UK or #4k in France/ Italy)

3. The European manufacturing hub
 

  • Substantially higher share of buyouts in industrial companies due to…
  • …overrepresentation of industrial sector in Germany with…
  • …very high share of global “Hidden champions“ in industrial niches

4. Underinvested compared to other European markets 

  • Germany with substantially lower private equity penetration compared to UK / France
  • No SME industry specialist buyout funds in Germany, only generalists

Industrial21 focuses on high-quality companies in industrial manufacturing and specialty distribution niches with a sustainable competitive advantage

What investment criteria are we looking for?

1. Industrial manufacturing and specialty distribution niches 

Company characteristics

  • Specialty building materials
  • Aerospace and defense components
  • Safety and regulated products
  • Electrical and electronic equipment
  • Measuring and testing equipment
  • Flow control systems
  • Automation and industrial technology
  • Specialty chemicals
  • Other industrial components and equipment

Rationale

  • Recurring aftermarket-revenue base through significant share of spares, repairs, and consumables
  • Often C-parts or mission-critical components with lower price sensitivity
  • Less exposed to technological disruptions

2. Sustainable competitive advantage (SCA)

 

  • Switching costs / Pricing power
  • Network effects
  • Branding power
  • Regulatory barriers (e.g., IP protection)
  • Structural barriers (e.g., access to scarce resources or transportation costs)
  • Scale economies
  • Typically, inflation-proof business system

 

  • Strategy offers large pool of companies with SCA (product and IP-focus, “Hidden Champions“)
  • Primaries often not fully aware of SCA and the implications for value generation and pricing power
  • SCA are the foundation for value creation through hands-on approach

3. Resilient and strong financial basis

 

  • EBITDA typically between 5-8m€
  • Growing non-cyclical topline
  • High contribution-/gross margin
  • Double-digit EBITDA-margin
  • High cash-conversion
  • No customer or product dependencies
  • Proprietary IP

 

  • “Size Arbitrage” by moving EBITDA from <10m€ to >10m€
  • “Turnkey Arbitrage” by moving asset from owner / operator to turnkey asset
  • Attract global trade buyers through size and footprint expansion
  • xxx
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