March 22, 2022

Meet the investor: Benny and Christian

Meet the investor: Benny and Christian
The searchers behind Bopp&Hahn share their backgrounds as entrepreneurs, the search fund model, buying majority stakes and their soon-to-be roles as operators of an established SMB.

Hey Christian and Benny, could you give us a brief introduction of yourselves and your backgrounds?

Sure thing and thanks for having us! We have been friends for over 6 years and have been exploring and working on different entrepreneurial paths for several years now. We both did our Bachelor degrees as part of a dual study program. Benny did his in cooperation with Vodafone in Germany and Spain, and Christian worked for Magna/Getrag in Germany and China. Benny then did his Master’s in Management at IE Business School where his interest in entrepreneurship was fully triggered, but he decided to first work in management consulting for EY and Envolved focusing on strategic topics around sales, marketing and digital transformation as well as M&A projects. Christian stayed with Magna/Getrag for some more years and gained experience in the world of finance and investments before moving on to pursue his MBA at IESE Business School. During that time, he worked for McKinsey, but more importantly was introduced to the Search Fund model, and we quickly teamed up to go all in on launching our own partnered traditional Search Fund in Germany.

Bopp&Hahn is a search fund looking for a business to operate but what’s the origin story and structure of the firm?

The Search Fund model has a long history in the US and nowadays also a strong footprint in many other markets. It is quite a standardized framework in the field of Entrepreneurship through Acquisition (EtA) and offers young and motivated entrepreneurial minds likes us a turnkey solution, to be the missing puzzle piece for the succession of one established SME. We based our Search Fund on the framework the model provides and adapted it to our needs and the German market. The Search Fund is structured through a limited liability company and the investors who chose to support us on our journey are consequently shareholders in Bopp & Hahn Mittelstandspartner GmbH. We as searchers are responsible for finding and acquiring a company while the investors support us with valuable mentoring along the way and the required capital for such a transaction. After the transaction, the searchers operate the company as CEOs/Managing Directors, looking to grow the company in the long run with the support of the investors.

What are your current investment criteria, i.e. what do you look for now in a business?

We are really passionate about companies in the technology and service space, but we also find a lot of other niches interesting and worth discovering. There are a lot of hidden champions out there most of us do not even know about! Additionally, we are looking for a certain size which is mainly driven by profitability criteria. Search Funds buy profitable businesses which have a strong foundation to build upon and most of the times also show characteristics of recurring revenues. We as a team of two searchers are searching for a company with an EBITDA north of €1M. But most importantly: we are looking for a particular situation! We want to be the successors of the current CEO, take over the day-to-day operations of the business and make sure that his/her/their legacy will live on for another generation.

Do you have an equity appreciation exit-strategy for your investments or are you looking to hold and collect dividends (or both)?

We want to find and acquire a single business, to become entrepreneurs and take an existing business into the next generation and maybe even to the next level. Therefore, we approach our Search and what follows with a very long-term vision.

What are your preferences for majority stake ownership (51-100%) and how flexible are you about the equity spectrum and terms for founders who wish to stay invested or involved?

A large majority stake north of 80% and in most cases 100% since the previous owner(s) most likely retire(s) is what we are looking for. But, in some cases, the Search Fund model offers significant flexibility in structuring a deal according to the needs of the respective founders. Founders can continue to stay involved, stay invested, be incentivized through an earn-out and many other options. This is what we as Searchers probably like the most about the model. It gives us authentic flexibility and creates a win-win for everyone involved compared to other buyers such as private equity funds or family offices.

Could you share a few details about how you source deals and maybe any specifics about negotiations underway at the time of this interview?

The two most common forms of sourcing are brokered deals and proprietary outreach. We are in touch with quite a few brokers but find that the quality and the type of deal process is just not ideal for us as a Search Fund. Brokered deals quickly turn into auctions and do not leave room for a solid personal relationship with the seller. Proprietary outreach on the other hand allows us to select the industries and niches we are genuinely passionate about and to first establish a solid personal relationship with the seller before talking specifics like purchase price and terms. Negotiations underway are of course confidential but we are really happy about the positive feedback from founders when we reach out to them – even if they are not interested at the moment, they still find our approach as succession entrepreneurs valuable for the German “Mittelstand” which undoubtably has an intensifying succession issue.

As a two-man team, do you plan to hire operational / support staff for the business(es) in the pipeline, and, if so, how will you find them?

The kind of company we are looking for is an established SME with a history of profitability, a proven product and/or service and most importantly an established team. On the one hand, the existing team is the major reason why the company is as successful as it currently is and there would usually be no reason to consider any sudden changes to it. On the other hand, growing the team for additional growth initiatives is an important factor. This is something to think about once we have concluded our search and entered the operating phase.

What does the future look like for Bopp&Hahn? Would you consider investing in and/or operating more than one company at a time?

Our only goal for now is to find, acquire and manage a single business that fits our passions and values, and which needs a succession solution. Additional passive investments in other value-adding companies or addon-on acquisitions are viable options, but not a focus at this point in time.

Do you have any learnings you wish to share with the wider internet economy of founders, operators and investors?

We hope this blog post spreads the word about the Search Fund model and about our particular mission. While there is a big hype around VC/PE money, founders, and operators as well as investors, should consider all the options out there as there is no one-fits all solution. The Search Fund model is great, but still a very much underrepresented solution considering the deficit of successors in the German SME market. We are happy and available to have a chat if some of your readers are interested and want to learn more!