Felix Haas, Jan Becker, Robert Wuttke, Christoph Jost, Peter Waleczek and Andreas Etten (from left) lead the Berlin private equity fund.
Berlin The very first investment proved to be a great success for Flex Capital. In December 2021, the Berlin financial investor sold the portfolio company Egoditor to the US group Bitly. Egoditor, which offers QR code generators, paid back more than the entire fund volume to the investors when it was sold, says Christoph Jost, Managing Partner at Flex Capital, the Handelsblatt: “That helped our reputation enormously.”
Despite the meanwhile gloomy economic situation, it was therefore not difficult to collect fresh money for the second, much larger fund. This has now been closed and, at 300 million euros, is more than double the first.
The money came from around 90 investors – including 70 from the software sector as well as funds of funds, asset management companies, institutional investors, foundations and a soccer player from FC Bayern Munich. Jost does not want to name any names.
Unlike venture capitalists, the private equity fund Flex Capital is on the lookout for profitable software and technology companies with annual sales of between EUR 2 million and EUR 30 million. It’s about the “typical German medium-sized company,” says Jost, who also founded the Absolventa job exchange.
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There is enough choice. According to the Bitkom industry association, more than 11,000 medium-sized companies are active in German-speaking countries. “We have an extensive database in which we list potential takeover candidates,” says Jost. In addition, they also work together with smaller investment specialists and rely on their own network.
While most start-ups are based in German cities, the situation is different for the software companies in which Jost is interested: “Our takeover candidates are usually not based in Berlin, Hamburg or Munich, but in Bielefeld or Karlsruhe.”
Difficult times for private equity
Flex Capital’s new fund launches at a difficult time for the industry. “Increased interest rates and inflation rates, disruptions in the supply chain and geopolitical influences mean that the financing is not available like in the previous year,” says Sandra Krusch, partner at the management consultancy EY.
Another consequence are uncertainties in the assessment of business models that have to prove themselves in a changed market environment. In addition, there are currently less attractive investment opportunities.
>> Read more here: Financial investors face four challenges
Private-Equity-Fonds wie Flex have become major players in the mergers and acquisitions (M&A) market, accounting for 25 to 37 percent of transaction volume in recent years. 2022 put an end to this boom for the time being. According to the data provider Refinitiv, the proportion of financial investors in the German M&A business fell to 20 percent.
Special fund structure at Flex Capital
Jost, who founded the fund together with five partners in 2019, believes it is important to be able to have a say in the business after the takeover. That’s why he and his colleagues rely on a commercial fund structure that makes this possible. Co-founder Peter Waleczek says: “As a commercial fund, we can really get involved operationally and not just give advice from the sidelines.”
In this specific case, Jost and his 30-strong team look at how companies can improve their cancellation rates or optimize the price-to-volume ratio, for example. “We also help with acquisitions that make the companies market leaders in their niches,” says Jost. For example, portfolio company Marbis bought Florida-based Apex Hosting in late 2021. The acquisition should primarily improve the position on the US market.
Flex Capital spends between ten and 60 million euros in equity from the fund per company. Additional funds from co-investors or borrowed capital from financing banks can be added if required. According to Jost, the price can be a problem: “In the current economic downturn, particularly good companies are becoming even more expensive. That is a challenge for us.”
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