Finance

Here’s a novel structure for family companies seeking outside capital

Ottobock, the German manufacturer and supplier of prosthetic limbs, is following a novel way of financing its growth. Other family businesses, at least in Germany, might like to take note.

Last month, Ottobock, which was founded in 1919 and has been owned and managed by three generations of the same family, changed its legal status into a so-called partnership limited by shares, or to give its official title, an SE & Co. KGaA – Kommanditgesellschaft auf Aktien (KGaA), deren Komplementär eine Europäische Gesellschaft (SE).

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That’s one big mouthful of a legal corporate title, even for Germany that’s fond of long titles for such structures. But, forget the long name, the most important thing about the structure is what Ottobock itself has said about the change. “This partnership limited by shares permits the Näder family (Hans Georg Näder is the current managing partner and owner, and is the grandson of the founder, Otto Bock) to maintain its influence over the course of the company going forward, including after a potential IPO (initial public offering).”

The most interesting bit of this statement is the IPO part. What Ottobock appears to be planning is to list part of its share capital on a public market, presumably the German stock exchange. But to understand part of the thinking behind this move we have to go back to last year when Ottobock sold 20% of its equity to the Swedish private equity group, EQT.

What this new structure effectively does for Ottobock is to keep the family ownership of the business under a dual shareholder structure, where the family have voting shares, but other investors have non-voting shares, which are traded on the free market.

This all adds up to an interesting and possibly highly effective way for a family business to go about bringing in outside capital, keeping majority family ownership, but rewarding minority investors like private equity funds/family offices – in Ottobock’s case, EQT – through an IPO at a later stage.

It appears that all parties involved in the deal will be winners – the family keep ownership, but bring in outside capital before an IPO to help with its innovation efforts, and that outside capital is rewarded later through an IPO.

Given the increasing need for family businesses to bring in external capital, it’s likely other German family and privately owned Mittelstand companies will follow Ottobock’s example – or at least a variation of it.

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