Manager Magazin, 8 April 2024 “Hans Georg Näders riskanter Rückkauf”
Link to original article (German)
The separation of majority owner and Ottobock patriarch Hans Georg Näder from his minority shareholder EQT is going smoothly. The winners of the deal are the EQT investors. Näder, on the other hand, pays a high price for his freedom.
In the end, Hans Georg Näder and Marcus Brennecke had to endure a few excruciating months together longer than initially intended. Näder, the highly emotional majority shareholder of the prosthetics specialist Ottobock, and Brennecke, the coolly calculating partner and head of Germany for the private equity giant EQT as well as minority shareholder in Näder’s empire in this capacity, have been drifting apart since Näder cancelled the planned IPO two years ago.
However, the divorce proved to be tough. For months, investment bankers from J.P. Morgan had tried in vain last summer to place the EQT package with other private equity firms and large family businesses. The 5 to 6 billion euros that Näder had called for as a valuation for Ottobock was likely too high.
The unexpected beneficiaries of the standoff are Brennecke and his investors. Näder repurchased the entire 20 percent stake owned by EQT, with insiders reporting a valuation of approximately 800 million euros. This suggests that the fund has nearly doubled the value of its original investment made in 2017, which Brennecke’s team had reported as slightly below 440 million euros based on the most recently accessible information.
As a result, the yearly return on the Ottobock investment is estimated to be around nine percent. This implies that the majority of the profits generated from the sale would be allocated to Brennecke’s investors rather than the private equity firm itself. The explanation for this lies in the typical arrangement between private equity firms and their investors: the threshold at which disposal profits are split between the two parties is usually set at a return of eight percent, calculated after accounting for all expenses, including management fees. Therefore, returns exceeding this hurdle rate primarily benefit the investors, while the private equity firm’s share of the profits is comparatively smaller. Näder has now regained sole control over his company. However, this increases the pressure to make Ottobock ready for an IPO. In any case, he could not finance the buyback of the shares from his own resources. So he raised 1.1 billion euros from credit funds; that would be a good 300 million euros more than would have been needed to acquire the EQT shares. The lenders include the London asset manager Hayfin and the Australian investment house Macquarie, among others. Ottobock does not comment on the terms of the deal with EQT or the contract details with the credit funds.
At first glance, the structure seems like a smart move: after all, Näder only has to pay interest when the IPO is due in a few years. But the deal is expensive. Insiders report interest rates of at least 10 percent. So even if the funds had agreed to a rate at the lower end of their possibilities, in the event of an IPO in three years, in addition to the loan amount including compound interest, around 350 million euros would be due. At an interest rate of 12 percent, the funds would already collect nearly 450 million euros over three years as a usage fee for the capital they provided.
At least the new lenders cannot force Näder into a hasty IPO. The loan agreements are said to have a term of more than three years. And apparently there are no so-called covenants, the violation of which could cause the loans to be called in immediately. No bank would have agreed to that. But the funds, it is said in their camp, also wanted to put themselves forward for other large loans with the Ottobock deal.
For Näder, the face-saving and peaceful separation from EQT leaves a door open in case the planned IPO does not work out. After all, Brennecke and his investors did well with Ottobock. However, in such a case, Näder would probably have to give up significantly more shares and, above all, control than he granted EQT seven years ago.