The firm was once a model of success. Its management team is now gone and its IPO dreams are over. Ottobock patriarch Hans Georg Näder is making a fool of the private equity giant EQT.
Unternehmen Und Management, manager magazin, November 2022 by Dietmar Palan
Link to original article in German
If you want to believe what some of his business partners say, Hans Georg Näder (aged 61) is an entrepreneur with a tendency to make eccentric appearances and spontaneous decisions. The majority owner and Chairman of the prosthetics manufacturer has, in the past, walked into business meetings barefoot – something the company has declined to comment on. Interviews with him can trigger episodes of ranting, and he tends not to answer questions he doesn’t like until the interviewer terminates the discussion.
His investment style and spending habits are equally impulsive at times. Something that appeared set in stone yesterday can look completely different today. Näder doesn’t seem to distinguish clearly between his private life and his role as an entrepreneur.
In summer 2018, for example, he lent the entrepreneur Cornelius Bockermann (aged 63), who specializes in shipping and trading, half a million euros. The money was supposed to be used to send an old schooner on a great voyage from Europe to South America and to establish trading in rum, honey and coffee. Näder had already acquired an appropriate vessel – the “Anny von Hamburg”, a three-masted schooner built in 1914 and in need of an extensive refit. Bockermann was supposed to take care of this for him.
A few months later, however, Näder changed his mind and asked for the money back. Bockermann was unable to repay the loan and his company Timbercoast had to file for bankruptcy. Instead of setting sail for South America, the 38-meter ship – a “collector’s item” – will at some point become a museum piece, unless Näder has another idea about what to do with it.
Schooner and craft beer
When it comes to his craft beer project “Heimatliebe”, it would appear that his euphoria has now also been replaced by negativity. Until last summer, Näder wanted to massively expand his microbrewery and to not only produce beer but also carbonated beverages. The urban planning committee in his home town of Duderstadt even amended their construction plans in response to the project. In early March 2022, Näder reversed his plans and declared that the expansion was no longer economically viable based on what he described as a “fact-based decision”. Näder subsequently turned his back on the brewery with the related branding rights.
His most spectacular U-turn to date occurred a good two and a half months later. He had released around EUR 11 million to prepare the IPO of his principal business Ottobock, with a large proportion of that sum being spent on consultancy fees. According to sources within the company, several dozen experts from the auditing and consulting firm KPMG were involved in switching the accounting standards from German Commercial Code (HGB) rules to the internationally accepted IFRS regulations. Millions more euros were set aside in the balance sheet for employee bonuses that had originally been offered in return for getting the firm IPO ready. Of the EUR 40 million additionally allocated to the item “other provisions” for 2021, three-quarters are likely to have been earmarked for bonuses related to the planned IPO, which was then cancelled.
On May 19, Näder cancelled the long-planned IPO. In view of the current circumstances, this was understandable: Following the outbreak of war in Ukraine, the prospect of the IPO generating proceeds of EUR 6 billion to EUR 8 billion – the figures with which investment bankers from Goldman Sachs, Deutsche Bank and BNP Paribas had lured Näder – would have been an illusion.
Marcus Brennecke, CEO of EQT Germany (aged 61), may feel like the big loser following Näder’s decision to cancel the IPO. In summer 2017, the Swedish private equity firm paid well over EUR 200 million to acquire a 20% stake in Näder’s company. Brennecke probably allowed his partner greater influence than other investors involved in the bidding process, such as CVC or Advent, would have allowed. For Brennecke, an ambitious amateur sailor like Näder himself, this meant that a risk that had existed from the outset subsequently materialized: The unpredictability of the majority shareholder.
Virtually in parallel to the cancellation of the IPO, Näder caused chaos within the company’s senior management. This made the path to the stock market longer rather than shorter, together with Brennecke’s time at Näder’s side.
CEO Philipp Schulte-Noelle (aged 46) and CFO Kathrin Dahnke (aged 61), who had tried for months to save the company’s financial market debut, were given their marching orders, as was Head of Development Andreas Goppel. To the outside world, as is often the way in such cases, the parting seemed amicable. As recently as mid-May, CFO Kathrin Dahnke emphasized the company’s readiness for the capital market and confirmed its IPO plans in an interview with the newspaper “Handelsblatt”, something she is unlikely to have done without Näder’s agreement.
Oliver Jakobi (aged 46), an industry specialist who replaced Schulte-Noelle as CEO, is likely to be little more than a temporary fix. A long-time friend of Näder, he probably followed the patriarch’s call more out of loyalty than conviction. At least, that is the view of people in the company who know him well.
Arne Kreitz (42), the new CFO, is considered a specialist in M&A and has so far had little to do with traditional CFO tasks such as financing and accounting. The role of Head of Development was taken over by Arne Jörns – a production manager with a reputation for brusqueness within the company, alongside his existing duties.
Suffering in silence
From the outside, it appears that EQT’s Brennecke is enduring the solo interventions by Ottobock’s majority shareholder without complaint. There is not much else he can do. Any open discord would further decimate the value of his stake in the company. However, this also means that investors in EQT funds have been left with the impression that Brennecke is almost powerless to oppose Näder’s seemingly erratic rule.
Company insiders close to Brennecke and Näder have repeatedly emphasized that EQT’s influence goes far beyond its nominal 20% stake in the company, and they have insisted that Näder does not generally interfere much in the running of the business. But when it comes to appointing top managers, Brennecke and his deputy Johannes Reichel (aged 41) have virtually no say in the matter. In the end, the patriarch obviously always gets his way.
This already began with the replacement of the management consultant Oliver Scheel (aged 54). He succeeded Näder as CEO in 2018 and embarked on a tough round of restructuring that is typical after a private equity comes onboard. It wasn’t long before there was friction between Scheel and the major shareholder. Scheel’s style was too demanding and too uncommunicative, Näder’s people say in retrospect. After less than a year, it was over.
Schulte-Noelle, who himself has a private equity background, kept Näder at arm’s length, but the special relationship of trust that Näder’s entourage initially claimed to exist between the two seems to have suffered from the CEO’s constant attempts at “emancipation” until there was nothing left to repair.
And the former CFO Kathrin Dahnke, who had worked for Ottobock for years before finding herself in the spotlight at public companies Gildemeister and Osram, was hired by Näder in the summer of 2021 quite obviously without any discernible enthusiasm on the part of his private equity partners. In any case, they had hardly anything positive to say about the CFO in confidential discussions held afterwards. The company insists that the appointment had unanimous support.
As a result, Ottobock is developing much more sluggishly than EQT usually expects from its majority participations – partly also due to the constant changes in the firm’s top management. For 2017, the year when EQT’s invested, Näder’s company, whose economic success is dominated by the operating performance of the Ottobock business unit, reported a profit margin of 24%; even this KPI tells us only a limited amount about the company. It was reported in the balance sheet of the holding company through which Näder and his family hold their shares in Ottobock SE & Co KGaA and whose economic success is primarily attributable to the operating performance of the prosthetics manufacturer. This large profit margin was only achieved because the sale of the Ottobock shares to EQT and the disposal of the plastics business founded by Näder’s father were included in the consolidated financial statements as extraordinary income at the time.
In the two years that followed, the holding company posted a loss. The most recent Annual Report published in the Federal Gazette shows a profit margin just above zero for 2020. In the same period, equity capital decreased by almost 40% from EUR 593 million to EUR 360 million, while total liabilities rose by one-third from EUR 710 million to EUR 946 million.
Higher liabilities, lower equity
Näder is keeping the annual financial statements for 2021 prepared in accordance with IFRS rules – which could provide the clearest view of the actual state of the failed IPO candidate – under wraps. Insiders who have seen the figures for Ottobock SE & Co KGaA believe this could be primarily due to the fact that the equity ratio might look even weaker under IFRS than under HGB standards. The company claims that the two sets of figures are not comparable and declines to answer questions about them.
Even Näder seems to be far from satisfied with the state of Ottobock. Following the shake-up of the Management Board in the spring, he announced that greater emphasis would be placed on discipline and operational excellence going forward. According to sources inside the company, he announced cost-saving targets of EUR 30 million a few weeks ago. Näder believes that this would then make an IPO possible in the third quarter of 2023. The company has declined to give any substantive comment about either the cost cuts or the timing of a possible IPO. At the same time, people close to Näder emphasize that he is not financially dependent on the proceeds of an IPO. According to them, the entrepreneur has secured his financing through fresh credit agreements with several major banks for the next five years.
Even so, Näder seems to want to scale back his ambitions somewhat – at least financially. The sailing enthusiast is selling the 54-meter yacht “Pink Gin VI”, which was once his pride and joy. The publication “Boat International” recently said that he is asking EUR 29.5 million for it. However, interest in the single-masted yacht constructed out of carbon fiber seems to be limited. The boat was already put up for sale in late summer 2020, when the asking price was EUR 45 million.
Forcing Näder and his family to surrender their majority stake is probably simply beyond EQT’s capabilities. Näder himself considers his daughter Georgia to be destined to take over the reins of the company. Although she studied Business Administration in Barcelona and Copenhagen, among other places, she is only 25. Sailing enthusiast Marcus Brennecke, who did not respond to a request for an interview from manager magazin, still has some rough seas ahead of him.