The events surrounding the ventures of the former financial mogul Benko have taken on bizarre proportions in recent weeks. The downfall of his corporate conglomerate and the revelation of the large and small investors in Benko’s plans were not enough. Now the battle is raging among his many investors, from Saudi sovereign wealth funds to well-known insurers and state banks in Germany and Austria, to Fressnapf founder Torsten Toeller and Hapag-Lloyd major shareholder Kühne.
These and other investors have not only lost their money, but now it is a matter of recovering at least part of their capital from the insolvency estate. The total liabilities are said to amount to over 14 billion euros, including debts of Signa Retail GmbH amounting to 1.3 billion euros and more than 800 million euros of debts of the Benko private foundation, as derStandard.de reports. Almost 100 creditors – including the Signal Iduna Group with claims of over 912 million euros – must now hope that they can save at least part of their investment from the insolvency estate.
The @AssekuranzDoc
The @AssekuranzDoc
Dr. Peter Schmidt is a personal insurance expert and management consultant in the field of insurance, sales and brokers with many years of experience as a manager and board member at German insurers and tweets as @AssekuranzDoc.
Tip for entrepreneurs of fast-growing companies
The basic concerns of investors, namely investing their own or other people’s capital and generating an attractive return from it, are completely beyond discussion. This is all legitimate and is rightly expressed in popular parlance as follows: money has to work. Nevertheless, the question remains as to why it keeps happening that investors fall for dubious business models or take the risks of speculative business models. There are well-known indicators that can be seen in every insolvency comparable to Signa, both large and small.
One of the indicators is too rapid growth in companies where too much is happening too quickly. Such strong growth often leads to ad hoc decisions that are not sufficiently thought through, are not communicated optimally within and outside the company and quickly lead to conflicts. In addition, the necessary expansion of the workforce leads to hasty hiring of insufficiently qualified employees or managers with excessive salaries.
With rapidly growing sales, new company structures, a new division of labor and new decision-making processes are necessary, which often overwhelm the owners. The demands of investors in particular bring new requirements for business cases and other business management topics, which make corresponding know-how necessary. Determining defined roles within management and all employees requires competence and transparency. And if you don’t have these, you should acquire them or external input and/or appropriate coaching to do so.
Rapid growth requires continuous adaptation of company processes, which is generally referred to as evaluating the business model. This includes a clear management philosophy, a solid reporting system and permanent controlling – for example through regular management meetings. A systematic project culture and active conflict management are equally important. Growth and change almost always bring with them conflicts at various levels, which is completely normal. However, it is crucial to deal with these conflicts constructively, which is clearly different from patriarchal company management.
Further indicators of undesirable developments in fast-growing companies
Let’s leave the general topics and problems of fast-growing companies and take up some of the indicators of undesirable developments with reference to the insurance and financial brokerage industry. There are now enough examples in this industry where the owners or management have not been able to get the processes that accompany rapid growth under control and then – due to a lack of change management skills – the company has been sold or insolvency-related procedures have been observed.
If a cooperation partner or broker who wants to sell or annuitize his portfolio or company wants to get involved with such a rapidly growing partner, there are a number of easily researched indicators that can help with a well-founded and future-proof decision. This is especially true if purchase contracts against installment payments or a broker’s annuity are being discussed. I will select three indicators here and then explain them:
- a. Presentation and analysis of the annual report or the latest balance sheets
- b. View the information stored in business reports
- c. Information on the shareholdings in the company in question
Let’s start with a. Annual reports and balance sheets can provide an insight into the solidity of the company’s business model and provide a business basis for the necessary relationship of trust for a sale or cooperation. A multi-year review and analysis provides information about the viability of this company and also the necessary creditworthiness when it comes to a sale or annuity.
Further details from business reports and balance sheets can include information on existing obligations, loans, provisions and other tax issues that are important for a new contractual relationship. If such a company is already heavily burdened with loans, it will probably insist on a one-off payment rather than accepting installment payments or an earn-out model. A multi-year review also shows whether the company is growing continuously or whether the balance sheets have been embellished through special effects.
Tip for a: A short balance sheet filed in the Federal Gazette is not particularly informative. Nevertheless, a look at the Federal Gazette can provide information on whether the balance sheets are prepared promptly or whether risky outstanding balance sheets are recorded over several years.
Regarding b., my recommendation is to look at various Business information and possibly invest a few euros in it. This includes information on creditworthiness, a look at the commercial register and also information on the ownership structure, for example. If you take a look at the history and the various company locations of the Signa Group mentioned at the beginning, the development of the balance sheet and sales totals, the movements of managing directors and the network of shareholdings, you will be encouraged to carry out a more intensive examination.
This also applies in the event that a broker to a professional buyer of brokerage holdings or firms or, even riskier, in exchange for a long-term brokerage annuity. Even if the data in these business reports with the corresponding entries in the commercial register are not always completely up-to-date, information on the networks of investments, profit transfer agreements filed in the commercial register or declining sales or balance sheet totals can be warning signs for the future security of the company.
Tip for b: Business information can provide more security and guarantee for a functioning business model. At the very least, the necessary questions can be asked and information requested, which can then be included in the relevant passages of letters of intent (LoI) or in the purchase agreement as guarantees from the buyer.
Information on participating investors or shareholders
Let us conclude with c.: Information on participating investors or shareholders are often recommended, even if they are not immediately apparent in the traditional way. Nevertheless, information on control and profit transfer agreements and the corresponding shareholder resolutions can be researched.
In this specific case, pay attention to the broker media and ask recognizable broker colleagues about their experiences with the buyer. With common sense, reports such as “Investors want to pump fresh capital into start-up XY” or “XY receives rescue financing” and “Investor devalues shares in XY” should be warning signs. Not to mention disputes between management boards, supervisory boards and investors that are openly played out on social media.
Tip for c: Pay close attention to the media about possible cooperation partners or buyers and also search for experiences and feedback using the appropriate search portals on the Internet.
Conclusion: Rapid and strong growth can lead to companies exhausting their human and financial resources too quickly and no longer being able to meet any obligations. Small and medium-sized companies should therefore ensure that their own company growth does not become a permanent challenge. With appropriate reporting and subsequent controlling with suitable measures, these situations can not only be controlled, but also shaped.
For cooperation partners or potential buyers, not only negotiations on the purchase price but also future-proof security of the purchase model should become a MUST, especially in the case of installment payments or promised brokerage fees. Because information about problems at fast-growing companies is piling up, you just have to want to see and hear it.
