Family-business IPOs The Third Way

Germany's family-owned businesses are increasingly moving to part-family, part-public ownership to raise cash and improve governance without giving up control.
Quelle: dpa
Getting a leg up: Family-owned prosthetics maker Ottobock is preparing for its IPO.
(Source: dpa)

For the leaders of Germany's family-owned businesses, it’s always been a case of them and us.

They like to think of themselves as guardians of their companies, responsibly caring for the firm's long-term future and mindful of generations to come. On the other side are the country’s listed giants, with their here-today-gone-tomorrow managers, concerned only with the short term, and often plagued by scandal. And never the twain shall meet.

But today these distinctions are increasingly breaking down. More and more family-owned businesses – the Mittelstand, which in Germany can be huge, global organizations – are thinking about their future and wondering if they need new models of ownership and governance. The descendants of founders are increasingly unwilling to take active roles in the family firm, and recent changes to inheritance taxes are prompting many to think of transferring ownership to a foundation. Or, more surprisingly, following the lead of the corporations and launching initial public offerings.

The number of companies actively preparing for a stock market IPO is not high as yet. But many are using the possibility to examine their practices, governance and ownership structure to see if they are "fit for listing," says Peter Bartels, head of their family-owned business department at consultancy PWC.

Many owners of family-run companies are deeply suspicious of the transparency demanded by stock market rules.

With so-called Mittelstand businesses making up more than 99 percent of German companies, opportunity is rife. Many family firms have already taken the plunge, including drugmaker Merck and cosmetics producer Henkel, both of which are listed on the blue-chip DAX index.

In almost all cases, they chose a model where the family retains guaranteed control over the company, but which enables new capital to be raised, and enhances the firm's attractiveness to outside managers. Car parts supplier Schaeffler took the step two years ago, for example, while Ottobock, the world leader in prosthetic products, is preparing for its IPO. Knorr-Bremse, the car parts supplier, is thought to be next.

A desire for a more professional governance structure is one key motive. But others include unresolved succession issues or a need for capital to drive growth. The options are attractive: Many structures have been developed that allow fresh capital to be tapped while leaving control firmly in the hands of the family. Companies like Henkel and Merck have embraced these, employing a significant number of managers and supervisory board members from outside the family, but leaving the dynasties in charge.

It has been a similar story with Schaeffler in the two years since its IPO: Its flotation method involved issuing preference shares without voting rights, while the family kept the voting shares in their own possession. But the company's experience on the stock market has been mixed. Insiders say the transparency demanded by its new public status has been a healthy development, yet its stock is worth almost exactly what it was at the time of flotation.

Erich Sixt has fared better. His eponymous car rental firm went part-public in 1986, driven by a desire to spread risk. The Sixt family still holds 60 percent of the company, but it also forms part of the "DAX-Plus Family 30" index, which is comprised of the top 30 family-owned companies on the Frankfurt stock market. The overall performance of the index has been strong: up 61 percent in the last three years, compared to 28 percent on the actual DAX.

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Hans Georg Näder, owner of Ottobock, regards the combination of family ownership and outside involvement as very attractive. With revenues of around €1 billion ($1.19 billion), the firm leads the world in high-tech orthopedic devices. It’s about to change its structure in preparation for a flotation in a few years’ time. As part of the change, an external chief executive will be appointed for the first time, and an outside investor brought on board. Mr. Näder then plans to step back from day-to-day affairs while ensuring continued control for the family. "Before any stock market listing, we want to professionalize the company even further," he says.

Mr. Bartels, of PwC, points out that hybrid companies – part family-owned, part-public – may represent one of the best possible corporate forms. Studies show, he says, that these firms make more profit on average than other listed companies, something he puts down to the longer-term vision of their management.

However, business dynasties and public companies retain stark differences. Many owners of family-run companies are deeply suspicious of the transparency demanded by stock market rules. To some, the idea of allowing anonymous shareholders to have a say in their long-established family business is a horrific one.

As a result, many choose a different route – setting up a foundation to change the ownership structure of the business without letting outsiders in to interfere. A change to German estate tax law has accelerated this trend, along with new foundation rules established in 2014. Together, they allow families access to their capital after the formation of a foundation, while iron-cladding their control. Last year alone saw the establishment of 582 new company foundations, swelling their total to more than 21,800.


Bert Fröndhoff leads a team of reporters covering the chemicals, health care and services industries. Anja Müller writes about family and small- and medium.sized firms. Axel Höpner also contributed to this report. To contact the authors: [email protected], [email protected]