author: Forbes.cz

The Třebíč engineering company Tedom was founded by successful entrepreneur Josef Jeleček at the beginning of the wild ‘90s. In his father-in-law’s family house, he built a heating and power generation device from a generator and engine from a Skoda Favorit. Customer interest then launched an unexpected business, and today Tedom is one of the world’s leading manufacturers of cogeneration units, which are devices for combined production of heat and power.

Jeleček was not afraid to bring partners into his business, and together with them he gradually built up a group with 800 employees and annual sales of CZK 4 billion. Three years ago, the company grew significantly when it swallowed the German company Schnell, a rival on the verge of bankruptcy.

A few months ago, another strategic partner entered the Třebíč company – the investment company Jet Investment. Through the Jet 2 fund, it acquired a 55% majority stake in Tedom. “After 29 years, I decided to sell my share. I already felt tired,” says the successful founder Jeleček, who is leaving the ownership structure of the company but will continue to take part in its management. The Brno billionaire and Jet Investment founder Igor Fait wants to strengthen Tedom further. “We believe that cogeneration technology has a future, so our intended activities will be focused on growth,” promises Fait.

When to look for an investor?

Tedom exemplifies how the entry of an investor need not necessarily be due to existential problems. A strategic partner can help at a time when businesses need new energy or capital for further growth, when they are unable to fulfil their potential and move to bigger markets on their own, or they lack capable people or contacts.

 “We have come into a number of businesses that had great vision, drive, and good competitive product but they didn’t know how to manage expansion. Smaller regional firms often cannot manage growth. It happens that the owner significantly overinvests or fails to manage investments effectively,” adds Marek Malík, one of the four Jet Investment partners.

Growing pressure from competitors or market fluctuation following a weakening of the economy can mean a deep downturn for such firms. While an experienced strategist can sense negative developments in time, founders of smaller companies are often hampered by emotions they have invested into the business and hesitate too long before bringing in an investor.

“Recognizing the right time to bring in a strategic partner is usually difficult. Company founders should think early about further development, they should have a vision of how to move the business forward. Entry of an investor may then prove to be a logical step that can be taken in a timely manner,” says Malík.

What can an investor bring?

Whether a business will be successful on the market is determined by the right configuration of management, responsibilities, powers and roles in management. “When we invest in a company, we always look at the organization of management right at the start. There can be obstacles that slow down expansion. We have experiences with how management should function, how managers should be motivated, and how roles should be allocated in the company so that it can grow effectively. This is one of the key things that an investor can offer as a strategic partner,” describes the Jet Investment partner.

“Our role is to set up processes effectively, set out vision and strategy, and sensitively oversee tasks that lead to achieving goals. But we certainly do not want to interfere with all operational activities of the company,” Malík explains.

Won’t they kick me out?

As a strategic partner, the investor usually relies on the original management and cooperates with existing owners. “If the company founder has been working in the field for 20 years, his experience is very valuable. To not make use of such experience would be self-defeating. Our strength is in fields such as sales, purchasing, finance, HR or marketing. We give attention to those parts that need support. Sometimes it’s not even necessary to change the original strategy. It’s only necessary to manage it effectively in order to carry it through to a successful end,” states Malík.

The assignment of roles should be based on an agreement with the original sole owner of the company. “If both parties are to coexist together and participate in further developing the business, there must be a human chemistry that works between them. Without that, it’s undoubtedly impossible,” remarks Marek Malík.

Half and half, or sell the majority?

Nevertheless, owners of Czech companies fear losing control over the business with the share that is sold, and especially in case they were to relinquish majority ownership. Selling a minority stake may seem more advantageous, but it may not bring the desired effect. Investors who enter companies as minority owners usually provide funds but this often gives the business a boost only temporarily.

“Our many years of experience show that it is better for us to enter the project either as a majority partner or to have an equal position under a shareholder agreement so that we can influence the running of the company. We can verify that a company can grow faster if managed through a joint effort and if it uses both the know-how of the founding owners as well as our expertise. If we were to provide just the finance, the money can be invested and the company will still move nowhere,” explains Malík.

How to find a reliable partner?

Choosing the right strategic partner is crucial for success. There are a number of M&A advisors on the market who deal with mergers and acquisitions and can help in finding an investor. Investing into an adviser can pay off, but it is necessary to choose one who knows how to set realistic price expectations and has successfully completed a number of projects. Big consulting companies with global reach tend to be more expensive but offer experience and reliability. When choosing the investor itself, the same principles apply. It is essential to check its reputation, soundness, and success in what it does. Such vetting is decisive for future cooperation, as the two sides need to trust each other completely and lay out the whole business to one another in details.