Using bonds to finance the Mittelstand

There is an interesting new financing tool for small and medium size enterprises (SME) emerging in Germany: the bond market. A recent story in the Economist (Financing Germany’s Mittelstand: A crisis-born fledgling) notes:

Finding those hidden treasures, the mid-size mostly family-run companies–known as the Mittelstand–which power Germany’s export machine, is getting a little easier for would-be investors. That is because more of them are beginning to issue public bonds. In the past 12 months, four of Germany’s eight stock exchanges have started their own markets for Mittelstand bonds. The issue sizes range from €15m to €225m ($21m to $311m) and the competition between exchanges to attract the best names is fierce.

Traditionally, SMEs have been too small to tap into the bond markets directly. But the German stock exchanges have found a way to crack open capital markets for these companies.
As I pointed out before, the Mittelstand companies are in the business of selling their specialized knowledge. It would interesting to know if that knowledge is used in any way to collateralize those bonds. The article points out that the bonds are paying a coupon of 7% to 9%, “which is cheaper than many bank loans.” Given the risky nature of the market (as the story points out, “the issues are small and illiquid; there is no true market-making; and few of the issuers have a track record”) use of collateral would be a good idea.

The magic sauce

Here is an interesting (and entertaining) video from the Kauffman Foundation

This is one part of the presentation that I disagree with. Economic growth is not just the number of new firms but the growth of existing firms as well. The key, as the presentation points out, is finding ways to help companies grow — not just start. That magic sauce would apply to existing companies as well as start ups. Taking a established company from 100 people to 1000 employees is how to grow the economy.
I would submit that the magic sauce is all about understanding and exploiting a company’s intangible assets. Once we know better how to do that we can put tools in place to help that process of discovery — for all companies: start-ups and established, big and small. That would be the magic sauce of economic growth.

So who gets the intangibles?

Tomorrow the auction house of Heritage Global Partners (HPG) is starting the bidding for the assets of the bankrupt solar company Solyndra. The auction covers Solyndra’s high-tech research and manufacturing equipment as well as their office furniture, inventory of solar panels and spare parts/raw materials. In other words, much of their tangible assets. These are consider by the company and bankruptcy court as “non-core.” (FYI — documents related to the case are available on-line at
The question I asked in an earlier posting (Solyndra — who gets the IP?) seems to still be unanswered. And a related question — what are their IP assets — is also still unanswered. As I understand it, the company was supposed file their financial schedule of assets and liabilities yesterday.
In any event, it will be interesting to see how much the auction raises — and what percentage that is of the overall debt. The companies reportedly has secured debts of $783.8 million.
And for those of you looking to pick up some high-tech solar energy related tangible assets cheap, stay tuned. As the New York Times reports, there are a number of additional auctions coming up.

Appraising intangibles – update

A couple news items concerning appraisals of intangible assets:
American Society of Appraisers Business Valuation section is now offering a Intangible Asset Specialty Designation. According to their website:

Factors considered in the development of this designation include:

  • The increasing importance of intangible assets to business strategies and profitability
  • Expanded financial reporting requirements regarding intangible assets
  • Increased review of intangible asset valuations by regulatory groups including the Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB)
  • The increased uncertainty regarding asset values as a result of the recent Financial Crisis
  • Complexities associated with the identification and valuation of the many different types of intangible assets.

The Appraisal Institute (for real estate appraisers) is offering a course on the Fundamentals of Separating Real Property, Personal Property, and Intangible Business Assets. Interestingly, this course is specifically identified in the latest version of SBA Standard Operating Procedures for the 7(a) loan program as an acceptable qualification for an appraiser to give a “going concern” appraisal on a loan.