Why investors took interest in Eurobike’s Frankfurt debut

Tucked away in the sprawl of Messe Frankfurt at Eurobike was an Investors’ Lounge, put in place for the first time to draw in Frankfurt’s financial folk for guided tours. Organiser Ralf Kindermann gave CI.N a post-show insight… 

You organised the Investors’ Lounge at Eurobike – what was the thinking about debuting this platform in Frankfurt?

Frankfurt is the financial capital of Germany and due to the increasing interest in private equity investments into the bike industry we set up the event. In 2021 around 50 large investments into our industry were closed, so we thought it might be a good idea to connect with the investors at the Eurobike show to give them valuable insights.

There were 70 people representing €10 Bn+ in the room. Was this money always on the fringes looking in, or is this a recent shift?

The mentioned €10bn+ referred to the capital of the present funds which the attendees have currently under management. And, yes, in the last four to five years the capital under management in most of the private equity funds increased significantly, because it has become very attractive to invest in private companies.

It is notable the speed at which investment interest in the industry has accelerated. What factors are driving fund manager or investor interest?

Of course, the underlying growth perspective of our industry mid-to-long-term is strong. Most of the investors are growth investors and it is important for them that the industry in which they invest shows growth potential. The bike industry has at least four strong megatrends driving the future growth such as: health and fitness, smart mobility, sustainability and digitalisation. All these megatrends are joining forces currently and accelerating our industry’s growth on a longer timeframe.

If anything, what most puts investors off the bike industry, or what needs to change to appeal to a greater degree?

I think the biggest pain point is the underdeveloped supply chain, which leads to unsecure supply and, ultimately, lost sales. To improve this situation definitely should be the biggest effort for the whole industry. We have been talking about improvements since the mountain bike boom in the 90s where we had similar situation, but obviously not so much happened since. We need to make a joint, extra effort all together globally to master the difficulties in the supply chain.

How did you structure the event at Eurobike and were there any particular areas investors were most carried by?

The structure of the event was simply split into parts. Part one was insights gained from presentations from ZIV, Deloitte with its consumer study for the event, Gunnar Fehlau with its decade long market trend experience and myself sharing digitalisation knowledge.

Part two was a guided round trip through the highlights of the show with the group, to prove some of what they heard in the presentations in person on the showground. The interest of the investors is very broad and diverse, you cannot say that there are particularly special focus areas. However, I would say some areas such as financial services, bike leasing, cargo bikes, smart or connected products and gravel bikes have had a bit higher focus than other areas.

Is there a link between automotive interest in cycling and investor appetite and if so, what does this indicate on the future of transport in cities?

I don’t think there is a direct link, but you can see that automotive related companies such as PON, Porsche, Bosch, Mahle, ZF, Valeo or Pierer all invested a lot into the bike industry already, but I currently cannot see any indication for the future transport in the cities. Currently the car industry is rather opportunistically investing, more than being strategic. One thing is clear after the Eurobike show, that is the bike industry will be a significant part of the future mobility and we are part of the solution and not part of the problem. This position attracts investors.

Are investors looking for start-ups in particular, or does this cash entering the industry also similarly flow into established or listed businesses?

It very much depends on the strategy of the investors, of course. There is money out there for all type of companies in any stage. The majority of interested investors, especially in the field of private equity, are looking for companies which are growing dynamically in turnover and in EBITDA and which are over a longer period of time significantly profitable.

I see a lack of money in early-stage investments. We as industry need to put more effort in to attract early-stage investors, particularly venture capital funds, to invest in the hardware innovations of the bike industry rather than making their 121st venture investment into a software start-up.

In terms of business structure and investment draw it has been said the consumer direct business carries the most sway due to profit margins on offer. Is this strictly the case?

Of course, the best margins are achieved usually by B2C or D2C business models because they simply skip one or two trading levels, which normally leads them not only to better EBITDA margins, but also to a faster growth due to more attractive offering.

Notably the electric bike is not considered an online sale, rather something that must be tried (in part down to price and fit). Does this buck a retail trend and make retailers with presence investible?

Yes and no. The electric bike sales share online is lower than for non-electric bikes, because the sports enthusiasts target groups buy online and they are buying less electrical bikes than the average consumer. This will change soon, I think. Also, in the sports segment the enthusiast customers will use and buy more and more eBikes. Then the share of online sold sport eBikes will grow further proportionally compared to retailers with physical presence. The increasing electric bikes sales for retailers with presence drove not only their sales, but also their profitability, which attracts investors. We have seen recently some interesting transactions on the physical retail side and I am sure there are more to come.

The bike industry appears set for some consolidation once more. How difficult is it to pick winners for outsiders who may not understand the complexities of our ecosystem?

That’s exactly what we are aiming to address at the Eurobike Investors’ Lounge; we tried to explain and educate potential investors with the specifics of our industry, so that they can make the best decision for their portfolio. With great partners such as ZIV, Deloitte and Gunnar Fehlau we had quite a good competence to give them the right insights.

In order of appeal, what trends are considered most investible?

Digitalisation; that means in short a connected bike. This will be a huge driver for all kinds of new business models. In short, using the user generated data to make the rider’s life easy, plus give entrepreneurs and investors great and profitable business opportunities as a result. We are quite early stage and it will take some time, but it took me 31 years in the industry to develop the importance of the bike, together with the global bike industry family, to where it is now: A respected and future proof mobility solution and at the same time a sport and fitness product with an real lifestyle character.

For a business with a genuine USP, but in need of funding to progress, how best to get noticed?

To get consistent visibility on the known platforms for on and offline media is very important. With lower, or no budgets, PR and social media is key to get in touch with the target group and get attention from them. This is also a good base for finding funding, because investors are also consuming special interest media on and offline and a regular presence will get attention. The most professional approach would be, on top of the PR, to hire a mergers and acquisitions consultancy, like me, to start a structured process to get the needed funding and find the right partner who fits to the existing owners.

Finally, why at a time when we are technically in recession is this market considered a safe haven for investment?

I think our industry is not seen as a safe haven, but with the underlying megatrends and drivers we are very well set to grow in uncertain economic times both sales and profit wise. Furthermore, the industry is crisis proven. It is very likely that in times where inflation drives gas prices sky high, the people will use more their bikes, or their eBikes for cost reasons. Which is a quite good downside hedging for an investment.

www.kindermann-valuecreation.com