Benedikt Ibing, Managing Partner of the Pegasus Group, in an interview with Unternehmeredition.
From Factory Construction to Corporate Acquisition: A Structural Shift
German Mittelstand companies seeking to enter the North American market are increasingly choosing a different path than they did two decades ago. While building out proprietary production capacity on a greenfield site was long the preferred strategy, corporate acquisitions are gaining considerably in importance. Benedikt Ibing, Managing Partner of the Pegasus Group, explains in an interview with Unternehmeredition which factors are driving this shift and what companies should keep in mind.
The Evolution of the Pegasus Group
The roots of the Pegasus Group stretch back to the late 1970s, when Dr. Eike Jordan ran a predecessor organization on an incubator model. When Benedikt Ibing co-founded the firm in its current form in 2009, shortly after the global financial crisis, Pegasus undertook a strategic realignment: away from an operational incubator approach and toward pure advisory and interim management services.
Since then, the firm’s service offering has evolved in two material areas. First, the interim management practice has been significantly expanded through specialized partners across various management disciplines. Second, since 2018, the M&A business has become a central and continuously growing area of activity.
Why the U.S. Market Remains Attractive Despite Political Uncertainty
The United States is, and will remain, the world’s largest single market. In addition, German companies’ appetite for expansion into Russia or China has cooled noticeably in recent years. North America, by contrast, offers comparatively strong rule of law and stable conditions for production and procurement.
Political transitions in Washington — whether under Republican or Democratic leadership — do not fundamentally change that calculus. Both major parties pursue, in essence, policies that favor domestic value creation. For German investors, this is not a disadvantage: incentive programs and tax benefits are generally available to foreign owners as well, provided that value creation genuinely takes place on American soil.
A further driver of the trend is a shift in the companies’ own strategic initiative. Whereas customer requirements were once the primary trigger for expansion, Mittelstand companies today act with far greater strategic proactivity: they recognize that a global niche provider without a North American presence will, over time, lose competitive standing.
Greenfield or Acquisition? The Case for the Buy-Side
Building a plant on a greenfield site carries risks that are frequently underestimated during the planning phase. Acquiring an operating business, by contrast, offers decisive advantages: revenues and earnings are present from day one, existing customer relationships can be assumed, and production capacity is immediately available.
Based on Pegasus’s experience, the time to production start in the acquisitions it has advised was, on average, at least 60 percent shorter than in comparable new-build projects. That said, hybrid structures — an acquisition combined with a subsequent capacity expansion — are frequently encountered in practice.
A structural tailwind exists on the American side: the Baby Boomer generation holds a substantial share of small and mid-sized industrial businesses in the United States. With no suitable successors within their own families, many of these businesses are available for sale. At the same time, some of these owners prefer a strategic buyer with a long-term orientation over a financial investor — a circumstance that frequently benefits German Mittelstand companies.
Case Study: Rafi in Milwaukee
A concrete example of a successful acquisition process is the mandate with Rafi, a company based in Ravensburg that specializes in human-machine interfaces such as touchscreens and joysticks. Rafi already had a presence in the United States but had no proprietary production on the ground.
Pegasus first developed a structured long list of potential target companies — explicitly not limited to businesses that were already in a sale process. The subsequent approach to a company in Milwaukee that was not actively for sale led to a successful closing. In addition to the strategic fit, a key factor in the outcome was the absence of a competitive bidding process and the fact that both sides approached the integration constructively from the outset.
Cultural Differences: The Most Frequently Underestimated Risk Factor
Beyond the operational and financial challenges, the cultural dimension is, in Ibing’s assessment, the most serious and most frequently underestimated risk in U.S. expansion.
German companies tend to evaluate American business partners and employees against German benchmarks, underestimating just how fundamentally different the corporate cultures are. The superficial linguistic and cultural familiarity is deceptive. American employees are sensitive to an attitude that treats their qualifications or working methods as inferior. The consequences are loss of motivation, quiet disengagement, and, in the worst case, the failure of the entire subsidiary.
In practice, this often manifests in the expectation among German executives that processes and standards must conform exactly to the German template — with no willingness to adapt. American employees perceive this attitude immediately and describe it as a “my way or the highway” mentality.
Hard Factors: Costs and Timelines
The financial parameters also require realistic expectations:
- Cost structure: Despite regional wage differentials between the northern and southern United States, services, housing costs, and material sourcing are often more expensive than anticipated. Business plans must reflect this reality from the outset.
- Permitting processes: With the support of state economic development agencies and engagement at the governor’s level, projects in the United States can be realized significantly faster than in Germany. Without that support, delays can be substantial.
- Market access: New market-entry projects receive less government support than they did ten years ago, as the density of already-established German companies — particularly in the southeastern United States — has increased sharply.
Industry Trends and Diversification
Pegasus’s portfolio has broadened considerably over the years. Between 2010 and 2014, clients from the renewable energy sector — benefiting from German subsidies — dominated the book. When that support was withdrawn, the focus shifted heavily toward automotive suppliers. Today, the client profile is meaningfully more diversified, with a growing share from mechanical and plant engineering as well as industrial supply sectors outside the automotive industry.
Recommendations for Companies Planning a U.S. Expansion
Several key action items can be drawn from the experience of recent years:
- Engage external advisors early: Even the fundamental decision — sales office, proprietary production, or acquisition — should not be made without experienced guidance.
- Set expectations before planning begins: Realistically modeled business plans that accurately reflect local cost structures are a prerequisite for a sustainable market entry.
- Build cultural competence: Respect for the professional expertise of American employees and business partners is not a given — it must be actively demonstrated.
- Take the competition seriously: The American market is highly competitive. Products do not need to be the best; they need to be good enough. This fundamentally changes the market dynamic relative to Germany.
- Allow sufficient lead time: A minimum of six months should be allocated to the preparation phase, regardless of the chosen entry strategy.
Outlook
The structural environment suggests that the trend toward U.S. expansion will continue. Europe’s declining competitiveness is increasingly prompting even larger Mittelstand companies to permanently relocate production capacity to North America. For experienced advisory firms with transatlantic expertise, this translates into growing demand — provided the quality of the advisory work keeps pace with that growth.
Link to the interview with Unternehmeredition: https://www.unternehmeredition.de/deutsche-firmen-entscheiden-sich-zunehmend-fuer-zukauf-in-den-usa/