Case Studies

Well sinking is a changing industry. While the focus used to be on developing water sources and sinking wells, the field of activity in modern well sinking is far broader. Today, the focus is on re-sinking, the renewed sinking or regeneration of existing wells. Many modern well sinking operators are also geothermal specialists - an energy source that constitutes an alternative to oil and gas. Exploiting geothermal energy requires extensive specialised know-how, which well sinking operators of the past did not have.

Geothermal energy as a new focus of modern well sinking

Lange & Söhne Brunnenbau, a traditional company in North Germany, combines both areas of expertise. The family company has been involved in well sinking for more than 100 years. Rather than focusing on well sinking alone, it engages in all matter related to the subject, especially the realisation of well sinking and regeneration projects. The installation of geothermal heating systems was added in the 1970s. Today, this sector constitutes the focal point and generates the highest sales for the 35-person company.

Lange & Söhne has installed many 5-20 kW systems in the lowlands of North Germany and the highlands of Nordrhein-Westfalen since 1970. Numerous geothermal systems – pipes to extract geothermal energy – have been installed for households and commercial users, especially over the last few years. The energy extracted in this manner is used, for example, to heat or cool homes. Thanks to the successful realignment of the company with geothermal energy as the second supporting pillar, Lange & Söhne has overcome its dependence on the state of the construction industry in general, which largely defines the market for conventional well sinking services. At the same time, the company was able to establish itself in the promising renewable energy sector.

Involvement by HCM: Investment capital, even for small companies

The company reached the limits of its capacity in 2005. While geothermal energy was experiencing a boom as an alternative energy source, the company lacked the means required to develop this lucrative business area. Lange & Söhne was unable to obtain external capital due to its small equity base. The company’s tax consultant gave it the crucial push: He made contact with the private equity firm Handwerk Capital Management (HCM). The ‘H’ for ‘Handwerk’ (German for trade) emphasises the special nature of this investment firm. It mainly invests in silent partnerships with SMEs active in this sector. HCM focuses on supporting manufacturing and construction companies, retailers and wholesalers, shipping companies and logistics firms. Unlike other private equity firms, HCM provides relatively small amounts between EUR 10,000 and EUR 150,000. This allows even very small companies that only require a minor sum to enjoy the benefits of private equity. In case a higher investment amount is required, HCM attempts to form a pool of several investors or recruit additional partners for the project in question.
The number of enquiries received by HCM illustrates that SMEs clearly have a need for private equity investments. From 140 requests in the first two years, the volume has now increased to one enquiry per day.
As HCM found the business model convincing, Lange & Söhne received extensive support from the private equity firm. A strategy for the development of the renewable energy business segment was developed in cooperation with company management: “Our goal was to grow our equity base so that obtaining financing for the investments we had to make would be easier,” explains Managing Director Torsten Lange. The involvement of HCM provided “leverage” to recruit other investors, helping to bring the Mittelständische Beteiligungsgesellschaft (MBG) Schleswig-Holstein on board as an additional investor for the project. As a regional private equity firm, its mission is to boost the equity base of SMEs in Schleswig-Holstein, thereby improving their opportunities to obtain external capital. MBG required a coherent, sustainable business concept in order to invest. HCM took care of that and approached private and institutional investors for equity capital.

Successful development of sustainable business segment

Cooperation between Lange & Söhne and the private equity firms proved successful. MBG and HCM were able to jointly provide EUR 270,000. Total financing came to EUR 665,000 with EUR 270,000 of this amount in the form of silent partnerships. This capital allowed the company to realise the planned investments in two new drilling rigs with trucks and accessories. But the private equity firms offered more than just funds, they also provided comprehensive coaching. This made a significant difference and helped boost sales: “We are currently right on target, and have doubled our capacity since the investment by HCM,” says Torsten Lange. HCM has increased its sales by two-thirds since HCM first came on board. New employees were also hired. Thanks to the support of the private equity firms, Brunnenbau Lange & Söhne is now extremely well positioned for the future.