May 16, 2023
With insights from Andreas Hüchting, Partner at Translink Germany
Medium-sized companies in Germany, known as the ‘Mittelstand’, are facing significant succession challenges, as evidenced by recent KfW Research statistics:
- A third of entrepreneurs – about 1.2 million people – are +60 years of age, creating a massive impending succession gap
- By the end of 2023, about 190 000 owners are planning to retire and hand over their businesses to successors
- By the end of 2026, about 560 000 businesses will be seeking a successor
- About 190 0000 businesses are planning to exit the market at the end of 2026, with no succession plan
- The primary issue is the difficulty in finding suitable succession candidates. 79% of businesses see a problem here
- In 2022, around 45% of succession planners were considering an external transfer or sale
Germany’s ‘Mittelstand’ is the country’s biggest employer and a strong driver of innovation and technology that is renowned across the world. The Mittelstand is something unique. It is a living organism that needs to be preserved in a special way. In almost every small village, you will find a global leader in their niche. This equates to hundreds of thousands of companies, with many millions of employees.
The challenge for many of these companies is succession. With no continuity plans in place, close to 200,000 businesses are in jeopardy. In many cases, the best succession plan may be to sell.
For the owners of these businesses, this is incredibly personal. A poll showed that 85% of owners are primarily concerned with preserving the workplace for their employees. Often, a business is the lifeblood of the village. So, whether it is sold, handed over to external management or the next generation, there needs to be a strong strategy in place, with ample time for execution to do the right thing for all the stakeholders involved.
Common misconceptions when it comes to succession planning
Succession planning is a crucial aspect of business that is often overlooked due to common misconceptions. One such misconception is that selling a business equates to failure, when in reality, a sale can be a proactive decision that benefits all stakeholders. For instance, passing on a business to children may not always be realistic as they may not be interested in taking on leadership roles. Additionally, finding another entrepreneur to buy into a business can be challenging, especially in the current climate where financing is expensive, and global uncertainty prevails.
Managing a successful succession process
Private equity can drive consolidation, which is essential for the survival of the Mittelstand, as it allows companies to join forces and build groups through long-term financial investment. However, managing a successful succession process requires careful planning and support from advisors.
A family needs to consider all options available and have a plan in place early on. For those considering a sale, it’s crucial to find a buyer who shares the same values and mission to protect the team.
For buyers, the Mittelstand presents many opportunities. The size of the German economy and sheer number of businesses across all industries and subsectors means the time to search for targets is always right. Finding investment options is, however, not always easy. An advisor can facilitate deals from start to finish and help engage businesses proactively.
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