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Corporate Succession in Germany

AAEAAQAAAAAAAAVMAAAAJDIzZDUwNTdmLWZjNDktNDE2MC05OTY2LWUwMTU1NzRhODVkMwby Dr. Benno A. Packi

[su_dropcap style=”flat”]O[/su_dropcap]NE YEAR AGO, I published some thoughts about the status quo and the challenges of the succession in German “Mittelstand” companies, i.e. medium-sized companies that are often market leaders in their field of business and have been formed decades ago “German “Mittelstand” Companies Looking For New Owners”. I appreciate the public comments as well as those I have received from readers of the previous article. They and the requests for suggestions clearly showed the interest in German medium-sized companies. In the meantime, we have read, for instance, the news about a large Chinese company buying the civil use section of KraussMaffei, a known German manufacturing company, for close to EUR 1 bn. However, only a small number of companies and acquisitions are that publicly-known. The vast majority of the companies looking for a successor are not known to the public, in some cases even though being so-called hidden champions in their field of business.

Two main drivers of interest in investing in German medium-sized businesses are visible at the moment: Firstly, the German economy is booming for years and a number of C-level executives and senior executives being employed with other companies consider to start their own business. Instead of forming a start-up company from the scratch, the acquisition of a medium-sized company with an existing organization, customers, suppliers, etc. seems more attractive. Secondly, the low interest rates combined with public subsidies allow investments one would not have thought of 10 years ago.

In the meetings and panel discussions with the owners of medium-sized businesses I have organized, it turned out that key to the owners is to know that the business they have built up decades ago will be handed over to a person who continues with the same passion as they showed. Often, it is not or not only the money that will convince them, but rather the dedication of the successor. For this reason, it is so hard for a person interested in the acquisition of a company by way of corporate succession to find the suitable company.

Owners of medium-sized businesses are reluctant to offer their company to the market: What might my customer think, what my employees, etc.? Therefore, a premium “Mittelstand” company will not be available for sale on M&A websites.

For those who are interested in buying a German “Mittelstand” company, it is advisable to connect with advisors who know the market and how to identify the suitable company for the specific successor.

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