by Dr. Benno A. Packi PHD, Guest Contributor
Germany is known for its “Mittelstand”, highly specialized medium-sized companies that are often world market leaders in their specific fields of business. Many of those companies were formed decades ago. In some cases, the next generation has already taken over the management of the business. On the other hand, a number of companies is still waiting for a successor. According to statistics, around 5,000 German small and medium-sized businesses are looking for a successor per year. Surely, the larger part of this figure are businesses that mostly support the local market. However, among those there is also a significant number of companies with unique technologies, many of which may have to close their business if the owner would not find a successor.
Other family members, such as one of the children of the owner, would be the first thought. However, many of those business owners worked their entire life and have no children, or there is no descendant that has the age, skills and interest to take over dad’s business. Psychologically, it is hard for a son or a daughter if dad keeps influencing the business. Imagine only a situation when employees are telling: “Your dad would have done it differently.” Therefore, often preferable is a clear cut with an external person as the owner’s successor.
In the present period of low interest rates, I have even been contacted by persons who were willing to invest their savings which together with public subsidies the German government grants in corporate succession cases could be leveraged to pretty substantial amounts.
The larger medium-sized companies on the other hand would rather attract international groups or financial investors. With respect to each of both, a different but also to some extent similar approach is required. While an international group typically intends to gain synergies, it is very important to take the right steps for the post-M&A integration strategy in order to integrate the newly acquired company into the buyer’s group. In any case, the senior executives as carriers of the know-how play a decisive part in this strategy. The same applies to a financial investor. Moreover, for a financial investor it would even be important to structure the management in a way that the senior executives are in the position to operate the company independently from the financial investor.
I wanted to summarize some of the opportunities and challenges for the acquisition of German “Mittelstand” companies. In particular, if the acquisition of a larger company is intended, the importance of the senior executives for a successful transaction can not be emphasized enough, and I would strongly suggest to obtain expert advice.
ABOUT THE AUTHOR
My practice focuses on corporate transactions, capital markets including financing, corporate restructuring including affiliated group law and corporate reorganization law (i.e. merger, demerger, spin-off and conversion law). I advise listed stock corporations as well as mid-sized companies and entrepreneurs on corporate and capital markets law. Moreover, I am in particular helping companies and investors from abroad with their investments in the German and European market.
Furthermore, as plaintiff’s or defendant’s attorney I represent clients in corporate litigation and post-M&A disputes, before courts and before arbitral tribunals. My professional experience comprises inter alia the IT, real estate, manufacturing, energy, biotech, and pharmaceutical industry. I can be contacted via Linkedin HERE.