Germany’s family-owned businesses are undergoing a major transformation. According to a study, 150,000 of them alone will change ownership between now and 2022. The study’s sponsors—credit insurer Euler Hermes and management consulting firm Roland Berger—surveyed approximately 700 companies organized as large corporations. A second criterion was that the respective family’s stake must be at least 50 percent.
New Structures—Family Businesses in Transition
The challenge of managing a generational or ownership transition is often accompanied by changes in capital structures, the study’s authors write. In their view, external successors often tend toward a less conservative management style and are more open to debt-financed investments. After acquiring the company, investors also typically implement costly organizational and strategic changes, which—in addition to the investment backlog that sometimes exists—lead to increased financing needs.
According to the study’s authors, private equity investors in particular offer an alternative to traditional financing from the family bank for certain financing needs, helping to meet the increased financing requirements. For many family-owned businesses, however, turning to the primary bank is still the preferred approach, particularly to avoid extensive control and governance rights. At the same time, experience shows that the involvement of external investors also improves management capabilities and the level of professionalism in corporate governance.
Lower Debt Through More Equity
As the study found, family-owned businesses pay higher interest rates on their loans on average and have a significantly longer period of capital tied up. This has a negative impact on liquidity management—despite lower debt and a better equity ratio. Lower debt and a higher equity ratio make family businesses less dependent on external lenders than other companies, as the study—based on data analysis and interviews with more than 700 German family businesses—shows.
