This slightly reduces the pool of potential successors. But that doesn’t make business transfers any easier.
A surprisingly high proportion of business owners in Germany demand an unreasonably high purchase price from interested successors. According to a study by the German Chamber of Industry and Commerce (DIHK), this applies to 44 percent of them. The DIHK’s 2016 Report on Business Succession is based on more than 21,000 contacts made by IHK experts with senior entrepreneurs and individuals interested in acquiring a business
According to the IHK experts, business owners often factor the effort they have put into their life’s work into the purchase price. Prospective buyers, on the other hand, evaluate the company from a purely rational, economic perspective.
Encouraging news: There were recently significantly more prospective buyers than a year ago. This number has risen by nearly 20 percent. Exactly 5,013 people who could envision taking over a business approached an IHK last year.
More good news: The proportion of women among all prospective successors has been rising for five years. In 2015, 22 percent of all prospective successors were women; five years earlier, the figure was 15 percent.
While this proportion is still significantly lower than the 40 percent share of women among all those interested in starting a business, it’s important to note that in many cases, business successors require more capital than those starting a new company. Many women, however, do not have access to that much capital, as they have typically been involved in caring for their children.
Given the rising proportion of those interested in taking over a business, the shortage of potential successors—which has existed for the past three years—has decreased somewhat across Germany as a whole. During the same period, exactly 6,483 senior entrepreneurs sought advice from Chamber of Industry and Commerce (IHK) experts. That’s nine percent more than the previous year and as much as 60 percent more than five years ago.
The key reason: There are often no successors within the family, and the so-called “Generation Y” prefers to pursue their own paths outside the family business. In fewer and fewer families is there an automatic expectation that the son or daughter will take over at the helm of the company. As a result, more and more older business owners are looking outside the family for a suitable successor.
Notably, a particularly large number of senior-owned companies in the new federal states are searching for successors. In 2015, 23 percent more longtime owners were looking for a potential buyer than in the previous year. The explanation is simple: Many of them founded a business during the period of German reunification—and now want to retire. In addition, a disproportionately large number of their companies operate in retail or the restaurant industry, where margins are low, meaning that successors are often found only with the help of professional advisors.
Once a business owner and a prospective buyer have found each other, the biggest hurdle looms: financing the transfer. Forty-three percent of prospective buyers report financing difficulties, despite the low-interest-rate environment.
Regardless, experts at the Chamber of Industry and Commerce (IHK) note that access to debt financing has become even easier. Many buyers are now able to secure debt financing at lower interest rates and under more favorable terms than in recent years. This is also an advantage for existing owners, who can supplement the financing with a loan. Moreover, thanks to the more than respectable economic performance of recent years, sellers have been able to increase their cash reserves.
When it comes to equity capital, the IHK experts also see a clear light at the end of the tunnel. The market is also receiving a further boost from low interest rates, which currently make investments in fixed-income securities seem less attractive. This, too, explains why investors are increasingly looking for profitable corporate investments.
The Chambers of Commerce and Industry also see improved conditions regarding the provision of guarantees. Guarantees can play a particularly important role in business succession cases involving high purchase prices when buyers are unable to provide sufficient collateral.
However, the study also revealed an alarming finding: In 2015, 72 percent of business owners were unable to immediately present the documents necessary for a smooth handover to a trusted representative.
