:quality(80))
Succession Gap Is Growing Rapidly
The overall situation is clear and on everyone’s mind: According to the KfW Succession Monitor, approximately 100,000 small and medium-sized enterprises (SMEs) in Germany are looking for a successor each year. The majority of these companies are run by older owners who plan to retire in the coming years. Demographic change is exacerbating the problem, as the large baby boomer generation is followed by significantly smaller cohorts.
Succession within the family is proving particularly difficult, as fewer and fewer young people are willing to take over their parents’ businesses—and parents themselves often discourage them from doing so.
At the same time, successors are becoming less willing to take on entrepreneurial responsibility—a trend fueled in part by the perceived advantages of permanent employment. For some candidates, entrepreneurship is simply too demanding and incompatible with their expectations for a work-life balance.
For three-quarters of SMEs, finding a suitable successor is the central problem.
The shortage of qualified successors is increasingly leading to (involuntary) closures and liquidations of businesses, resulting in a loss of jobs and expertise. Furthermore, this can weaken the regional economy, particularly in rural areas, where SMEs often play a central role.
At the same time, supply-side pressure in the market is increasing, which, against the backdrop of sluggish economic growth and uncertain geopolitical prospects, is met with hesitant demand. As a result, sales processes are dragging on, especially when the company lacks distinctive selling points.
Caution Among Strategic Investors
Strategic investors are also currently holding back. They are either busy revising and adapting their own business models to changing conditions or are staying on the sidelines due to uncertain economic prospects. Current geopolitical tensions, particularly in Europe, continue to have the potential to destabilize the market and influence the willingness to invest.
Inadequate Business Models
Furthermore, we are increasingly seeing companies whose business models are no longer viable or that must first be adapted to new conditions. These companies are hardly marketable; if they are, it is only at significant discounts. This is generally not compatible with the sellers’ expectations. These companies first need to restore sustainable profitability in order to be sold. However, many business owners lack the strength, courage, or funds to do so, often due to their age.
Challenges in Pricing and Financing
Further challenges include agreeing on a purchase price and securing financing. In the current market environment, we are increasingly encountering bargain hunters who operate under the motto, “If you can sell it for more, then go ahead and do so.”
Financing is feasible if the buyer and the business plan are convincing. This holds true even in the current market environment. We regularly support promising MBI candidates in their financing efforts and connect them with banks and/or equity investors.
AI-Powered Sales Processes
The M&A market is currently flooded with AI-powered tools that contribute to a dramatic acceleration of processes while simultaneously improving quality. This applies, for example, to deal sourcing, data analysis, the collection of relevant market data, assessing the target company within its competitive environment, matching processes, and the identification of suitable acquisition candidates.
These technology-based solutions can increase the success rate by targeting potential buyers more effectively. They enable advisors and investors to work faster and more efficiently, which leads to a reduction in the transaction dropout rate. In addition, advanced software solutions improve the efficiency and accuracy of due diligence reviews, which in turn saves costs and speeds up transactions.
