Factors Contributing to the Success of External Succession Planning in Family-Owned Businesses

1. Introduction: Why a Professional Approach Is So Important

Business succession is one of the key challenges facing German small and medium-sized enterprises (SMEs)—especially family-owned businesses. According to studies, more than 40% of these companies will undergo a generational transition in the coming years. While internal succession solutions—such as handing over the business to family members—have traditionally been preferred, external succession is becoming increasingly relevant. Reasons for this include the lack of suitable successors within the family, the desire for professional management, or strategic considerations as part of a business sale strategy.

However, external succession poses particular challenges for family-owned businesses. It involves not only a change in ownership but also the entry of a third party—often from outside the company—into the delicate structure of a long-established system shaped by personal relationships. These transactions do not merely involve economic aspects—they touch on a company’s identity, values, and long-term outlook. This makes it all the more important to have a structured, professionally guided process that takes into account both the interests of the existing shareholders and the company’s long-term sustainability.

2. Preparation as a Key Success Factor: Setting the Right Course

Strategic Clarity as a Starting Point

Choosing the right timing for the sale is crucial for successful business succession. The optimal time frame is one in which current financial results are positive and a robust plan for the coming years is already in place. A transparent forecast and audited financial statements increase the confidence of potential buyers—and thus the transaction value.

Analyzing the Business and Identifying Value Drivers

A realistic picture of the company’s value cannot be derived solely from positive past business performance. Potential buyers evaluate, in particular, future profitability, market potential, and existing synergies. Consequently, the central challenge is identifying and presenting the relevant value drivers. These include, among others:

• product portfolio, market position, and customer base

• Innovation capacity and technological level

• Process efficiency and management structure

Definition of the Transaction Asset

At the start of the sales process, the transaction object should be clearly defined and delineated. That is, should

• only the operating business (with the investor leasing the properties) or

• the real estate as well

be sold as well.

Define the M&A Strategy

A key element is the selection of suitable buyer groups. Strategic investors seek access to markets, technologies, or economies of scale. Financial investors aim for performance growth, expansion, and a future exit. A targeted approach to investors ensures that prospective buyers align with both the company’s objectives and its culture.

3. Success Factor: Process—A Structured Sales Process as the Key

Process Design in Four Phases

Ideally, a well-managed sales process can be divided into four phases (see figure):

1. Preparation: Company valuation, preparation of a teaser and information memorandum, identification of investors.

2. Investor Search: Discreet market approach, distribution of documents to potential buyers, solicitation of indicative offers.

3. Transaction Structuring: Due diligence, management meetings, final offers, and contract negotiations.

4. Execution: Signing and closing, fulfillment of any closing conditions.

Figure: Business Succession: Bidding Sale Process, Concentro (05/2025)

A key element is aligning potential investors within a structured bidding process, as this offers the seller several advantages:

• Determination of a realistic market price through competition,

• Reduced reliance on individual prospective buyers,

• Optimization of contract terms (e.g., securing the location or jobs),

• Increased transaction security and likelihood of success.

Avoiding exclusivity agreements in the early stages ensures competition and increases the chance of achieving the best possible sale price.

Documentation and Communication

The quality of the information provided is a crucial factor in building trust. Buyers draw conclusions about the structure of the company itself based on the professionalism of the sales materials (teaser, information memorandum, data room). Today, this information is typically provided via virtual data rooms, with granular control over information access.

At the same time, transparent internal communication is crucial. Employees should be brought into the loop no later than management meetings and plant tours. Guided communication builds trust—rumors, on the other hand, fuel uncertainty.

Negotiations and Contract Structure

Due diligence is not merely an audit phase; it also offers the opportunity to actively address critical issues. These can later be incorporated into the purchase agreement in a way that exempts the parties from liability. It is crucial that the seller does not relinquish control functions to the buyer prematurely, for example through hasty exclusivity agreements or unfavorable contract drafts.

Particular attention should be paid to purchase price mechanisms, earn-out provisions, and warranty clauses.

4. Conclusion: Business Succession as a Strategic Opportunity—But Not Without Guidance

External business succession is more than just a change of ownership—it is a turning point for the business that involves strategic, emotional, and structural challenges. To successfully navigate these challenges, early planning, clear communication among shareholders, and a professionally managed, structured sales process are essential.