Recent statistics consistently show that the number of acquisitions of small and medium-sized enterprises in Germany is rising steadily. This trend is also evident in the area of corporate financing, as last year approximately 52% of the funding provided by German guarantee banks for start-ups went toward business succession. Consequently, only about 48% went to new business startups. Demographic change is also evident in this regard, as reflected in the growing number of cases and the total volume of financing. In this context, the biggest problem is the ever-increasing average age of senior business owners who are on the verge of handing over their companies and, as a result, are finding fewer and fewer suitable candidates to take over their businesses.
Declining revenue levels continue to rise
As is well known, business succession usually proceeds extremely positively and satisfactorily for both sellers and successors. However, the fact that there is no guarantee of success is also evident in the current level of earnings before interest and taxes (EBIT). According to the “Succession Monitor 2019,” EBIT has fallen below previous levels in approximately 56% of business takeovers. This is said to be due, among other things, to the terms of the takeover.
Signs of an investment backlog were observed in approximately 46% of the companies that were ready for a takeover. These and other relevant data and statistics are now available to readers in the “Succession Monitor 2019,” which was jointly compiled by the Association of German Guarantee Banks (VDB), Creditreform Rating, and the FOM University of Economics & Management. This study is based on approximately 6,400 businesses analyzed between 2013 and 2018.
Business successors are urgently needed
Demographic change and its consequences are becoming increasingly evident in the German SME market. Senior executives from the “baby boomer” generation are currently facing retirement due to their age. According to the study’s scientific director, Prof. Dr. Holger Wassermann of FOM University, “the need for business succession solutions will continue to rise significantly,” because “a disproportionately large number of currently active entrepreneurs are already 60 years old or older.” According to the findings, many business sellers were between 64 and 66 years old at the time of the transaction. In 10% of cases, they were even 70 years old or older. Most successors were between 30 and 40 years old (nearly 40% of all successors). The group of successors aged 40 to 49 accounted for approximately 33%.
Impact on Jobs
The strength of small and medium-sized enterprises is generally attributed to the fact that ownership and management are in the same hands. Accordingly (and given the conditions brought about by demographic change), it is not surprising that the greatest strategic challenge facing all small and medium-sized enterprises in Germany is the search for a suitable successor. The key issue here is not simply finding new management, but rather a new entrepreneur. Dr. Michael Munsch, CEO of Creditreform Rating AG, comments on the critical situation regarding jobs in this context as follows: “Given the extremely high proportion of micro, small, and medium-sized enterprises among the total number of companies, the majority of jobs in Germany depend on the successful transfer of the business to the next generation.”
Still Fewer Female Successors Than Male Ones
“At just 23%, the number of female successors is unfortunately significantly below the nationwide proportion of female executives,” as Stephan Jansen, Managing Director of the VDB, notes in the study. Upon closer examination, it becomes apparent that the differences in the proportion of female successors can vary by industry. For example, the study revealed that the proportion of female successors in the following industries is well below 10%: 9.8% in manufacturing, 5.7% in construction, and only 2.4% in the finance and insurance sector. In contrast, the picture in other sectors is as follows: 51.1% in health care and social services, 29.6% in hospitality, and 27.9% in real estate and housing. The results are similar in the arts, entertainment, and education/pedagogy sectors as well.
