Chambers of commerce, banks, senior entrepreneurs, and business successors generally view the greatest challenge of a non-family-led business
is usually seen by chambers of commerce, banks, senior entrepreneurs, and business successors as finding and bringing together the right candidates.
In our daily consulting practice, we hear almost unanimously that matching business owners ready to hand over the reins with their successors takes up the majority of the time in a succession project. The results of various studies by the DIHK and KfW also point to this issue.
Below, we describe how thorough preparation and a multi-pronged search can accelerate this process.
Developing a Clear Search Profile for a Business Acquisition
The search for a suitable company always begins with defining a clear search profile and preparing the necessary documentation. In doing so, a buyer should be clear about the industry, region, and price range in which they wish to invest. All three factors are equally important here.
We often find, particularly with generalist managers, that industry focus isn’t considered important at all during the initial discussions. We frequently hear: “No problem. I can familiarize myself with any business model.” This may well be possible—especially when there is a second level of management in place. However, it should not be underestimated that owners of medium-sized companies looking to sell often prefer a successor with industry experience. As a result, focusing on a specific industry often becomes a critical success factor in the search. Potential business successors should consider which industries appeal to them and what expertise is associated with them. From this, a clear industry profile can usually be derived.
Industry, Region, and Investment Volume Are Key to Acquiring a Business
A second important point is the regional focus, since in most cases a small or medium-sized business cannot be managed remotely or easily relocated. In this regard, a business successor should involve their family in the project at an early stage. Commuting is certainly a temporary option. In the long term, however, the question of relocating usually arises. And the business successor’s family must support this far-reaching decision.
It is also essential to determine the maximum investment amount. The proportion of equity capital plays a key role here. Experience shows that with 15–20% equity capital and a refinancing
horizon of three to a maximum of eight years, one has a good starting point for developing a viable financing plan.
Ideally, this process will result in two profiles: In addition to a purchase request for business-for-sale platforms, a more detailed successor profile should also be created that can be distributed through appropriate networks.
How can a consultant support the succession process?
First and foremost, a consultant can assist with the development and distribution of a search profile.
If a buyer already has a clear idea of their target company or industry, the succession specialists at K.E.R.N., for example, offer to create a search and candidate profile free of charge. If the ideas regarding the target company are still vague, it is advisable to clarify the business successor’s preferences in a one-day workshop. During this workshop, the business
not only gains a wealth of practical knowledge about generational succession but also receives a ready-to-distribute profile as a result.
The business successor benefits, on the one hand, from external expertise in drafting successful business acquisition listings and, at the same time, can leverage the consultant’s network for their business
search
This type of discreet approach offers the applicant two clear advantages:
• Maintaining anonymity: By involving a consultant, the buyer remains anonymous. This filter is invaluable both for potential buyers who are still employed and for companies seeking to expand. In both cases, the market can be discreetly explored without the applicant’s supervisor or competitors finding out.
• Time and cost savings: Through the consultant’s networks, a company’s search can be presented to a large number of potential contacts in a very short time. This disproportionate increase in contacts significantly raises the likelihood of success in a company search, thereby reducing the time and cost involved in finding and identifying target companies.
• Process Management and Negotiation Facilitation: Additional benefits of working with an experienced practitioner include effective process management and goal-oriented negotiation. Often, the important emotional needs of both the buyer and the seller also play a key role.
In particular, the role of “interpreter” in a succession process should not be underestimated. Without any transaction experience, no business successor should undertake this task without a consultant. The risk of costly mistakes is simply too high.
