Mergers & Acquisitions

Company succession

Company succession

There is a difference between internal and external succession.
In about 700 000 companies in Germany, there will be succession over the next ten years. This is about one third of the approx. 2.2 million medium-sized companies. Statistically speaking, the management responsibilities in almost 200 companies would be given to the proceeding generation or to another successor each day.
Especially for the group of the approx. 2 million family businesses, the arrangement of the succession and handover of the company is a challenging task that is not seldom a threat to existence. The emotional pressure for the entrepreneur and his family arising from the succession issues that are not solved but always latently present, is much bigger than a reasonable transferal process planned for a period of 3 to 5 years.

Putting off the decision

Practical experience and many investigations provide evidence against postponing decisions for too long and expose many of the common arguments as repression mechanisms (not having time in the operative business, one’s own irreplaceability, the preoccupation with the topic results in the loss of authority and control already, etc.).

Economic damages

According to estimations, about 50 000 jobs in economy are lost every year because of succession processes that have been planned too late or not at all. If tactics of postponing issues do not lead to a total loss, the company may be seriously affected nevertheless because of the unsatisfying succession management.

Constrained Modernization

If young people are not involved in responsibility at an early stage, the introduction of new management methods and new technologies will often be delayed. The position on the market will get worse and worse, investments will not be made in time but undertaken by the successor in a hurry.

Succession management as an entrepreneurial task

A clever entrepreneur will avoid such a situation. Someone who has built up a successful and profitable company will also take care of the succession issue, as he knows that it is an unavoidable task. As a prospective entrepreneur, he will take care of the proceeding development of his life’s work for it will be him and not a matter of chance or hurry that decides about the company’s future.
You as an entrepreneur should be actively engaged in this task – face it professionally and in sufficient time.
M & A LOGISTICS GmbH i.L. is prepared to support you.

Familial succession management

What kind of entrepreneur are you?
In international literature four basic types of succession processes concerning family businesses are distinguished and presented very clearly:

With the help of a “coup d’état”, power is taken from this type of entrepreneur He is basically forced into retirement.

This type of entrepreneur is displaced from his position of power but he is planning his “heroic” return to previous glory and intrigues with corresponding vehemence.

This type of entrepreneur plans his leaving voluntarily and in time but he stays available as a consultant for the successor.

This type of entrepreneur plans his leaving voluntarily and in time in order to part with the company entirely. Then, he dedicates himself completely to another preoccupation of business and / or of corporate nature.

Start the succession process in time

While in the U.S., most entrepreneurs arrange their succession when they are in their fifties, German entrepreneurs on average still fully manage their company until their seventies. At this stage, great hurriedness often occurs and there either is no successor of the family, he is not appropriately trained, not ready to take over yet or he is simply not interested (anymore).
"At the age of fifty you realize that your strengths are fading, at the age of sixty the others do so as well, at the age of seventy it is only the others who realize it!" – A self-critical perception of an entrepreneur. It can be quite dramatic to witness the slow downfall of a once prospering company. Formerly successful entrepreneurs seem to ignore the providence they usually apply for economic issues as soon as it comes to their own affairs.

Successful succession as entrepreneurial task

Succession management is a complex process and many different aspects have to be considered. In addition to psychological questions such as finding a suitable successor or the concern to see others ruining a life’s work in short time, there are familial questions to be considered as well. These include the most difficult aspects of family and inheritance law.
Keep in mind that a process which is not properly planned might lead to most unfavorable outcomes concerning taxes. Above all, tax law requires a clever and long-term solution that is thought through at an early stage, even if the company shall be sold in various years.

Recommendations for entrepreneurs:

  1. The succession issue has to be recognized at an early stage.
  2. A familial succession solution has to be discussed and analyzed in the family with the help of a "family council".
  3. A qualified consulter as moderator might be helpful to find a solution within the family.
  4. Important questions such as the takeover of legal and economic power as well as the responsibility connected to it, have to be addressed freely and discussed in advance.
  5. Key factors to success are theoretical and practical training of the successor. To gain experiences away from the family business is important.
  6. The succession solution that was agreed on has to be communicated clearly in the business itself.
  7. Mutual respect and tolerance help to prevent dealing with familial conflicts at the business.

M & A LOGISTICS supports you competently

The M & A LOGISTICS GmbH i.L. supports you comprehensively to find a suitable solution for your succession which is specific to the entrepreneur and the business.
The entrepreneur should consider carefully whether to commission consultancy services. Costs for well-founded consultancy and support in the succession management will result to be lower than costs for a succession that has failed. Professional support will prevent the business from significant destabilizations which years of expensive and stressful inheritance disputes might cause and then result in paralyzing of all important business decisions.