3 questions to smart minds

External succession in family businesses

For this 3 questions to Christian Futterlieb

VR Equity Partner
Photo: C. Futterlieb
10. Decem­ber 2014

A successful company succes­sion is not an easy under­ta­king. Suffi­ci­ent time and prudent plan­ning, taking into account all factors invol­ved, are essen­tial prere­qui­si­tes. Which finan­cing fits a company? What crite­ria in parti­cu­lar need to be conside­red in this process?

For this 3 ques­ti­ons to Mana­ging Direc­tor VR Equi­typ­art­ner, Frank­furt am Main

1. What crite­ria should be conside­red when selec­ting an inves­tor for a plan­ned busi­ness succes­sion for family busi­nesses? What prepa­ra­ti­ons need to be made?
The successful imple­men­ta­tion of a company succes­sion requi­res great care and long-term plan­ning. If a family busi­ness does not have an inter­nal succes­sor to take over both shares and opera­tio­nal respon­si­bi­lity, at least three to five years should be plan­ned for prepa­ra­tion. Seve­ral factors are important here. On the one hand, a compe­tent and commit­ted second level of manage­ment should be estab­lished that can support the process well. In addi­tion, a new opera­tio­nal manage­ment team must be found that is suffi­ci­ently quali­fied. On the other hand, the entre­pre­neur should also start sear­ching for a suita­ble finan­cial inves­tor. This person should be long-term orien­ted and have a lot of expe­ri­ence in deal­ing with medium-sized compa­nies. Approa­ching an inves­tor is best initia­ted profes­sio­nally with the help of a consul­tant. It makes sense to cont­act seve­ral suita­ble invest­ment compa­nies within the frame­work of a limi­ted compe­ti­tion and then to deepen the nego­tia­ti­ons with two to three seriously inte­res­ted inves­tors. For a smooth tran­si­tion after the sale, it is advan­ta­ge­ous if the senior is available as a consul­tant for a few months after leaving the company. Custo­mers, and suppli­ers and employees this conveys security.
2. Which finan­cing suits me and what steps should I take when draf­ting the contract?
Selec­ted finan­cial inves­tors offer not only direct invest­ments but also mezza­nine capi­tal. Here, the entre­pre­neur can make a choice: Mezza­nine ensu­res him exten­sive inde­pen­dence, but requi­res a suffi­ci­ently high cash flow. In the case of a mino­rity share­hol­ding, the inves­tor has more say. In return, howe­ver, the entre­pre­neur can also expect the part­ner to provide grea­ter support in opti­mi­zing proces­ses and struc­tures, to play an active role as a share­hol­der in stra­te­gic issues, and to estab­lish important cont­acts through its network. Before commit­ting to a finan­cial inves­tor, entre­pre­neurs should defi­ni­tely put it through its paces: How well does the chemis­try fit? How much middle market expe­ri­ence does he have? How good is his network? What happens when things don’t go so well? All these ques­ti­ons should defi­ni­tely be clari­fied before signing the contract. Good inves­tors adapt their condi­ti­ons indi­vi­du­ally to the needs of the entre­pre­neur, inclu­ding repay­ment moda­li­ties for mezza­nine capi­tal or the possi­ble repurchase of a mino­rity stake. Entre­pre­neurs should use this leeway to remain flexi­ble themselves.
3. How does a successful part­ner­ship succeed?
Senior entre­pre­neurs, new manage­ment and the inves­tor have one major common goal in imple­men­ting the company succes­sion: a successful tran­si­tion of busi­ness opera­ti­ons to the new manage­ment and healthy, sustainable growth of the company in the years to come. All parties should agree from the outset on the way forward toge­ther. As a rule, such a gene­ra­tion change is also a good time to opti­mize the struc­tures in the company. The pace of inno­va­tion is incre­asing, long-plan­ned impro­ve­ments are now being imple­men­ted. For the new manage­ment in parti­cu­lar, this means chal­lenges but also great opportunities.

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