External succession in family businesses
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.
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.
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.