3 questions to smart minds
Photo: Gerald Link

Why does succession in medium-sized companies often fail?

For this 3 questions to Gerald Link

Stab­wech­sel GmbH, Frank­furt am Main
Photo: Gerald Link
28. March 2023

True entre­pre­neu­rial perso­na­li­ties are rare. What alter­na­ti­ves are there for busi­ness succes­sion and who is suita­ble for it in the first place? Accor­ding to the latest KfW study on this topic, around 5000 candi­da­tes are being sought. When is a succes­sor quali­fied? How a manage­ment buy-in (MBI) can work and what problems arise when a company is handed over.

For this 3 ques­ti­ons to Gerald Link from Stab­wech­sel GmbH, Frank­furt am Main

1. What often causes exter­nal busi­ness succes­sion to fail?

If no one within the family or the company’s work­force is willing to take over the company — and accor­ding to a recent KFW study, this is the case in over 40% of medium-sized compa­nies — the only option is an exter­nal buyer. If the buyer is also to be the future head of the company, then one looks for an MBI candi­date, abbre­via­ted from the English manage­ment buy-in.

True entre­pre­neu­rial perso­na­li­ties are rare. We speak of a poten­tial succes­sor when not only the manage­ment quali­ties, the educa­tio­nal back­ground and the profes­sio­nal expe­ri­ence fit the company, but also when there is suffi­ci­ent equity capi­tal available to finance the purchase price of the company. If, in addi­tion to expe­ri­ence and know­ledge of the indus­try in ques­tion, the “entre­pre­neu­rial gene” is also present, then we speak of a “match” when it comes to staff chan­ges. Finding this suita­ble candi­date is diffi­cult — ¾ of all company sellers see this as the biggest hurdle and not in finding the purchase price! On the one hand, there are fewer and fewer candi­da­tes willing to take on the risks and hard­ships of self-employ­ment, and on the other hand, you have to get to know the right pros­pec­tive buyer somehow, and without jeopar­di­zing the confi­den­tia­lity offe­red in the sales process.

2. How to find the right successor?

The foun­der of Stab­wech­sel, Ralf Baumeis­ter, was also faced with precis­ely this ques­tion around 12 years ago. There were exch­an­ges, lists and publi­ca­ti­ons of compa­nies for sale but few sources of “vetted” and thus serious MBI candi­da­tes. Stab­wech­sel has set itself the task of closing precis­ely this gap. With curr­ently over 700 hand-picked candi­da­tes in our data­base, you can find a good number of suita­ble and inte­res­ted buyer candi­da­tes for almost any sale offer here. Since the entre­pre­neur usually does not want to announce that he wants to sell, he relies on an anony­mous search and equally wants the highest possi­ble trans­pa­rency in the process of getting to know each other. The same is often true for pros­pec­tive buyers, espe­ci­ally if they still hold a manage­ment posi­tion as an employee in a company. Staff Change does just that.

3. What role does digi­tiza­tion play in the search for successors?

Succes­sion remains a people busi­ness, but digi­tal search proces­ses can provide valuable support. As a matching plat­form, a central part of the baton change system takes place online — i.e. digi­tally. Howe­ver, we ques­tion whether the entire process in the follow-up busi­ness can be digi­ti­zed. A digi­tal process, even with the use of true AI, cannot act and func­tion as effec­tively, crea­tively, and atten­tively as an expe­ri­en­ced M&A advi­sor, or only to a limi­ted extent. Ulti­m­ately, an algo­rithm or AI (e.g. ChatGPT) can only work with what is speci­fied as a profile on one side and defi­ned as a request on the other. If an aspect is unclear, inac­cu­rate or not speci­fied at all, the result can only be sub-opti­mal. Moreo­ver, it will take a long time, if ever, for sellers and MBI candi­da­tes to have enough confi­dence in a purely digi­tal system to conduct their confi­den­tial and often once-in-a-life­time search for a succes­sor or their own future company online.

That’s why every MBI at Stab­wech­sel is coached by an expe­ri­en­ced M&A advi­sor, an accre­di­ted Stab­wech­sel coach. So every cont­act request resul­ting from a match is sensi­tively mode­ra­ted by a profes­sio­nal. Thus, usually two M&A profes­sio­nals first talk to each other as repre­sen­ta­ti­ves of the sell side and buy side and clarify further details and inte­rests without remo­ving the anony­mity of the actual play­ers. This is a very effec­tive approach, which then leads to concrete and indi­vi­dual nego­tia­ti­ons as soon as a suffi­ci­ently good basis for discus­sion has been identified.

About Gerald Link

Gerald Link is the mana­ging direc­tor of Stab­wech­sel GmbH. Toge­ther with the foun­der and mana­ging direc­tor Ralf Baumeis­ter, he conti­nues to deve­lop and opti­mize the service for the M&A process. He has been self-employed since the early 1990s and has been invol­ved in a large number of company start-ups, take­overs and company expan­si­ons, both as mana­ging direc­tor and as consul­tant and share­hol­der. His compe­ten­cies lie in parti­cu­lar in the areas of commu­ni­ca­tion and stra­te­gic deve­lo­p­ment. Gerald has been inte­res­ted in digi­tal commu­ni­ca­tion and digi­tal busi­ness proces­ses since the birth of the Inter­net and has accom­pa­nied many compa­nies on their way to digi­ta­liza­tion and in the imple­men­ta­tion of e‑commerce projects. —

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