The German Mittelstand - Reaching Out for Succession or Money

Strategies and Requisites in Enterprise Development

The German “Mittelstand” and its ongoing extensive corporate succession are one of the most active parts of M&A in Germany. After the “Birkenstock”- deal in February another landmark of Germany’s leading family-controlled businesses is to be sold. 
 

On August 15th, 2021, the two families owning 60% of stock listed Hella group convened with Faurecia to sell the package for €4 billion (€3.4 billion in cash and 600 million in Faurecia shares). A premium of 33% to April’s stock price will be offered to all other shareholders. 
 

SIMILAR TO BIRKENSTOCK

With this transaction, the families who pooled its interests until 2024 after the companies IPO in 2014, decided not to continue the family business as there was no chosen successor since Jürgen Behrend, now representative of the families in the company’s board, resigned from his long-lasting management position in 2017. 
 

The family business started 100 years ago, with the production of petroleum lamps and developed into Germany’s 10th largest car supplier (bulb and related electronics) with a turnover of €6.5 billion in 2020/2021 and 39,000 employees.
 

Like the Birkenstock deal, the families decided not to reach for the highest possible price- but insisted on safeguarding company headquarters and respective production facilities in Lippstadt (East Westphalia) to now become one of four headquarters of the newly combined business which now becomes the seventh largest car supplier worldwide, similar to ZF and Bosch.
 

Also similar to the Birkenstock deal was that the families retained their share in Faurecia- an important shareholder in the combined business, joining the Agnelli’s (FIAT-heirs) and Peugeot-family.
 

93.6 % of the 3.4 million of Germany’s enterprises are family owned, meaning that shareholding and management are one and the same. Although in most cases these enterprises are very small and only 3.5% have more than 50 employees. In all of these cases- the clock is ticking.

Company succession, together with digitalisation and internationalisation is the major strategic decision and hurdle of the coming decade. 

According to the well-known IFM Institute in Bonn, Germany, about 30,000 successions will occur each year (IFM studies no.286 (2021). The state-owned bank KFW research even speak about 100,000 per annum. About 25-30% of such successions result in a MBI or MBO (IFM studies Nr. 182, 2008) from which about 30% will require external financing.
 

COMPANY SUCCESSION

The problem is that the families or founders and successful entrepreneurs are confronted with finding the process of company succession unfamiliar and are inexperienced with the concept even though it is highly essential longevity of the business.
 

The mental readiness of the family or founders to conduct a robust transfer of ownership to the next generation is key for the prosperous development of any company. Like internationalisation, digitalisation of a company’s succession process deserves very high prioritisation in company strategy.   EG