Many owners prefer competitors to buy their companies.
(Photo: dpa)
Frankfurt The rapid succession of new crises is also leaving its mark on German SMEs. Many top managers and owners are currently apparently willing to part with their companies. “Selling the company is an issue for a good half of medium-sized companies. However, the demands on the buyer are very high,” says Stefan Schneider, head of the office at the Bundesverband Mergers & Acquisitions eV
In cooperation with the University of Lancaster and the University of Bamberg, the association asked companies with a turnover of between ten million and 250 million euros about their willingness to sell. “Discussions with medium-sized companies gave the impression that the Ukraine war and rising energy costs are accelerating the medium-sized companies’ sales plans. Liquidity considerations and the aggravated supply chain problem are also among the motives for disposals,” explains Schneider.
The high valuations also lured entrepreneurs out of their shells. For around half of the companies, the lack of successor planning played a role. “Of the owner-managed companies surveyed, 43 percent can imagine selling to a competitor, only 12.5 percent are considering selling to a financial investor. Private equity funds come into play primarily when the price is the decisive motive for the seller,” adds Schneider.
According to the analysis, even customers rank ahead of investment managers as potential buyers. This part of the result is likely to raise eyebrows among private equity managers, as the middle market is one of the most popular fields for mergers and acquisitions (M&A).
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The financial investors often lure with the argument that they would develop the acquired companies with a “buy-and-build” strategy, but apparently skepticism is still high in entrepreneurship. “Preserving jobs is extremely important to the sellers. Many can imagine selling to the direct competitor, although then positions are often lost as part of synergies and the company name can disappear,” Schneider points out.
Owners prioritize job preservation and continuity
After all, 86 percent give priority to preserving jobs in a transaction, and more than half of the medium-sized managers want to ensure the continuity of the company. Apparently, the “locust image” that many financial investors had already overcome is still having an effect on the reluctance to approach financial investors.
Overall, the study also shows that entrepreneurs are willing to actively participate in M&A processes. “Small and medium-sized companies in Germany are open to M&A issues. Two thirds of entrepreneurs have already successfully completed a transaction. Even more are planning to complete a transaction in the coming years. Essentially, it’s about new markets and keeping up with technology,” explains M&A expert Schneider.
>> Read also: The energy crisis is becoming a driver in the M&A business
The willingness to sell among medium-sized companies will probably remain high if there are no signs of a thorough improvement in the economic situation. According to a survey by DZ Bank, four out of five medium-sized companies feel compelled to raise their sales prices in order to cope with the economic effects of the war.
“Russia’s war against Ukraine is affecting a large number of medium-sized companies. Many of them have been struggling with delivery bottlenecks since the corona pandemic and have been lagging behind in processing orders ever since,” warned Stephan Ortolf, Head of Corporate Customers at DZ Bank. However, it may still take a while before the ideas of buyers and sellers have adjusted to the new ratings.
The price expectations of buyers and sellers are often far apart in such times in M&A processes. That could stay like this for another three to five months, after which a new balance would be found, says an investment banker.
More: Sentiment on the investment market collapses