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Possible Sales Motives for Small and Medium-Sized Companies

Updated: Jan 22, 2021

Different motives for mergers and acquisitions activities are conceivable depending on the respective framework conditions. The following reasons represent a selection: In Germany, as before, many medium-sized companies within the owner family are being passed on to the next generation. However, this is not always possible. The reasons for this are diverse. In some cases, the potential successors (typically the children of the entrepreneur) are simply too young to run a company independently or they lack the necessary (business) training. Some potential successors refuse to take over their parents' company because they want to orientate themselves fundamentally differently. So, the succession plan is often not clarified, which can be an emotional burden for the entrepreneurial family. If the situation has been realized that there will be no successor from his own family, the company owner can look for possible alternatives such as selling the company to his own employees or to third parties is often considered. Breaking up the company is also a possible option from time to time. Another motive can be a run-in conflict between the company's shareholders especially when two shareholders are married, a pending divorce can lead to company shares or even the entire company being sold to third parties.


The same applies in the event of inheritance. If the managing owner dies suddenly, the heirs are often unprepared and overwhelmed with the situation. If the heirs are unable to continue running the company themselves, then often the only option is to sell the shares. Such a procedure is often useful, as the leaderless company can lose value after a short time. A transaction of company shares to third parties may be necessary to finance capital-intensive investments. This option comes into play, above all, if banks refuse to finance the investment project. Furthermore, a sale is also conceivable due to increasing competitive pressure. However, this requires the understanding that opportunities can no longer be adequately addressed or that economic risks have increased significantly. Another motive for selling a company could be that the medium-sized owner wants to reap the benefits of his many years of entrepreneurial activity. In this way, the owner can immediately receive compensation for the entrepreneurial risk taken. From time to time, it also happens that potential buyers approach the business owner. In such a case, the company owner is in a comfortable starting position. The entrepreneur can calmly examine an offer and set his own conditions. If this offer does not meet his expectations, he or she can return to day-to-day operations. But it can happen that an alleged offer is not meant seriously and that the process has other intentions.


It also happens that mergers and acquisitions activities have their origin in a changed corporate strategy. It is conceivable that the company had previously pursued a risk spreading form of a diversification strategy. A reassessment of this strategy could result in a return to one's own core competencies. Which in turn could lead to the sale of certain business areas or subsidiaries. However, this motive tends to be more important for large companies than for medium-sized companies.


 

Note:
All blog articles are to be understood as experience reports and do not claim to be either correct or complete. Nor do they represent legal and tax advice. They replace in no way an individual advice. The author assumes no guarantee or liability. Use at your own risk.