Generational Change In SMEs Smoother Than Expected

Handovers of small and medium-sized family-operated enterprises in Germany, i.e. companies with 40 to 5,000 employees, to the next generation or new owners go more smoothly than expected. Almost 80 percent of company successors consider the handover to have been well prepared. 60 percent say the former owner invested sufficiently in order to guarantee that business continued after the handover. It is surprising that former owners remain active in almost two thirds of the companies, while they even hold a leading position in 50 percent of the companies. This is also the case in 40 percent of external successions. These are the findings of a survey conducted by the Centre for European Economic Research (ZEW), Mannheim and the Institute of SME Research (ifm) of the University of Mannheim, on behalf of BW Bank.

During the presentation of this study in Stuttgart, BW Bank’s CEO, Joachim E. Schielke, emphasised: "Focus of our corporate customer business are the SMEs of Baden-Wurttemberg. This way, we were able to obtain a deeper insight into succession processes in family-operated companies."

About 8,600 family-run SMEs were handed over to new owners between 2002 and 2008. They represent 23 percent of the 38,000 German SMEs. A random sample of 1,100 of these SMEs was chosen in the course of this study and their new owners were called to participate in the survey. This is the first study on generational change in SMEs in Germany on this scale.

Almost one fifth of the family-owned SMEs, which were handed over, went to external successors; almost three fifths remained in the family. One fifth has a successor who had already worked for the company. Overall, the new owners are very much satisfied with the preparations of the handovers. However, external successors rate the handover quality lower than internal successors. A surprisingly high number of previous owners remain active after the handover and work together well with the new owners. Meanwhile, the influence of previous owners decreases the more time passes after the handover. "In most cases, the previous owner supports the successor as long as necessary and withdraws from business in time," says Prof. Dr. Michael Woywode, head of ifm Mannheim.

With respect to the new owners’ qualification, the study shows a distinct trend from generation educated in engineering to a generation educated in economics. A comparison of successors with an education in economics or engineering does not indicate any effect on innovation activity.

A large share of new owners initiates organizational changes and changes in external business relations after a handover. It has to be noted that external successors are especially active in this field. They rely more strongly on new financiers and consultants than internal successors and more often cancel supply contracts. Moreover, external successors frequently change their companies’ house bank.

Return on sales of companies with external successors is often lower at the time of the handover but increases more rapidly than in other successor companies. Thus, external successors usually do take over less viable enterprises than internal successors, but they are able to activate their company’s potential for development. A few years after the handover, these companies already overcome this lag in returns. "It seems that it is the unbiased view from the outside that enables external successors to detect a company’s weaknesses and initiate the appropriate changes," says ZEW President Prof. Dr. Dr. h.c. mult. Wolfgang Franz.

Download of the study and the technical annex (German only)

For further information please contact

Dr. Georg Licht, Phone: +49 (0)621/1235-177, E-mail: licht@zew.de