By Petra Fischer, Partner at Translink Corporate Finance Germany
Medium-sized companies in Germany, known as the ‘Mittelstand’, face a significant challenge – the question of succession looming large. Family-owned businesses, the backbone of the German economy, often face uncertainty as the next generation may not be ready or willing to take the reins. Compounding this challenge is Germany’s negative perception of private equity (PE). For many private owners, selling to a PE firm is viewed with unease and considered a last resort rather than a strategic opportunity.
Yet, the scale of this succession challenge is becoming increasingly clear. KfW, one of the world’s leading promotional banks located in Germany indicates that 532,000 of the 3.84 million SMEs in Germany intend to transfer their business to a successor by the end of 2028. This data underscores the urgency for Mittelstand owners to identify viable succession solutions.
At Translink Corporate Finance, we believe it’s time to re-evaluate the potential of PE and recognise the opportunities it presents. Here’s why private shareholders should reconsider selling to PE investors:
Capital injection and liquidity that fuel future growth
Selling to a PE firm provides an immediate and substantial capital injection, typically at competitive valuations reflecting the businesses’ true worth. This liquidity is invaluable for private shareholders, allowing them to diversify their wealth and secure their financial future.
Importantly, for owners not ready to fully exit, PE offers the attractive option of retaining a minority stake. This allows them to participate in the future growth trajectory driven by PE expertise and potentially benefit from a second, often even more lucrative exit when the PE firm eventually sells the business.
Accelerated growth opportunities
Private equity firms are growth specialists. They bring capital and focus on expansion and value creation. PE investment also fuels ambitious growth strategies, whether entering new international markets, funding strategic acquisitions to consolidate market position, or driving essential digital transformation initiatives.
With PE backing, the owner’s company gains the resources to accelerate its growth trajectory far beyond organic potential.
Private equity gives companies access to expertise and networks
Partnering with a PE firm unlocks access to expertise and influential networks. PE investors typically have in-house industry specialists, seasoned operating executives, and strong advisory teams.
This access can open doors to new markets, strategic client relationships, and valuable partnerships that would be difficult to achieve independently. This expanded network and expertise are crucial for accelerating growth and strengthening competitive positioning in today’s dynamic market.
Risk mitigation for entrepreneurs
For entrepreneurs who have poured their lives into building their businesses, selling a stake to a PE firm is an effective way to diversify personal wealth and mitigate financial risk.
By sharing ownership, entrepreneurs who retain a minority share can still reap the rewards of future success without bearing the entire burden of scaling the business and navigating increasingly complex market challenges alone.
Enhancing market positioning and scalability
Many PE companies employ “buy-and-build” strategies, acquiring complementary businesses to integrate with their portfolio companies. This approach enhances scalability, expands market reach, and strengthens overall market positioning.
By becoming part of a larger, strategically assembled group, the company can grow faster, secure larger market share, and achieve a stronger, more resilient future.
Private equity’s role in shaping the future of M&A
Outdated perceptions of private equity may still exist. However, the reality is that PE offers a compelling and highly advantageous path for private owners. Partnering with German Mittelstand M&A experts like Translink can help private shareholders realise these benefits.
Translink specialises in small and medium-sized cross-border M&A and helps private business owners and shareholders achieve significant liquidity, accelerate growth, enhance operational efficiency, and secure their long-term legacy.
Translink International AG
