German SMEs Face Succession Crisis as Baby Boomers Retire
German SMEs face a succession crisis as baby boomers retire, with too few buyers for small businesses. Institutions like the German Institute for SME Research are promoting search funds as a solution, with 20 already launched in Germany since 1984. However, more successful deals are needed to attract investors and searchers.
Search funds differ from traditional private equity. They involve one or two 'searchers' who raise capital to acquire and run a medium-sized company. By the end of 2025, 231,000 companies plan to shut down, and 215,000 have short-term succession wishes. Florian Adomeit from Amber online M&A marketplace suggests search funds as a solution to this pressing issue.
IESE Business School reports 681 search funds launched in North America since 1984, with an average annualized return (IRR) of 35.1%. In the rest of the world, including Germany, 320 search funds have been launched, with an IRR of 18.1%. Despite the potential, the fate of search funds in Germany could mirror that of SPACs, which were briefly hyped and then quickly disappeared. Successful deals are crucial to attract more investors and searchers.
With 231,000 companies planning to shut down by 2025, innovative solutions like search funds are essential. Institutions are working to raise awareness, but successful deals are needed to secure the future of search funds in Germany and address the succession crisis among SMEs.
