Only 1/3 of companies to be sold are put on the market, and only half find a buyer. Transferring a company is a major challenge. More than 100,000 SMEs and intermediate-sized companies (ETI) are affected annually in Europe. Representing over 10 million jobs. In this article, I analyze the 6 barriers to the transfer of companies and present 2 initiatives to simplify the takeover process.
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6Â statistics on company transfers
- 100000: the number of companies to be taken over each year in Europe.
- 10 million: the number of jobs affected by a transfer each year in Europe.
- 50877 companies were up for takeover in France in 2016.
- 21,9%: the percentage of companies to be sold that found a buyer in France in 2016.
- Only 1/3of companies to be sold are put on the market.
- Around 1/6of companies for sale are taken over.
Company transfers and takeovers: what’s the problem?
We’ve reached a time when the post-war generation is retiring (or has already retired). Many companies run by people in this age bracket are affected. French research assesses the number of companies to be taken over each year in Europe at 100,000 and the number of jobs affected at 10 million.
Take France, for example. In 2022, SME sales and acquisitions fell by 8%. The slowdown accelerated in the first trimester of 2023, with a 40% drop compared to the previous year’s period. This decline is not due to the pandemic. If we compare with the pre-Covid years, the decline reaches 31%. Company valuations are also stable.
The last major quantitative research study on this subject dates to 2016. BPI France conducted it. At that time, 50,877 companies to be taken over were counted. Only 11151 were sold, i.e., 21.9%. These transactions affected 770,000 employees.
Despite these gigantic figures, the market for the sale/takeover of exceedingly small businesses is anecdotal. This was revealed in the podcast I conducted with the founder of Alvo. Most of the market comprises buyouts of companies worth over €15 million. VSEs comprise 95% of the entrepreneurial fabric and are left by the wayside.
But what is being done to help would-be buyers? While there are several fee-paying programs to prepare them, more needs to be done to encourage business transfers, which are far less costly than outright creation and far less risky.
2023-2024 trends in company sales and takeovers
An analysis by InExtenso Finances looks at trends in the sale/takeover of companies in 2023.
In 2023, the French SME sales/takeovers market saw an 11% transaction drop. 964 transactions were recorded. This decline was not uniform. Some sectors or regions fared better than others. This reflects a complex context influenced by economic and geopolitical uncertainties and rising interest rates.
Despite these challenges, some regions, such as PACA and Pays de la Loire, are making up for last year’s low activity level. The Technology, Media, and Telecommunications (TMT) sector remained the most dynamic, welcoming 300 transactions, although it too suffered a contraction. Unsurprisingly, however, the construction sector suffered the most (54%). Conversely, the capital goods sector is the only one in the green (+39%).
A notable trend in 2023 was the change in transaction patterns. Transactions in the medium valuation segment (valuations of €5 to €15 million) showed resilience. Companies in this segment are more “family-owned” and less exposed to international uncertainties. Transactions conducted at these prices often involve SMEs undergoing a necessary transition due to the aging demographic of company managers.
Investment funds accounted for 21% of acquisitions in 2023, down from 2022. Conversely, corporate players (listed and unlisted companies) accounted for 76% of transactions.
The authors of the research agree that a rebound is expected in 2024. The economic climate is better: interest rates have stabilized, the economy is recovering, and capital is more readily available.
The 6 barriers to transferring companies
Yvonne Slots and Loek Swelsen have researched the transfer of companies in the Parkstad region of the Netherlands, which borders Germany to the east and Belgium to the south (Limburg region). This region is characterized by many retailers who have already closed their doors. The two researchers from Hogeschool Zuid were particularly interested in transferring companies whose owners were approaching retirement age. These companies represent a pool of 14,000 jobs for the region. What they found was surprising in many ways.
The 6 barriers to transfer that Slots and Swelsen found are as follows:
- Assessing the value of the company
- Finding a potential buyer
- Emotional aspects
- Lack of expertise in the potential buyer
- Fiscal problems
- Difficulties in raising funds
It’s important to realize that not all companies can be sold. On the one hand, the aging of the manager is often accompanied by a lack of investment, making a takeover more risky. Secondly, the manager’s personality is often an obstacle. A company that is too much the embodiment of its manager cannot easily be taken over. A successful sale requires the company to be independent of its founder.
Analysis of 3 barriers to company takeovers
Having been involved in two takeovers, I’m not shocked by some of the conclusions. On the other hand, several aspects do concern me.
Insufficient bank support
First, it’s counter-intuitive that would-be buyers need more financial support from their banks. I fully understand that a bank might be reluctant to lend to a new company whose business plan is mostly based on intuition and theoretical figures (few entrepreneurs conduct market research to confirm, even for a moment, that the assumptions of their business plan are not just based on hot air). However, in the case of a takeover, the figures and the balance sheet history provide tangible elements on which to base your judgment. This makes it relatively easy to check whether the company is viable and whether its price is fair. If these two conditions are met, there should be fewer obstacles to obtaining financing.
Lack of foresight
The second aspect concerns takeover candidates. Loek Swelsen explained that entrepreneurs “wake up” too late to find a potential buyer. Simply put, they start thinking about transferring the business when it’s time to retire. Of course, this is too late. The transfer process must be started well in advance, and the company must be prepared for it. Otherwise, liquidation becomes the only alternative.
Valuation errors
Research by Lex Van Treffelen, another specialist in the study of company transfers, has also shown that elements have been omitted from the assessment in 50% of cases where a company has yet to be sold. These valuation elements could be of various kinds. It could, for example, be a “premium” location or a particular expertise that had not been highlighted. It is, therefore, crucial to understand that a company takeover must also be accompanied by market research to provide additional elements to the financial analysis of the past. Market research can help to motivate the buyer by:
- Providing encouraging potential for the future of the market
- Providing development paths for the future
- Suggesting concrete actions to make the takeover as effective as possible.
Two concrete solutions from France
En étudiant les chiffres, on se rend compte que le marché de la cession-reprise d’entreprises regorge d’opportunités.
Dans mon podcast j’ai reçu le fondateur de la plateforme Alvo, qui facilite la mise en relation et la reprise des TPE et PME. Cette plateforme online va au-delà du recensement des offres. Elle propose également des analyses sur les entreprises à reprendre et facilite donc votre prise de décision.
Une autre initiative intéressante a été lancée en France pour la reprise des commerces de proximité. Il s’agit d’une plateforme entièrement gratuite grâce à laquelle vous pouvez évaluer l’intérêt de l’emplacement de votre commerce. Le succès d’un commerce de proximité dépend de sa zone de chalandise. Cet outil offre des possibilités d’analyse qui peuvent être utile pour opérer un premier tri entre différents emplacements.
Posted in Entrepreneurship, Research.
