Types of Succession

Internal Succession: Family and Employees as Successors

Internal succession is one of the most traditional forms of business transfer and involves handing over management to family members or long-standing employees. This form of succession offers the advantage of largely preserving the corporate culture and existing business processes. Family members who take over the company often bring a deep emotional connection and long-term commitment, which can promote continuity and stability. Additionally, long-term employees who know the company from within are capable of seamlessly continuing the business, as they are familiar with operational procedures and market conditions.

A key advantage of internal succession lies in the already established trust between the successor and the employees. This familiarity can facilitate the transition process and increase acceptance of change within the team. Moreover, the costs associated with searching for and onboarding an external successor are lower, as internal candidates are already familiar with the company’s structures. However, internal succession requires careful planning and preparation to ensure the successor possesses the necessary skills and strategic thinking to successfully lead the company forward.

Another important aspect of internal succession is the development and promotion of leadership talent within the company. Through targeted training and mentoring, potential successors can be identified early and prepared for their future roles. This creates a solid foundation for a successful handover and minimizes the risk of conflicts or inefficiencies during the transition process. Overall, internal succession represents a proven and often preferred method of business transfer, especially for family-owned businesses and companies with a strong, loyal workforce.

External Succession: Strategic Buyers and Financial Investors

External succession offers entrepreneurs the opportunity to sell the company to strategic buyers or financial investors. Strategic buyers are typically companies within the same industry seeking to expand their own business or achieve vertical integration through acquisition. These buyers often bring synergies that can strengthen the growth and competitiveness of the acquired company. Financial investors, such as private equity firms, provide capital and management expertise to restructure the company and increase its value, with the goal of a profitable resale at a later stage.

One of the main advantages of external succession is access to new resources and networks that the company can leverage to consolidate or expand its market position. Strategic buyers often possess extensive market knowledge and established distribution channels that can accelerate the company’s growth. Financial investors contribute financial resources and strategic know-how to make the company more efficient and maximize its value. This form of succession can be particularly attractive for companies in a growth phase or operating in highly dynamic markets.

However, external succession also presents challenges, such as the need to find a suitable buyer who shares the company’s values and vision. Additionally, integrating an external buyer can lead to cultural tensions or changes in corporate governance that must be carefully managed. Financial investors often have specific return expectations and strategic objectives that can influence the long-term business concept. Therefore, thorough preparation and advice from experienced M&A professionals are essential to ensure a successful external succession.

Hybrid Models: Partial Sale and Gradual Transfer

Hybrid models combine elements of both internal and external succession, offering a flexible solution for business transfer. A common example is a partial sale, where the company is sold partly to internal successors and partly to external investors. This hybrid approach allows leveraging the strengths of both succession types: the emotional attachment and internal knowledge of internal successors, as well as the financial and strategic resources of external investors.

A gradual transfer is another example of a hybrid model, where the handover of the company occurs in multiple phases. This can relieve the aging owner while giving the successor the opportunity to gradually acclimate to the new role. Gradual transfer helps minimize potential risks and ensures sustainable integration of the new management. Furthermore, this model allows continuous adaptation to changing market conditions and company needs during the transition process.

Hybrid models also offer the possibility to better address the specific goals and requirements of both the entrepreneur and the successor. For example, a partial sale can help spread entrepreneurial risk and secure the company’s financial stability. At the same time, a gradual transfer can optimize knowledge transfer and ensure the company continues to develop in the desired direction. Overall, hybrid models provide a versatile and adaptable solution tailored to the individual needs and circumstances of business succession.

Successor Pools and Marketplaces: Digital Platforms and Brokers

In modern business succession, successor pools and marketplaces play an increasingly important role. Digital platforms offer an efficient way to identify and connect with potential successors from a broad pool of candidates. These online marketplaces aggregate supply and demand, enabling targeted searches for suitable successors, whether internal or external. Brokers operating on these platforms can also provide advisory support and assist throughout the entire business transfer process.

The advantage of successor pools and marketplaces lies in their reach and efficiency. Entrepreneurs can specifically search for successors who meet particular criteria, such as industry expertise, financial capacity, or strategic alignment. At the same time, these platforms provide a transparent environment where both parties—sellers and potential buyers—can clearly communicate their expectations and requirements. This can significantly accelerate the succession process and increase the likelihood of a successful handover.

Another benefit is the ability to rely on specialized brokers who possess extensive networks and expertise in business succession. These experts can offer valuable support in company valuation, negotiating terms, and legal safeguards. They can also help identify and foster cultural and structural fit between the successor and the company. Overall, successor pools and marketplaces represent a modern and innovative complement to traditional succession models, making the business transfer process more efficient and targeted.

Conclusion

Choosing the right succession method is a crucial step for the long-term success and continuity of a company. While internal succession through family and employees enables a familiar and stable handover, external successors provide access to new resources and growth potential. Hybrid models and modern successor pools and marketplaces offer flexible and innovative solutions that meet individual needs and market conditions. Careful planning and strategic consideration are essential to select the appropriate succession method and ensure a successful business transfer. By considering the various options and their specific advantages, entrepreneurs can ensure that their legacy passes into capable hands and continues to thrive in the marketplace.