Entrepreneurship through Acquisition in Germany: The Alternative Path to Entrepreneurship

Entrepreneurship through Acquisition (ETA) has established itself in recent years as a promising pathway to entrepreneurial self-employment. This model enables ambitious individuals to engage in entrepreneurship without having to build a company from scratch. In this article, you will learn everything essential about ETA, its growing significance for the German Mittelstand, and the opportunities as well as challenges this concept entails.

What is Entrepreneurship through Acquisition?

Entrepreneurship through Acquisition refers to the process in which an entrepreneurially minded individual acquires an existing company to lead and further develop it as managing director. Unlike traditional entrepreneurship, where a business model is developed from the ground up, the ETA entrepreneur leverages the already established structures, customer relationships, and market positions of an existing company.

The concept originally comes from the USA, where it was popularized especially by business schools such as Stanford and Harvard. In Germany, ETA is gaining increasing importance as a response to the challenges of business succession in the Mittelstand.

Forms of Entrepreneurship through Acquisition

ETA can be practiced in various forms:

Individual Acquisition: A single entrepreneur acquires a company using personal funds and debt financing.
Search Fund: A structured approach where investors finance the search and purchase of a company, and the entrepreneur subsequently takes over management.
Self-funded Search: The entrepreneur finances the search phase independently and involves investors only at the point of acquisition.
Accelerated ETA Programs: Structured programs that support and accompany prospective ETA entrepreneurs throughout the entire process.

The ETA Process in Practice

The typical ETA process includes the following steps:

Preparation and Positioning: Building relevant skills, networks, and, if necessary, raising search capital.
Search Phase: Systematic identification and evaluation of potential acquisition targets. This phase typically lasts 12–24 months.
Due Diligence and Negotiation: Thorough examination of the target company and negotiation of acquisition terms.
Financing and Closing: Structuring the financing (usually a combination of equity, debt, and seller financing) and closing the transaction.
Transition Phase: Taking over management, often with a transition period during which the previous owner provides advisory support.
Value Creation Phase: Implementing growth strategies and optimizing business processes.

ETA in the German Context

Germany offers particularly favorable conditions for ETA:

Demographic Change: Approximately 500,000 Mittelstand companies face a generational change in the coming years.
Succession Gap: Many family businesses lack suitable internal successors.
Mittelstand Structure: The German Mittelstand, with its diversity of specialized and often internationally successful companies, provides attractive acquisition targets.
Financing Environment: Low interest rates and increasing openness of banks and investors toward ETA concepts facilitate financing.

Advantages of the ETA Model

For the Entrepreneur

Reduced Risk: Acquisition of an existing business model with proven market viability
Faster Path to Cash Flow: Immediate revenue as opposed to the lengthy ramp-up phase of startups
Utilization of Existing Resources: Access to established teams, customers, and suppliers
Value Creation Potential: Opportunity to generate additional value through strategic improvements

For the Seller

Sustainable Succession Solution: Preservation of the company and jobs
Securing the Life’s Work: Transfer to a committed entrepreneur with a long-term perspective
Attractive Valuation: Often higher valuations than with strategic buyers or financial investors
Flexible Transfer Modalities: Possibility of phased handover and continued involvement

For Investors

Attractive Returns: Historically above-average returns on ETA investments
Diversification: Access to the Mittelstand segment, often overlooked by larger investors
Active Influence: Opportunity to participate through advisory board positions
Social Return: Contribution to solving the succession challenge in the Mittelstand

Challenges and Risks

Despite the advantages, ETA in Germany faces specific challenges:

Competition for Attractive Targets: Increasing competition from strategic buyers and private equity firms
Cultural Barriers: Skepticism toward external successors in traditionally oriented family businesses
Financing Complexity: Necessity of complex financing structures involving multiple stakeholders
Management Continuity: Challenge of retaining key employees and existing company knowledge
Transaction Complexity: Legal and tax particularities in company acquisitions in Germany

ETA vs. Other Entrepreneurial Models

Compared to other paths to self-employment, ETA offers specific advantages and disadvantages:

Aspect	ETA	Start-up Formation	Franchise	Business Start-up
Initial Investment	High	Low to Medium	Medium	Low to Medium
Risk	Moderate	High	Low	Moderate
Time-to-Market	Immediate	Long	Short	Medium
Value Creation Potential	High	Very High	Limited	Moderate
Creative Freedom	High	Very High	Limited	High
Knowledge Transfer	Present	Not Present	Structured	Low

Success Stories from Germany

There are already notable success stories in the ETA field in Germany:

Mittelstand Acquisitions by Former Consultants: Increasingly, experienced consultants from top firms transition into entrepreneurial roles through ETA.
Family Businesses with External Succession: Successful handovers of traditional companies to external entrepreneurs who bring new impulses while respecting company heritage.
Internationalization through ETA: Acquisition of specialized German Mittelstand companies by international ETA entrepreneurs aiming for global expansion.

Future Perspectives

The outlook for ETA in Germany is promising:

Growing Acceptance: Increasing awareness and recognition of the model among entrepreneurs and investors
Professionalization: Emergence of specialized advisors, programs, and networks for ETA aspirants
Institutionalization: Enhanced involvement of institutional investors in the ETA space
Industry-specific ETA Models: Adaptation of the ETA concept to the particular requirements of individual sectors

Practical Tips for Prospective ETA Entrepreneurs

For those interested in pursuing the ETA path in Germany, the following aspects are particularly important:

Clear Positioning: Define your own expertise and target market or industry
Network Building: Systematic networking with relevant multipliers such as management consultants, M&A advisors, tax consultants, and industry associations
Financing Strategy: Early development of a viable financing structure and engagement with potential investors
Due Diligence Competence: Building skills for thorough evaluation of potential acquisition candidates
Change Management Skills: Preparation for the challenges of the transition phase and integration into the acquired company

Conclusion

Entrepreneurship through Acquisition represents a promising alternative pathway into entrepreneurial self-employment, particularly well-suited to the current situation in the German Mittelstand. The model offers the opportunity to realize entrepreneurial ambitions while simultaneously contributing to solving the succession challenge.

For ambitious individuals with management experience, industry knowledge, and entrepreneurial mindset, ETA can be an attractive way to combine the advantages of an established business model with the creative possibilities of an entrepreneurial role. At the same time, company sellers benefit from a sustainable succession solution that ensures the continuation and further development of their life’s work.

The coming years will show to what extent ETA can establish itself as a permanent fixture in the German business landscape and which specific forms will develop within the context of German economic culture.

Looking for more information on business acquisitions? Also explore classic business succession or financing options for your acquisition.

Entrepreneurship through Acquisition in Germany