Actions demonstrate intelligence more than attractions often do.
In the heart of Europe, Germany is home to over 125,000 companies seeking a successor each year, presenting a significant opportunity for the country's economy. Many of these companies boast a proven product-market fit, an established customer base, and generate revenue, making them attractive targets for business takeovers.
One of the strategies gaining traction in this arena is the Search Fund model, a concept originally from the US. This innovative approach finances an entrepreneur to find a takeover candidate and later provides the equity needed for the purchase. The internal rate of return (IRR) for Search Funds is over 35%, while the return on investment (ROI) is around 4.5x the capital invested.
The buy-and-build strategy, where multiple similar companies are acquired and consolidated, drives returns in Search Funds. Synergies and multiple arbitrage, buying smaller firms at multiples of 4 to 6 and later selling larger units at multiples of 8 or more, are key aspects of this strategy.
Companies can change hands for between four and eight times their earnings before interest and taxes (EBIT), depending on the industry, profitability, and growth. These companies offer enormous opportunities for value creation through digitalization, marketing, or automation.
The Searcher takes over the operational management and receives a minority stake of around 30%, while the majority, approximately 70%, remains with the investors. This model offers the Searcher little equity, low risk, and long-term involvement in the success. Investors, on the other hand, benefit from motivated entrepreneurs with "skin in the game" and above-average returns.
Banks are willing to finance company takeovers due to the proven history of stability and profitability of established businesses. The risk of a business idea not succeeding is lower for companies seeking a successor compared to new startups.
In the digital realm, platforms like AMBER, co-founded by Florian Adomeit, are facilitating business successions and company takeovers. Despite the platform's success, the name of its co-founder remains unknown in this context.
Each business that disappears due to succession issues in Germany results in the loss of jobs, know-how, and stability. Therefore, the rise of Search Funds and online marketplaces like AMBER could be a step towards securing the future of these businesses and contributing to Germany's economic growth.
