Go to Europe, Buy a Company and Expand to Europe!

Oct. 19, 2013
U.S. SME manufacturers' expansion plans could be the solution to the European SME manufacturers' succession plan problem.

Manufacturing SME leaders looking to expand in Europe might want to take advantage of the European challenge: that of SMEs there who are having difficulty finding a competent successor.

Finding a competent successor for a small- and medium-size enterprise, particularly in manufacturing, is a challenging process. According to German Chamber of Commerce, it seems to be an increasing problem. In Germany, alone, about 20,000 SMEs annually are looking for a successor. Many of those companies have annual sales from $10Mio to $100Mio and have an excellent market position in Europe.

This is a great opportunity for North American SMEs looking to enter new markets for growth and technology. You do not have to go to Asia, which is culturally so much different from Europe and North America.

During difficult economic times business is always strong somewhere in Europe. This is thanks to the fact that Europe is very inhomogeneous.

Finding a competent successor for a small- and medium-size enterprises, particularly in manufacturing is very hard. Letting go and losing control is not easy for entrepreneurs. (I personally know in Europe several entrepreneurs who are 70+ and still do not have clear plans on how to hand the helm over to a new generation.)

An entrepreneur fears that the company will falter if, for example, a young (in relative terms) person takes over. Their fears are even greater if the successor is not a family member. The entrepreneur seems to always consider the worst-case consequences and the possibility of losing the respect of his community.

The board of directors in European SMEs are mostly family members with little business experience. They cannot offer support in this process of generation change.

As well, the current debt crisis--or should I say the continued banking crisis -- in Europe makes it very difficult for younger entrepreneurs to finance company acquisitions, even if the incumbent CEO would favor the young entrepreneur taking over the helm. Luckily some private equity groups do fund these transactions; however PEG is not always the right choice for an SME.

Banks are in a unique position to help: By encouraging, sometimes even forcing, the aging entrepreneur to make concrete plans for succession planning and encouraging consequent execution of those plans. Unfortunately they do not make use of this position.

In addition, banks tend to follow the aphorism, “Nobody is prophet in his own land,” which means North American SMEs may have an edge in obtaining financing.

Once their concerns are addressed, most entreprenuer/owners willingly hand over the helm. They need to be presented with a business plan that is logical and demonstrates continuity. An experienced American SME entrepreneur who can make this case likely will find an owner willing to sell.

SME owners in North America and Europe speak the same concrete, no-nonsense language and tend to follow long-term strategies.

Go to Europe, explain your well-founded long-term plan to an entrepreneur looking for a successor, acquire the company, and you will enter the European market quickly and successfully.

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