Business transfer planning

The link between success and succession

Katleen Van Havere, senior expert UNIZO

22 nd of April 2005, Portoroz, SLO

2.

I. About transfer of businesses

II. Facts and figures (ING study – 2004)

III. What needs to be done ?

3.

About transfer of businesses

610.000 SMEs changing hands each year (Netherlands: 20.000; Germany: 70.000; Flanders: 13.500)

2.4 million jobs Who will take over these businesses ? -

Some worrying tendencies More transfers outside the family circle Starting up a new firm is more popular Ageing population

4.

About transfer of businesses (2) Major socio-economic importance of successful

tranfers (job creation!) Preparing the successor ING study, February 2004 :

competences (“quality”) and personality of the successor are crucialAlso confirmed by recent research (EIM, March 2005, Netherlands) -> www.eim.nl/mkb-en-ondernemerschap

5.

Business transfers in the Netherlands, Germany and Flanders

ING economic bureau, UNIZO and MKB Netherlands Published February 2004 1.300 SMEs - industry and services – N, G, F Perspective of the successor Report

Preliminary definitions - focus Size of the transferred enterprises Objectives of the transfer Assistance of advisors Bottlenecks Results after transfer

6.

Focus ‘Transfer of ownership’

= the transfer of the ownership of an enterprise to one or more persons (private individuals) OR to another company or enterprise, who continue the commercial activity of the enterprise and want to guarantee the continuity 5 types of transfer

Phases in the process of transfer Measuring success by ‘growth’ - three categories :

Top of the class Middle of the class Bottom of the class

7.

Transfer of ownership: 5 types

Transfer to private individuals

5. Merger

Transfer of ownership

Transfer to private individuals

Transfer to another company

1. Succession within the family

2. Management-buy-out (MBO)

3. Management-buy-in (MBI)

4. Takeover/ acquisition

5. Merger

8.

Phases in the process of transfer of ownership

Phases

Actions

Negotiation and transfer

Preparation

Post-transfer

Orientation – strategy – search for companies

Validation – financial, legal and fiscal analysis – finding finances – negotiating and concluding the agreementImplementing changes – reaping rewards

9.

Average number of employees involved with a transfer of ownership, by degree of success

The Netherlands

Flanders Germany

Top 48 64 88

Middle 54 58 91

Bottom 68 63 84

Average (weighted)

57 62 88

10.

Objectives of the ‘top-of-the-class’-enterprises

0%

10%

20%

30%

40%

50%

60%

Grow th Improvingproduct/market-

combination

Eliminatingcompetition

Improving f inancialstructure

Continuity

The Netherlands

Flanders

Germany

11.

Assistance of advisors

5 categories Accountants Banks Business brokers Lawyers Tax advisors

Netherlands : 94 %, Flanders : 91 % Germany : 83 %

12.

Appreciation of advisors

0

1

2

3

4

5

6

7

8

9

Accountants Banks Intermediaries orprofessional

business brokers

Law yers Tax advisors

The Netherlands

Flanders

Germany

13.

Major bottlenecks, by type of transfer of ownership

Netherlands Flanders Germany

Succession within family

No bottleneck (% respondents) 53% 70% 63%

Finding finances 36% 16% 19%

MBO Finding finances 47% 60% 29%

MBI Finding finances 46% 39% 29%

Company culture/cooperation with personnel

17% 0% 25%

Takeover/acqui-sition

Company culture/cooperation with personnel

29% 31% 20%

Finding finances 26% 27% 11%

Merger Company culture/cooperation with personnel

37% 31% 48%

Finding finances 14% 19% 4%

14.

Bottlenecks for the top of the class, by region (in % of the respondents)

0%

5%

10%

15%

20%

25%

30%

35%

40%

Finding finances Unexpectedfinancial setbacks

Legislation, licencesand subsidies

Companyculture/cooperation

w ith personnel

Information aboutenterpriseinsufficient

The Netherlands

Flanders

Germany

15.

Results, by region (in % of the respondents)

The Netherlands

Flanders Germany

Increased turnover 65% 69% 59%

Increased number of customers

68% 59% 58%

Increased profit 58% 63% 62%

Increased employment 43% 40% 31%

16.

Dominant type of transfer by degree of success, per region

The Netherlands

Flanders Germany

Top of the class

MBI, Takeover MBO Takeover

Middle of the class

Family succession

MBI, merger Merger

Bottom of the class

MBU, merger Family succession

Family succession, MBO, MBI

17.

Business transfers in the Netherlands, Germany and Flanders :conclusions

Investing in education of entrepreneurs – importance of professional advice

What about family businesses ? How to finance a business transfer ? Paying attention to the market of business

transfers ‘pays’ in terms of profit, employment, tax income for the government, innovation

18.

What needs to be done ?

Parties concerned = EU (EC), national governments, business organisations AND the enterprises themselves

Europe ? Recommendation (1994) – Communication (1998)–

Best report (2002) – Final report Vienna (2002) – MAP report (2003) – ‘good practice guide’ (2003)

A new Recommendation (?) For the future :

• promotion (business transfers = start-ups!)• research• support (awareness – training – assistance)

19.

What needs to be done ? (2)

Business organisations – UNIZO March, 2004 : UNIZO-conference on business

transfers (‘SME-policy-day’) ‘Action plan’

1. Sensitisation and information2. A transparant market place for buyers and

sellers3. Improving the fiscal environment

(inheritance and gift taxes)4. Better financial instruments5. Investing in professional advice6. More research to address unanswered

questions

20.

Sensitisation and information

UNIZO training institute (‘Integraal’) Book (practical guide) – ca. 5.000 issues Four seminars – autumn 2005

Special program for SMEs with high potential for further expansion (‘KMO Contact’)

‘Startersdag’ : a yearly event for everyone interested in starting up a business

Draft code on corporate governance : special attention to family businesses (‘family governance’)

21.

A transparant market place for buyers and sellers

www.overnamemarkt.be

Launched by UNIZO, April 2005 With the support of the Flemish government Contact mediation system for buyers and sellers

in Flanders + practical information and useful contacts/links on business transfer

22.

23.

Professional advice

ING study : positive correlation between the assistance of advisors and being top of the class

Flemish support measure : ‘adviescheques’ : cheques to pay for advice, for 50 % paid by the Flemish government

www.vlaanderen.be/adviescheques