The funding landscape in Germany, including corporate funding, has changed significantly in recent years. The main reason for this change is the banking and financial market crisis through which profitability and risk considerations have become much more important in the business policies of financial institutions nowadays.
At the same time, analysts are talking about the biggest change in leadership of the post-war period in medium-sized companies in Germany. 1 Many family businesses were founded after 1945, so that the founders have to start considering a potential successor regime, as they are getting older. This includes high financing needs (in the form of the purchase price, taxes and severance pay) that cannot be fully covered by the successors in most cases.
With respect to the outstanding importance of these two main aspects, the aim of the present work is to show the opportunities and risks of investment management and especially funding by private equity in the context of corporate succession.
The conclusion of this paper finally shows that there are various opportunities and risks in the context of investment management regarding corporate successions. Each form of financing has its advantages and disadvantages, which must be analyzed carefully and according to the company´s needs and strategies before deciding which form of financing should be chosen.
Table of Contents
1. Introduction
1.1. Problem statement and objectives
1.2. Scope of work
2. Fundamentals on investment management and company successions
2.1 Company successions
2.1.1. Characterization of company successions
2.1.2. Phases of company successions
2.2. Investment management
2.2.1. Characterization of investment management
2.2.2. Funding possibilities and investment purposes
3. Private equity as an opportunity of equity financing
3.1. Fundamentals of private equity
3.2. Investment process of private equity
3.3. Exit strategies
3.4. Advantages and disadvantages of private equity
4. Critical appraisal
4.1. Opportunities and advantages of investment management
4.2. Limitations and risks of investment management
5. Conclusion
Objectives and Research Focus
This paper aims to critically analyze the role of investment management and private equity financing within the context of German corporate successions. Given the increasing difficulty for medium-sized businesses to secure traditional bank funding, the research examines whether private equity serves as a viable alternative for companies facing the leadership transition of their post-war generation of founders.
- Analysis of the structural changes in the German corporate funding landscape.
- Evaluation of the specific challenges regarding company successions in family businesses.
- Investigation of private equity as a strategic financing tool during succession processes.
- Examination of the investment lifecycle, including contact, due diligence, and exit strategies.
- Assessment of the benefits and inherent risks of private equity for small and medium-sized enterprises (SMEs).
Excerpt from the Book
2.1.1. Characterization of company successions
The term "corporate succession" describes the transfer of ownership of a business and the related operational management of one person or group to another. Accordingly, both the property as well as the management must be incumbent to the person transferring. It is basically conceivable that the transfer of ownership and leadership are made at different times and to different persons or groups of persons.8
In literature, the concept of succession problems is discussed mainly in the context of family businesses, but it basically applies to any form of business. 9
The following chapter will describe the stages of business ownership in detail.
Summary of Chapters
1. Introduction: This chapter introduces the current funding challenges for German SMEs and outlines the existential problem of upcoming leadership transitions in family-run firms.
2. Fundamentals on investment management and company successions: This section defines the stages of succession and describes the core operational and administrative tasks of investment management.
3. Private equity as an opportunity of equity financing: This chapter details the mechanics of private equity, from the initial contact to exit strategies, while weighing its advantages and disadvantages.
4. Critical appraisal: This section provides a balanced review of the opportunities and limitations of investment management from both the target company and the investor's perspective.
5. Conclusion: The paper concludes that private equity is an innovative financing tool that requires careful planning to address the specific needs and risks of businesses undergoing succession.
Keywords
Corporate succession, investment management, private equity, SMEs, family business, financing, venture capital, buy-out, exit strategies, due diligence, leverage effect, equity financing, risk management, business transition, corporate funding.
Frequently Asked Questions
What is the primary focus of this paper?
The paper focuses on the critical analysis of investment management and private equity funding as a solution for medium-sized companies in Germany facing corporate succession.
What are the main thematic fields covered?
The work covers corporate succession processes, the characteristics of investment management, the mechanics of private equity financing, and a critical appraisal of its risks and advantages.
What is the central research question?
The research explores how private equity can effectively support the financing needs of SMEs during succession processes, despite the associated risks and high return requirements of investors.
Which scientific methods are employed?
The work utilizes a literature-based analysis of the investment process and evaluates theoretical models against the practical reality of the current German financing landscape.
What is treated in the main body of the paper?
The main body investigates the phases of succession, the definition and investment process of private equity (including exit strategies like IPOs or trade sales), and a SWOT-like appraisal of these instruments.
Which keywords best characterize this work?
Key terms include Corporate succession, Private Equity, SMEs, Investment management, and Leverage effect.
Why is the timing of succession planning critical for family businesses?
Founders often have significant emotional ties to their companies, and the high costs of succession (taxes, severance, etc.) make early, rational financial planning essential for long-term survival.
What is the "principal-agent problem" mentioned in the appraisal?
It refers to the risk of asymmetric information where the investor may overestimate the value of an asset because the target company holds private, non-transparent data during the acquisition process.
- Arbeit zitieren
- MBA Rima Hammoudeh (Autor:in), 2015, Critical analysis of investment management within company successions, München, GRIN Verlag, https://www.hausarbeiten.de/document/346474
