A successful company succession depends on a multitude of different aspects. In the case of external succession, certainly, the available funds represent a critical factor. Nevertheless, it can be argued that the decision to acquire a company is based on other factors as well. This chapter rests upon the hypothesis that a potential external successor will be only interested in those companies offering promising prospects. Thus, it is expected that the decision to takeover a company is rooted in the target firm’s inherent intangible assets which justify a financial investment in return. Data are collected through interviews with eight external successors from Germany who pursued buy-in respectively buy-out initiatives in small and medium-sized enterprises. The study’s findings highlight those intangible assets that are regarded as critical in the external succession process. This helps us to obtain a more complete picture about the issue of company succession.
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Demographic developments cause an increasing number of firms which are waiting to be transferred to new ownership (Commission of the European Communities, 2006). This coincides with an observable missing motivation/aptitude of family members to take over a family business (Poza, 2007). In such a situation, potential external (non-family) successors attract notice.
A successful company succession depends on a multitude of different aspects. In the case of non-family succession, of course, the available funds represent a critical factor. Nevertheless, it can be argued that the decision to acquire a company is based on other factors as well. It is hypothesized that a potential external successor will be interested in those companies offering promising prospects. Thus, it is expected that the decision is rooted in the target firm’s inherent intangible assets which justify a financial investment in return.
In view of the increasing relevance of knowledge resources to firms, it is suggested that the intangible assets are primarily influencing external successors to go further in the succession process. As intangible assets are considered the types of resource potential investors are looking for, it is expected that this could be transferred to external successors in small and medium-sized enterprises (SMEs) as well.
Generally, in the case of company succession a primary concern is whether the target company has the potential for a sustained existence. Consequently, a business transfer is also considered a failure when the company enters a state of crisis or disappears from the market, respectively shortly after the succession has taken place. One explanation for this short-term failure might be that the successor has not thoroughly analyzed the firm’s assets. Maybe he/she relied too strongly upon past business performance thereby overlooking prospects. Consequences of a high number of such failed business transfers are obvious.
A literature review in terms of the meaning of intangible assets in company succession has shown that this area is apparently overlooked so far. Instead, a central focus on legal, financial, tax and on family related issues can be observed (Morris, Williams & Nel, 1996). Especially the latter issue represents a research area of great interest. In addition, the succession literature reveals a focal point on the incumbent’s perspective. If successors are discussed it happens from the family firm’s point-of view, and the emphasis is on family successors rather than on non-family successors. In terms of the importance of the knowledge transfer in view of company succession, increasing research activities have taken place recently (e.g., Cabrera-Suárez, De Saá-Pérez, & García-Almeida, 2001). However, until now, these studies have in common that they represent conceptual papers.
Referring to demographic trends and the meaning of successful succession processes for national economies this particular focus on the family and their interests are unsatisfying. In this connection a need for more research in this area was identified, paying particular attention to the external successor’s point of view, which until now has tended to be underrepresented in research activities on the issue of company succession. In view of the general agreement regarding the central importance of succession issues (Kesner & Sebora, 1994), the lack of information available on intangibles in the succession context represents a deficiency which is intended to be tackled through this research. To this end the following central research question was posed: What role do intangible assets play in succession processes involving small and medium-sized enterprises as seen from the perspective of potential external successors? Thereby, the focus is on those intangibles making the company attractive from the standpoint of an external person pursuing a buy-in or a buy-out initiative, respectively.
The findings presented in this chapter provide a new perspective on company succession, specifically in regard to selection processes used by external successors, and thus this research contributes to the literature in several ways. Firstly, an alternative approach to dealing with company succession in small and medium-sized enterprises is proposed by adopting the perspective of external successors (non-family successors), considering their proceeding. Secondly, the traditional view of company succession is enlarged by considering intangible assets as being the decisive elements in the preparation stage. Finally, the findings provide insights into critical intangible assets in terms of company selection.