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Whenever I speak to international investors, I often hear about the difficulties of the German market. Issues range from the conservative nature of sellers (especially when dealing with younger entrepreneurs) to the competitive environment shaped by private equity, and even the old-school methods of deal sourcing like sending physical letters.

Honestly, despite these challenges, I remain quite bullish on the German market. I acknowledge the issues, but today I want to discuss how we turn these perceived disadvantages into opportunities.

1. Market Size and Pressure for Succession

Let’s start with the basics. The German searchers and investors should all know these numbers, but for the rest, here is a quick overview of the current need for succession in Germany.

KfW recently published a study with some really concerning headlines for Germany. By the end of 2027, an average of 125,000 SMEs will need to plan their succession and currently do not have a successor in place.

Of course, most of these companies will not fit the search fund or PE criteria, but if you dare to think a little outside the box, I’m sure you will find great opportunities in Germany.

Why is the succession pressure so high?

Germany’s economy relies heavily on the “Mittelstand” (SME companies). It was built by a great generation of founders who are now moving into the second or third generation of successors. However, something is changing. Even if the owners have children, often kids do not want to take over their parents’ “boring business” and stay in their hometown. They would rather (to put it bluntly) move to Berlin and pursue other interests. Even if it is a super profitable, growing company with lots of potential.

Entrepreneurship in general has issues (also founders) but succession is probably one of the biggest problems the German economy currently needs to deal with.

2. Private Equity Landscape and How I Avoid Competition Private Equity has long recognized these opportunities, resulting in a unique PE landscape in Germany. Compared to the US or other European countries, Germany has a significant number of small and mid-cap PE firms.

Players like Auctus and Aurelius (and many others) are successfully rolling up markets and targeting sizes that are typical search fund targets in other countries. This is a key reason why there aren't many search funds in Germany—PE firms have already filled much of that space.

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