Corporate Succession in the DACH SME Sector: Structural Challenge and Market-Based Solutions
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Implications for Lower and Mid-Market M&A Transactions 2025–2030

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Background‍

Across the German, Austrian and Swiss SME landscape, a profound structural transition is currently underway. A large generation of business owners is approaching retirement, while at the same time the number of potential successors is stagnating or slowly declining.
Unlike previous transformation cycles, this shift is not primarily driven by economic crises or financing constraints, but rather by demographic developments, changing career preferences, and structural matching challenges in the market.

Recent research data by KfW illustrates the scale of the issue very clearly. A significant portion of SME owners are considering business closure in the absence of a viable succession solution. More than two million SME owners in Germany alone are already aged 55 or above, with an average owner age of approximately 54 years. The primary bottleneck is not capital availability, but the availability of suitable successor candidates.

The core issue is therefore not primarily financial. Instead, it represents a structural matching problem between supply and demand — between owners planning retirement and potential successors who are either unavailable or unwilling to transition into entrepreneurial ownership roles. Administrative complexity, regulatory requirements, financing requirements and procedural burdens further increase transaction friction.

From a macroeconomic perspective, business closures represent the most costly outcome. They lead to the loss of know-how, the disruption of customer and supplier relationships, job losses and the fragmentation of accumulated business value. Companies with anticipated succession events often reduce investment activity significantly, directly impacting modernisation, digital transformation and long-term competitiveness.

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External Succession Solutions

External succession solutions are becoming increasingly relevant. Alongside traditional family successions, strategic buyers, industry consolidators, private equity investors, search funds and MBI/MBO structures are playing a growing role.
In practice, however, SME transactions come with distinct structural challenges. Limited sell-side due diligence, emotionally anchored valuation expectations, heterogeneous contractual standards, limited seller liability appetite and restricted disclosure quality frequently complicate transaction execution.
Against this backdrop, transaction tools that are already well established in larger M&A processes are increasingly being applied to SME succession transactions — most notably Warranty & Indemnity (W&I) insurance.

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W&I Insurance as a Risk Allocation Instrument‍

W&I insurance does not solve succession challenges, nor does it replace strategic decision-making. Instead, it functions as a transaction accelerator and a risk allocation mechanism.
It reduces information asymmetries, enables liability-neutral transaction structures between buyers and sellers, and supports MBI/MBO financing structures, leveraged transactions and family exits.

From both an underwriting and advisory perspective, three primary use cases can be observed:

• First, MBI/MBO situations where buyer risk capacity is limited and sellers are unwilling to provide extensive post-closing liability.
• Second, search fund and lower mid-market buy-out transactions where lenders require bankable risk protection mechanisms.
• Third, family-owned businesses with limited prior exposure to formal M&A processes, often negotiating a share purchase agreement for the first time.

In all these scenarios, W&I insurance typically functions as a deal enabler rather than a deal optimiser.

For W&I insurance to function effectively in succession-driven transactions, certain minimum standards remain essential. These include structured disclosure, clear risk identification and transaction structures that allow identifiable liability mapping.
That said, the SME market is seeing a structural shift in how these requirements can be met. Rather than relying exclusively on traditional large-cap style buy side due diligence and disclosure exercises, standardized questionnaire-driven processes are increasingly being accepted as a valid basis for underwriting and risk assessment.
This evolution is particularly relevant in succession scenarios, where full-scale vendor due diligence may not be proportionate to transaction size. Standardization allows disclosure to become more structured, repeatable and cost-efficient, while still providing sufficient transparency for underwriting purposes.
As underwriting processes become more standardized and technology-supported, W&I insurance is becoming increasingly affordable and accessible for SME sellers. This marks an important shift: W&I is no longer only a buyer-side risk transfer tool, but increasingly a seller-side protection instrument enabling clean exits, liability caps and smoother transaction execution in owner-managed businesses.

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The Growing Role of Foreign Investors in DACH Succession Transactions‍

An increasingly important dimension in the DACH succession landscape is the role of foreign and cross-border investors. International private equity funds, family offices, strategic buyers and search fund structures are increasingly targeting DACH SMEs due to their strong export orientation, high specialisation and robust balance sheet structures.

At the same time, foreign investors often face additional transaction challenges in SME succession contexts:

• Information and Cultural Translation Risk — Owner-managed businesses often rely on relationship-driven processes and undocumented knowledge transfer.
• Legal and Structural Complexity — Corporate, tax and employment frameworks in the DACH region can be perceived as complex by non-local buyers.
• Reputation and Legacy Considerations — Sellers often care about legacy preservation, employee continuity and regional reputation.
• Financing and Risk Allocation Expectations — International investors typically require structured risk transfer mechanisms. W&I insurance plays a key role here by bridging structural expectation gaps between international buyers and local sellers.

In cross-border succession transactions, W&I insurance frequently acts as a trust and standardisation layer, helping align transaction expectations between international capital and locally embedded owner-managed businesses.

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Conclusion & Market Outlook

The SME sector is facing a structural transformation challenge that will not be solved through policy programmes or public awareness campaigns alone, but through functioning market mechanisms. Corporate succession is not a peripheral family topic — it is a macroeconomic infrastructure topic. Between 2025 and 2030, the succession market is expected to remain selective but attractive. Succession volumes are increasing, while the pool of potential buyers remains stable to slightly declining.

W&I insurance cannot create successors. However, it can make SME transactions executable and reduce macroeconomic friction, particularly in situations where sellers have limited liability appetite, disclosure quality is limited or financing providers require structured risk allocation.

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