German Mittelstand upbeat on outlook and broad-minded on succession

German family-owned businesses remain generally positive about their outlook despite the economic crisis, and show a modest increase in willingness to hand management control to non-family members, according to a survey published today.

However, it is not clear that outside equity investors will gain greater access to stakes in the closely-held sector, as its leaders remain more enthusiastic about bank- and cashflow-finance than about selling equity stakes in their businesses.

The positive economic outlook detailed in the study of about 400 respondents, for Deutsche Bank and the Bundesverband der Deutschen Industrie, is supported at the level of investment by groups such as Syz & Co, whose European Opportunities fund has derived 80% of its alpha from investments in such companies.

Manager Eric Bendahan is almost double the Eurostoxx 600’s 15% weighting in family-owned companies.

He told firm clients recently that family-owned companies could be more long-term in their strategy, were typically better at M&A, had better balance sheets and more conservative accounting policies.

Almost three quarters of about 400 respondents to the independent study rate their current economic standing now, and what they expect in 12 months, as good or very good. The optimism is uniform across business sizes, sectors and domestic- or export-orientation.

“When one looks at the prognoses regarding turnover, employment and research and development, this optimism is thoroughly justified,” the report’s authors said.

The proportion of respondents who said the crisis would be negative or very negative for their activity fell from 49% last year, to 42.7% now.

Around 20% said the crisis would help their business – possibly due to a weaker euro’s effects on exports to Asia and the US. Mittelstand companies have an export quota of 25%.

About 37% said the crisis would be neutral. “Many of the businesses may actually feel no clear effects, or have little view on the extent to which the euro crisis and the effect the financing of the [Eurozone] rescue package have on the economic situation,” the report’s authors said.

“It is possible that the euro crisis will not have a large effect because Eurozone countries have become less important as end markets for many of the largest Mittelstand companies, and family-run businesses are profiting from the stabilising global economic situation”.

About two thirds of Mittelstand companies believe they can grow their sales in 2012. Around two thirds of exporters believe they can maintain current levels of exports.

Such an outlook may lie behind the plans 40% have to grow their workforce numbers – mainly in Germany, but also, for exporters, overseas – and behind the fact more than half the respondents plan to increase their investments this year.

About 70% plan to maintain research and development budgets this year, and 25% plan to grow theirs – led by industrials and exporters.

It is not clear, however, that equity investors will be able to take larger stakes in such companies. This is partly because most companies prefer to feed off their own reserves or use bank loans than to use capital markets, and partly because their capital reserves have grown during the crisis.



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