Where Does the Hype Come From: Buying Companies Instead of Starting Them?

About this episode

The German business landscape is facing a massive transformation: by 2028, over 600,000 companies in Germany will be seeking succession solutions. At the same time, more and more entrepreneurs are choosing to acquire existing businesses rather than start new ones. What's driving this trend?

The Succession Crisis as an Opportunity

Demographic change is particularly noticeable among family businesses. Many post-war generation founders are retiring while their children often pursue different career paths. The result: companies with established structures, proven business models, and stable revenues are seeking external buyers.

This development creates a unique opportunity for entrepreneurs who want to skip the arduous process of building a startup from scratch. Instead of starting from zero, they can build on existing foundations.

Why Acquisitions Are Becoming More Attractive

Company acquisitions offer several decisive advantages over new ventures:

Reduced Market Risk: With an acquisition, it's already proven that the business model works. You skip the risky phase of product development and market validation.

Existing Structures: Customers, suppliers, processes, and often teams are already in place. This enables much better predictability than with a new venture.

Immediate Revenue: While startups often take years to become profitable, acquired companies usually generate income from day one.

Clear Data Foundation: Financial statements, customer contracts, and market data provide a solid basis for business decisions.

The Flip Side of the Coin

However, acquisitions also bring specific risks. While you minimize product and market risks, you take on team and cultural risks instead. Existing employees must adapt to new leadership, established processes may be outdated, and the corporate culture might not align with your vision.

Financing: Less Equity Than Expected

Many potential buyers are deterred by supposedly high financing hurdles. Yet company acquisitions are often achievable with significantly less equity than assumed:

Seller Financing: Many sellers are willing to defer part of the purchase price as a loan. This reduces the equity requirement and demonstrates the seller's confidence in the company's future.

Bank Loans: For profitable companies with stable cash flows, banks are often willing to finance the majority of the acquisition.

Smaller Equity Portions: While startups often require 100% equity, acquisitions frequently need only 10-30% of the purchase price in equity.

Search Funds: The Trend from the USA

A particularly interesting financing model is Search Funds, which originated in the USA and are now gaining ground in Germany. The concept works as follows:

An aspiring entrepreneur first raises capital from investors to systematically search for suitable acquisition candidates. When a suitable company is found, the investors provide the necessary capital for the purchase. The buyer manages the company and receives a significant stake upon success.

This model democratizes company acquisitions and enables even less wealthy entrepreneurs to handle larger takeovers.

Starting vs. Acquiring: A Question of Type

Both paths – new venture and acquisition – have their place and are equally demanding. The decision ultimately depends on your personality and goals:

Starting is right for you if: You have an innovative idea, enjoy building from the ground up, and are willing to invest years in development.

Acquiring is right for you if: You prefer building on proven structures, want to generate revenue faster, and enjoy developing existing companies further.

Conclusion: A Trend with a Future

The hype around company acquisitions is more than just a temporary trend. Demographic developments, improved financing options, and new models like Search Funds make acquisitions an attractive alternative to traditional startups.

For entrepreneurs who want to bypass the rocky path of the startup phase, extraordinary opportunities currently present themselves. The question isn't whether this trend will continue, but how quickly demand for suitable acquisition candidates will develop.