The German Mittelstand is facing the largest ownership rotation in its history: according to KfW's succession monitoring, around 109,000 owners of small and medium-sized enterprises plan to hand over their businesses each year through the end of 2029. For buyers, this is a historically favourable supply environment — provided the process, valuation and tax structure are set up professionally.
The Market: Excess Supply, Selection Problem
The figures from the KfW succession monitoring (January 2026) paint a clear picture: a growing number of owners ready to sell faces a shrinking generation of buyers; more than half a million owners are considering closing their businesses by the end of 2029 because no succession materialises. The average asking price for planned handovers is around EUR 499,000 — making the succession market one of the most accessible entry points into entrepreneurial wealth for qualified acquirers with equity and access to financing. The central hub for smaller transactions is the federally supported exchange nexxt-change; larger mandates are handled through M&A advisors and banks.
Asset Deal or Share Deal: The Fundamental Decision
Every transaction begins with the structuring question:
- Share deal: Acquisition of the company's shares. Contracts, permits and employment relationships continue unchanged; in return, the buyer assumes all of the company's historical risks. Tax treatment: no step-up in book values, and depreciation of the purchase price is only possible to a limited extent.
- Asset deal: Acquisition of individual assets. The buyer obtains depreciable acquisition costs (including goodwill amortised over 15 years) and, as a rule, leaves legacy risks behind — at the price of greater transaction complexity (§ 613a BGB, contract transfers, consents).
For acquirers buying through a corporation, there is a further advantage: if your holding company later sells the stake, the gain is effectively 95 percent tax-exempt under § 8b KStG (German Corporation Tax Act) — we have explained the mechanics in detail here . The acquisition structure therefore determines tomorrow's exit taxation.
If the target company holds real estate, even a share acquisition triggers real estate transfer tax where at least 90 percent of the shares pass to new shareholders within ten years (§ 1 para. 2a/2b GrEStG). These thresholds belong in every structuring plan involving property holdings.
Valuation: Multiples Meet Reality
In the Mittelstand, EBIT multiples dominate, with ranges reflecting sector, size and owner dependency. More important than the formula is the normalisation of the earnings base: imputed owner-manager compensation, one-off effects, non-operating assets, hidden maintenance backlogs. In owner-driven businesses, the decisive value driver is the transferability of customer relationships and know-how — it determines whether an earn-out or a seller transition period belongs in the contract.
Due Diligence: The Workstreams
- Financial: quality of earnings, working capital normalisation, net debt;
- Tax: tax audit risks, transfer pricing, VAT fiscal unity, loss carryforwards (§ 8c KStG);
- Legal: change-of-control clauses, employment law, IP;
- Regulatory: for acquirers from non-EU countries, foreign investment screening (§§ 55 ff. AWV) — and, separately, the statutory statistical reporting obligations under the AWV, which we have set out systematically here (K4 report from a 10 percent shareholding, Z4 report for the purchase price flow).
Financing and Tax Architecture
The typical Mittelstand acquisition structure is the NewCo holding: a newly formed acquisition vehicle takes on acquisition loans, acquires the target company and services the debt from its distributions — within the limits of the interest barrier rule (§ 4h EStG) and with due regard to shareholder debt financing rules. KfW programmes and guarantee banks supplement financing for smaller volumes. From 2028, the falling corporation tax rate — stepping down from 15 to 10 percent by 2032 — will noticeably improve after-tax returns on retained earnings; our analysis of the investment booster runs the numbers.
Seven Steps to Completion
- Define the search profile and financing framework
- Approach targets (nexxt-change, M&A advisors, banks, trade associations)
- NDA, information memorandum, indicative offer
- Letter of intent with exclusivity
- Due diligence and structure determination (asset/share, holding)
- Purchase agreement: warranties, indemnities, earn-out, W&I insurance from mid-size deals upwards
- Closing including conditions precedent — and the reporting obligations that follow (AWV, transparency register, commercial register)
Frequently Asked Questions
How much equity does a business acquisition require?
As a rule of thumb, financing banks in the Mittelstand typically require 20 to 30 percent economic equity; development banks and vendor loans can lower that ratio. What matters most is the target company's sustainable debt service capacity.
Asset deal or share deal — which is better for tax?
For buyers, usually the asset deal (depreciable purchase price); for sellers, usually the share deal (tax-privileged disposal). This conflict of interest is negotiated through the price — a robust tax structure on both sides is a prerequisite.
What is nexxt-change?
Germany's largest business succession exchange, backed by KfW, DIHK and trade associations, among others. It matches anonymised sale and purchase listings, primarily in the smaller Mittelstand.
More than 20 years advising entrepreneurs, investors and family businesses. Reserved tax services are provided by our partner tax firm, TABAK Steuerberatung.
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