Creating, growing and transferring your business 

Realistically, one third of businesses is passed on to a family member (or internally), one third is sold and the rest disappears[1]. Creating a business transfer culture is therefore the best action an entrepreneur can take for this transition to be successful. Given the many challenges and the complexity of the process, 3 pillars can serve as a basis for reflection: shareholding, governance and business development.

In entrepreneurship, business transfer seems to be the "poor relation", compared to the multiple structures dedicated to business creation, innovation or start-ups.

The banker is often a pillar in the transfer of the business. He knows perfectly well all the workings of the company its history, its values, its projects, its history… and is in more comfortable position when financing a takeover. The main goal is for the company to survive the departure of the manager and the main shareholder, while optimising the transition through appropriate support. It is the project that will leave the company with most potential and provide greatest security for its partners (bank, customers, employees, investors, etc.).

However, today, the reality is different. Entrepreneurs are faced with increasingly rapid economic cycles, heavy regulatory constraints, recruitment difficulties and various unknowns along the added value creation path. Sometimes, the entrepreneur has lost motivation or is facing illness and wants to retire 'early'. These triggers can bring the process to a head. Only coordinated support from experts will facilitate the transfer of the business, whether it is imposed or has been planned.

An entrepreneur is given advice as the business develops. During this growth phase, the entrepreneur gains operational, financial and commercial skills. And when it comes to growing their personal assets, they should follow the same advice logic. It is the interactions between business assets and personal assets that will require most analysis and access to privileged advice, especially during the transfer phase.

The tools used are subtle: division of ownership, preferred shares, or lasting power of attorney (law currently in the draft stage[2]).

Banks have the relevant resources and services that cover the company’s financial needs, but also at the level of its shareholders and/or managers. Private banks, experts in the area of personal wealth of entrepreneurs, are a unique and privileged contact with whom personal, family and holding-company assets can be managed. After transfer of the business, the private banker will remain the transferring party’s natural contact, whereas other partners will take a back seat, except for certain serial entrepreneurs who combine their activities.

Thanks to the country’s sound health, the growth in the added-value of Luxembourg companies is double the EU average, the companies’ financial autonomy is good, and some studies show that the EBITDA of non-financial companies is lower than the European average[3]. Given the size of the country, its market is an oligopolistic one, which makes it necessary to qualify the disparity of its indicators.

On the ground, we see companies growing, creating employment and generating profitability. Great targets for buyers! Luxembourg is the ideal fabric for entrepreneurship, with an environment that is conducive to development, but also very open to international entrepreneurs, who have historically chosen Luxembourg to structure themselves internationally, or who have been attracted by the specificities of international private banking.

Here, some business mergers are natural, other operations require a great deal of confidentiality, and the Greater Region also comes into play, even if the number of LBOs (leveraged buy-outs) of Luxembourg companies is still quite low. Finally, it is not uncommon to see an international entrepreneur, structured in Luxembourg (in a family office or otherwise), diversify there, buy local companies, and finally settle there.

It is the combination of all these possibilities that creates an ecosystem that is conducive to entrepreneurship and that offers many opportunities.

[1] Centre des Repreneurs d'Affaires [Centre for Business Buyers], 2015, France

[2] Presented by the Minister of Justice on 11 January 2023

[3] https://statistiques.public.lu/en/publications/series/regards/2020/regards-15-20.html

from Paperjam, 04/2023