Germany's Succession Shortage is Not "Japan's Future"—It's Already a Reality for SMEs in Japan

Germany's small and medium-sized enterprises (SMEs), known as "Mittelstand," are facing a massive wave of generational change. Long-time owner-managers who have supported regional economies and manufacturing are reaching retirement age, yet successors within the family are hard to find. The companies are profitable, have customers, and employ staff. However, without someone to take over the management, these businesses will vanish from the market.

This issue is not a distant European story. From Japan's perspective, Germany's SME succession problem is not a "future event" but a mirror reflecting the reality already unfolding in Japan. In fact, Japan shares very similar structural issues with Germany, such as aging business owners, a decline in family succession, closures of local businesses, and the expansion of third-party succession and SME mergers and acquisitions (M&A).

The core of the issue highlighted in the German article is clear. In Germany, approximately 186,000 companies will face succession between 2026 and 2030. Many of these are SMEs built over decades, with customers, employees, equipment, regional trust, and specialized skills. However, the combination of aging managers and a lack of successors makes business continuity itself challenging.

According to KfW's Nachfolge-Monitoring Mittelstand 2025, while about 109,000 SMEs aim for succession annually until the end of 2029, approximately 114,000 companies are considering ceasing operations each year due to the absence of successors. In other words, in Germany, both "companies wanting to be succeeded" and "companies that have no choice but to close" are increasing simultaneously.

This is highly suggestive for Japan. The absence of successors has long been a social issue in Japan. According to a 2025 survey by Teikoku Databank, the rate of companies without successors in Japan improved to a record low of 50.1%. Yet, about half of the companies still lack successors. The 2025 White Paper on Small and Medium Enterprises by the Small and Medium Enterprise Agency also reports that while the overall rate of successor absence is declining, the age of SME managers remains high, with those over 60 making up the majority.

Thus, Japan's problem is not "improving, so there's no need to worry." Rather, the reality is that while support systems and the M&A market are gradually improving, the weight of structural aging remains.

The "Limits of Family Succession" Common to Germany and Japan

In the past, business succession mainly involved passing the company from parent to child. Both Germany's Mittelstand and Japan's local factories, shops, and regional businesses have long operated on the premise of family management. The founder's children would join as the second or third generation, maintaining relationships with local customers, employees, and business partners. This was the natural form of succession.

However, that premise is now collapsing.

Children work in large urban or foreign companies, choose different careers, live abroad, or simply do not wish to take over their parents' company. The business environment is tough, and there is resistance to taking on debt and employment responsibilities. These circumstances are common in both Germany and Japan.

As a result, business succession has shifted from being a "family issue" to a "societal issue." If it cannot be succeeded within the family, will employees take over, will an external manager step in, will a similar company acquire it, or will investors and funds support it? While options are expanding, the difficulty of succession is also increasing.

In Japan, Teikoku Databank uses the term "de-familization" to indicate the trend of expanding succession beyond family inheritance to include internal promotions. This aligns with the German article's indication of expanding external succession. Companies are no longer continued solely by blood relations. Instead, they are being passed on to those with management skills, fundraising ability, trust with employees, and the power to transform businesses.

If this change is viewed positively, succession can become a new form of entrepreneurship. Rather than creating a company from scratch, one can take over a company that already has customers, sales, equipment, personnel, and regional trust, and add new management, digitalization, and market development. This is not "buying and ending" M&A but "inheriting and growing" entrepreneurship.

Is the "Wave of Closures" an Opportunity for Buyers?

The German article points out that the shortage of successors is creating new opportunities for buyers. This is also true in Japan. As the number of companies without successors increases, so do the cases of third-party succession and SME M&A. For buyers, it may be more rational to take over an existing company than to develop a market from scratch.

For example, local manufacturers have long-standing business partners. Food processing companies have regional brands and loyal customers. Construction companies have licenses, craftsmen, and networks of cooperating companies. Inns, restaurants, retail, and life hygiene-related industries also have customer bases rooted in the community. These are assets that new entrants find difficult to acquire in a short period.

According to a survey by the Japan Finance Corporation, about half of the business owners over 60 in the life hygiene-related business have intentions of succession. Even companies without succession intentions or those not considering it at present may consider succession if approached by a third party. This indicates that the potential succession market has not yet fully surfaced.

However, for buyers, "an increase in cases" does not equate to "being able to buy good companies." Among companies lacking successors, some have growth potential, while others face structural challenges. Even if sales are stable, customers might be concentrated in one company. Even if profits are being made, they might rely on the sales skills of the individual manager. Even if employees are skilled, the average age might be high, and the next generation might not be recruited. Risks such as paper ledgers, personalized estimates, cost calculations known only to the president, unorganized contracts, old equipment, and unaddressed digital transformation can surface rapidly after acquisition.

The German article also treats the difficulty of corporate value evaluation as an important issue. The multiple method, which multiplies EBIT, provides an easy estimate of the acquisition price. However, it does not adequately reflect the specific risks of the company. More precise evaluations, such as those based on the IDW S1, which discounts future earnings to present value, are also used but are more labor-intensive and costly.

Japan faces the same problem. Sellers want to sell high because they have nurtured the company for many years. Buyers question whether the profits will truly continue in the future. Sellers want their company's history and trust to be valued. Buyers want to confirm if customers will remain after the acquisition, if employees will not leave, and how much investment in equipment is necessary. These differences in perspective make price negotiations difficult.

Reactions on Social Media—From "Crisis" to "Future Creation"

Reactions on social media reveal that business succession is perceived not just as M&A news but as a social issue.

In LinkedIn posts about Germany's succession issue, the figure of 186,000 companies is seen not just as a statistic but as an issue of family businesses, employment, responsibility, and trust built across generations. This perspective resonates strongly in Japan as well. The closure of an SME is not just the disappearance of a corporate number. It means the loss of employee jobs, regional business relationships, customer trust, skills, brands, and sometimes even regional culture.

Similar reactions are spreading on Japanese social media. On LinkedIn, there are posts suggesting that the "era of mass closures" is also a "great opportunity." As baby boomer generation business owners reach retirement, excellent SMEs are on the verge of closing due to a lack of successors. This demographic change is seen as a new entrepreneurial opportunity for young and mid-career business people to take over existing business foundations.

Another post positions business succession not merely as taking over management but as "future creation" by passing on the company's philosophy, culture, technology, and significance in the community to the next generation. This view sees M&A not merely as a transaction or investment recovery but as a means of regional revitalization, brand regeneration, and business redefinition.

Furthermore, social media posts about financial institutions' support for business succession suggest that bank branch networks can serve as consultation points for business owners struggling with the absence of successors. This is a uniquely important point in Japan. For SME owners, consulting with an M&A brokerage company can be a psychological hurdle. In contrast, they find it easier to consult with local banks, credit unions, tax accountants, and chambers of commerce with whom they have long-standing relationships. Succession support is not just about matching buyers and sellers but about creating a trusted entry point where business owners can speak candidly.

On X, the fact that the successor absence rate exceeds 50% is highlighted as a "pressing issue," yet there are reactions indicating that in local areas, there is potential for business succession through new stakeholders and related populations, rather than mere decline. This theme connects with local migration, regional entrepreneurship, local media, tourism, and traditional industry revitalization.

What is common in social media reactions is the shift in perception of business succession from "end processing" to "the next beginning." This is a mindset needed in both Germany and Japan.

What Japan Needs is Not "Number of M&A Deals" but "Post-Succession Success"

In recent years, Japan's SME M&A market has been expanding. The number of players supporting succession, such as matching platforms, M&A brokerage companies, business succession support centers, regional financial institutions, and funds, is increasing. This is a significant advancement.

However, what Japan should question next is not just "how many M&A deals can be increased" but "whether the companies taken over can continue to grow afterward."

Acquisition is not the goal but the start. In business succession-type M&A, post-acquisition PMI, or integration and operational improvement, is extremely important. Can employees trust the new manager? Will existing customers stay? To what extent will the previous owner be involved in the transition? Will the company name or brand remain? Will the salary and evaluation systems change? How will old business systems be updated? If these issues are not handled carefully, value may be lost after the acquisition.

Japanese SMEs have many values not reflected in financial statements. The president's personality, regional reputation, employees' tacit knowledge, craftsmen's intuition, long-standing trust with business partners, and local connections. These cannot be transferred through an M&A contract alone. If buyers overlook this, business succession becomes merely a change of ownership, and the true value of the company is lost.

On the other hand, if these values are respected while adding management, digitalization, recruitment, marketing, overseas expansion, e-commerce, and financial strategies, the succeeded company can change significantly. For example, a long-established local food manufacturer acquiring e-commerce and overseas sales channels, a town factory digitizing design data and sales processes, inns and restaurants evolving into regional experience-based tourism products, or construction and equipment industries improving young talent recruitment and business management. Such changes can happen faster than starting a business from scratch and have a significant social impact.

Three Perspectives Japan Should Learn from Germany

There are three major lessons Japan should learn from Germany's succession issues.

First, the shortage of successors is not an "individual company problem" but an "industrial infrastructure problem." Germany's Mittelstand is a crucial entity supporting manufacturing and specialized services, and its loss affects the entire supply chain. The same is true for Japan. When local SMEs disappear, it impacts not only regional employment but also parts supply supporting large companies, construction and maintenance, food distribution, tourism, and medical and welfare peripheral services. Succession policy is not just SME support but industrial policy.

Second, the importance of preparing for succession early. If sellers postpone by saying "I'm still healthy," "after performance recovers," or "when a good buyer appears," the company's value may decrease. Plant managers retire, major customers leave, employee aging progresses, financial documents are not organized, and the manager's own stamina declines. On social media, there are practical suggestions that "preparing to sell starts before the sales process." This applies directly to Japanese managers.

Third, the need to cultivate buyers. Those who buy companies need more than just funds. They must understand the SME field, gain employee trust, respect the previous owner's intentions, and have the power to implement necessary reforms. While "entrepreneurship education" is increasing in Japan, the cultivation of "succession entrepreneurs" is still insufficient. Increasing the number of people who can take over, refine, and grow existing companies will be an important theme going forward.

"The Power to Create a Company" is as Important as "The Power to Inherit a Company"

In Japan, entrepreneurship has long been associated with establishing new companies. Startups, fundraising, IPOs, unicorns. Of course, these are important. However, in a society facing population decline and aging, the power to create companies from scratch is not enough. The ability to inherit existing companies and adapt them to the times is needed.

Germany's Mittelstand and Japan's SMEs are not merely old companies. They have long-standing customers, relationships with the community, on-site wisdom, and employee skills. The problem is that these are lost without being passed on to the next generation.

If the shortage of successors is seen only as a "closure crisis," the narrative becomes bleak. However, if viewed as "entrepreneurship through succession," "revitalization of regional businesses," and "updating existing businesses," there is great potential. In Japan, if young generations, urban business talents, local migrants, similar companies, regional financial institutions, funds, and local governments collaborate, companies that were supposed to disappear can be taken to the next growth stage.

Of course, succession cannot be achieved through feel-good stories alone. Price negotiations, borrowing, guarantees, taxes, legal matters, employee handling, PMI, digitalization, recruitment. There are many practical challenges. As the SME M&A market expands, transparency of fees, conflicts of interest among intermediaries, and accountability to both buyers and sellers become important. The background of the Small and Medium Enterprise Agency revising the SME M&A guidelines is due to these challenges accompanying market expansion.

Therefore, business succession is not a simple matter of "someone buying the company will solve it." Sellers need to prepare the company to be taken over. Buyers need the determination to transform the company while respecting it. Supporters need to look beyond just closing deals to ensure post-deal success.

The figure of 186,000 companies in Germany is not irrelevant to Japan. Although the successor absence rate in Japan is improving, many companies are still searching for their next leaders. In a society with a declining population, not all companies will remain. However, it is a significant loss for companies with value to disappear solely due to the lack of successors.

What Japan needs going forward is not just lamenting closures but viewing succession as an entry point for growth. A society where not only those who create new companies but also those who inherit, refine, and pass them on to the next era are valued. The wave of generational change occurring in Germany's Mittelstand is a reminder of this necessity for Japan.

Source URL

Basic information on generational change, successor shortage, opportunities for buyers, corporate value evaluation, financing, and M&A processes in Germany's SMEs "Mittelstand"
https://www.aktiencheck.de/exklusiv/Artikel-Generationswechsel_Mittelstand_Wie_Nachfolgewelle_neue_Chancen_fuer_Kaeufer_schafft-19890173

IfM Bonn "Unternehmensnachfolgen in Deutschland 2026 bis 2030": Used to confirm the estimate that about 186,000 companies in Germany will face succession between 2026 and 2030, and trends by industry, sales size, and region##HTML_TAG_125