Companies That Have Undergone Ownership Transfers Grow Faster Than Their Peers, Research Shows – Surprisingly Often, the Successor Comes from Within the Company

Companies that have undergone an ownership transfer, either through a business acquisition or a generational transfer, have grown faster than other comparable companies, according to a statistical analysis conducted by Aalto University School of Business. Five years after the ownership transfer, their turnover was approximately 15% higher and their number of employees 8% higher than those of companies in the comparison group.

Companies that have undergone ownership transfers show significantly faster growth and higher profitability than their peers over a five-year follow-up period. However, their starting points differ: family businesses undergoing generational transfers are, on average, more profitable than other companies where ownership changes through a share acquisition. Successors in generational transfers tend to be somewhat younger and are more often women, while successors in other types of ownership transfers generally have higher levels of education.

According to a business survey conducted by Seinäjoki University of Applied Sciences and the University of Oulu's Kerttu Saalasti Institute, as many as 47% of individuals who became entrepreneurs through a business acquisition had previously worked for the company they acquired. The vast majority of these successors considered the ownership transfers successful. More than half of the companies that had made acquisitions had previous experience of acquiring businesses.

The circumstances and objectives behind business acquisitions vary depending on whether the buyer or successor is a company or an individual. Companies typically seek expansion and improved profitability, while individuals are motivated by entrepreneurship and the opportunity to make use of their expertise.

EK's Six Proposals to Accelerate Business Ownership Transfers

On average, just over 4,000 business ownership transfers take place in Finland each year. This is a worryingly low number, according to Jari Huovinen, Chief Policy Adviser at the Confederation of Finnish Industries (EK):

"Finland already has approximately 15,000 employer companies whose current owners would like to hand over their businesses to new entrepreneurs. These companies provide at least 110,000 jobs, and their continued operation is also vital to the economic vitality of the communities in which they are located. Finland simply cannot afford to maintain the current backlog of ownership transfers, which is holding back renewal, growth and investment in the business sector."

The research findings provide further support for EK's proposals to remove barriers to business ownership transfers:

1. Establish a long-term, cross-party entrepreneurship programme in Finland that extends beyond parliamentary terms, improves the predictability of the business environment and includes a concrete action plan to promote business ownership transfers.
2. Abolish inheritance and gift taxes to release more capital for business growth and its financing.
3. Improve access to ownership transfer services and training so that entrepreneurs can prepare for this demanding process in good time and improve their companies' readiness for sale. Ensure sufficient financing to support growth following ownership transfers.
4. Give ownership transfers greater prominence in entrepreneurship education and establish successor training programmes at vocational institutions and universities of applied sciences, open to everyone.
5. Invite employee organisations to participate in promoting ownership transfers and jointly identify the best ways to help employees interested in entrepreneurship take over the businesses of their former employers when both parties wish to pursue this option.
6. Strengthen cooperation between the National Business Ownership Transfer Forum and government ministries, for example in planning measures to promote ownership transfers and assessing their impact.

According to an analysis of the operating environment conducted by Aula Research, the visibility of business ownership transfers in public debate has increased significantly over the past decade. The National Business Ownership Transfer Forum has played an important role in raising awareness of the topic.

The Forum has been effective in initiating and sustaining discussion and providing a platform for cooperation among experts. However, its future work will require balancing different roles (expert versus advocate) and reaching different target groups more effectively, including policymakers, experts and businesses.

The business ownership transfer study is a joint research initiative coordinated by the Confederation of Finnish Industries (EK) in cooperation with the National Business Ownership Transfer Forum. The research was conducted by Aalto University School of Business, Seinäjoki University of Applied Sciences, the University of Oulu and Aula Research. The study was funded by the TT Foundation.

Further Information:
Jari Huovinen, Chief Policy Adviser, Tel. +358 40 861 4582, jari.huovinen@ek.fi

Further Information on the Research:
Statistical analysis: Professor Samuli Knüpfer, samuli.knupfer@aalto.fi
Business survey: Elina Varamäki, Vice Rector, Tel. +358 40 8305 189, elina.varamaki@seamk.fi and Matti Muhos, Professor and Director, Tel. +358 400 407 590, matti.muhos@oulu.fi
Operating environment analysis: Juha Vekkilä, Partner, COB, Tel. +358 50 352 5335, juha.vekkila@aularesearch.fi

Photo: University of Oulu