The Meaning of Intangible Assets: New Insights into External Company Succession in SMEs

The Commission of the European Communities (2006) estimates in its report that one third of all EU entrepreneurs will leave within the next ten years. Combined with the situation that (1) the majority of Europeans prefer being an employee and (2) the changing demography will reduce the pool of potential successors over the next decades this paper argues that external (non-family) successors take on an important role and are in a position to choose the company, which best matches their expectations. A successful company succession is based on a multitude of different aspects. In the case of external succession the available funds represent a critical point. However, the assumption is that the decision for or against a company is based on other factors. It is hypothesised that the potential external successor will be interested in those companies offering potential expansions, which may, in turn, improve the likelihood of financial support. In view of the increasing relevance of intangible assets within the firm, it is suggested these assets primarily influence the external successor to go further in the succession process. Thus, it is expected that the future perspectives of the company are founded on its inherent intangibles and therefore justify a financial investment. The aim of this paper is to explore the role of intangible assets as seen from the viewpoints of external successors. The strategy of research behind this paper is the application of a mixed methods approach which is divided into a survey approach and a case study approach (given priority). Within the quantitative stage a web-survey is used to obtain data on the relevance of intangible assets in terms of external company succession in SMEs whilst addressing members of German trade corporations and chambers of commerce. The results of the quantitative study were enhanced through qualitative interviews with ten external successors in SMEs. The data which was gathered explores the role of intangible assets during their decision-making stage as to whether or not they should enter the company. Intangible assets are found to be important features for external successors. Specifically five intangibles can be highlighted: brand, partner(s), key-employees, knowledge retention, and corporate culture. The critical intangibles are summarised in a conceptual framework. The findings suggest that in the case of external succession, intangible assets have a remarkable influence on the external successor's decision-making and therefore traditional issues in the view of company succession such as tax, legal and, financial aspects should be extended to include intangible aspects.