Berlin has curbed spending, having limited some funds for businesses that were already struggling with higher energy costs

German family-led companies, traditionally seen as the backbone of the country’s economy, have found themselves on the verge of bankruptcy, Bloomberg reported on Saturday, citing business figures and industry analysts on the ground.

Owners of roughly three million family-run businesses reportedly see critical investments in new technologies as unfeasible or not worth the trouble, due to stiff economic headwinds, elevated borrowing costs, and a proliferation of red tape.

“The number of small and mid-sized German companies coming up for sale has been piling up for years,” Jens Krane, head of mergers and acquisitions at Commerzbank AG, which specializes in the country’s Mittelstand, or family-owned businesses, told the news agency.

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“A combination of new regulations and the need to invest heavily in transforming or scaling businesses has created a sense of ‘I’ve had enough’ among many entrepreneurs,” according to the analyst, who emphasized that the situation had already been complicated by the coronavirus pandemic and the energy crisis.

These challenging conditions have reportedly prompted some owners to consider the sale of their company, while heirs have become less likely to be eager to take over the family business.

“The mindset of heirs has changed, and fewer and fewer company heirs are willing to take over responsibility as chief executive officer for their parents,” Jan-Philipp Pfander, a partner at Proventis Partners, a corporate finance boutique advising on sell sides for family-led companies in Germany, Austria and Switzerland, said, as quoted by Bloomberg.

The situation became even more challenging after Germany’s constitutional court ordered the ruling coalition to stop excessive off-budget funding in 2023. Berlin had to curb spending, which also limited some funds for businesses that were already struggling with higher energy costs.

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