Keynote speech at the Maltese Presidency Conference on "Transfer of Business", Malta - Valletta, 17th March 2017

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Introduction

Minister,

Distinguished Guests,

Ladies and gentlemen,

First of all, I would like to thank Minister Cardona and the Maltese Presidency for organising this important event.

I was glad to see that transfer of business has been set as one of the political priorities of the Maltese presidency.

And this conference proves it!

This is a great opportunity to exchange views on the challenges that lay ahead of us all in this area.

And it is also an opportunity for me to share with you my views.

Creating a favourable business environment 

The number one priority for all of us is to prevent entrepreneurial potential from being wasted in Europe.

A strong entrepreneurial culture and ambitious entrepreneurs coupled with a friendly business environment are key to success.

First, we need to make sure that starting a business in the EU is fast, cheap and easy.

Second, we need to help new firms to connect with investors, business partners, sources of finance and innovation: people with the right skills and talent.

But, third and equally important is to make sure that every company that is viable has a chance to survive and increase jobs.

This is true for bankruptcy laws that should provide for an early warning mechanism and offer efficient restructuring frameworks.

And it is also true for transfer of business.

 

So far there has been a widespread perception that the issue of transfer is only relevant when the business owner approaches retirement, and that this happens mostly within a family.

But evidence shows that business transfer can happen at any time and for different reasons, rather than just retirement. 

Today, a significant number of businesses, including family businesses, are transferred to third parties. 

And more and more often a company is transferred to employees in the form of a cooperative.

Of course, this does not mean that the concerns that are typical for successions within family businesses can be left aside.

On the contrary, succession-friendly fiscal policy is certainly an area to look at.

So it is an encouraging sign that the majority of the Member States have already taken steps to address this issue.

But this is not only about taxes.

It is also about the way a succession is prepared and handled.

Transferring the ownership of a company is a complex and long-lasting process that usually represents a substantial change for all those involved.

And it is often associated with heavy psychological and emotional burden.

To be successful, transfer of business needs to be planned and prepared well in advance.

It requires efficient mechanisms to match buyers and sellers.

And it calls for a friendly and conducive financial, regulatory, administrative and fiscal environment.

And last but not least, it needs to be framed by quality advice and support, including for the company valuation.

 

We have some estimates in Europe as to how many firms and jobs are lost in Europe each year due to unsuccessful transfers.

And these estimates are quite impressive.

150,000 companies responsible for 600,000 jobs

And the most vulnerable companies are the micro ones that tend to be mostly sole proprietorships.

These are the ones that encounter additional difficulties during the transfer process because their legal form is not very suitable for transfers.

But of course one should not forget that the very young ones are also vulnerable as at that stage of their life cycle they often run into financial problems.

But difficulties are experienced most by those companies that are not properly prepared.

And if the owner waits too long and the company starts experiencing financial difficulties or losing customers then it may even become non-transferrable or at least much less attractive to potential buyers.

Commission initiatives supporting transfer of business

Together with the Member States, we have worked on business transfers for over twenty years.

And in the recent Single Market Strategy and Start-up and Scale-up Initiative we have also put forward measures that will help companies to get established and expand their operations.

These measures target regulatory and administrative barriers, access to information, company law, taxation, access to finance and skills - to mention just a few.

And these measures - once implemented – will also improve the framework conditions for those companies that are due to be transferred. 

Last year, we concluded three projects on business transfer.

These will be presented later today in greater detail.

They covered:

  1. Awareness Raising to prepare a Business Transfer; 
  2. Transparent markets and Matching platforms; and
  3. Training and advisory services.

Through these projects we wanted to get better insights on how the main shortcomings related to business transfers identified by our last evaluation could be addressed.

And these projects delivered good results and proposed solutions.

And some of them can be easily adapted and used in other Member States.

And these projects delivered proposed concrete solutions.

As a result, we have now at our disposal:

  • a Practical Guidebook for Business Transfer Awareness Raising;
  • and quality market-based standards for buyer-seller on-line platforms

So far, nineteen matching platforms from nine Member States have signed a 'Code of Conduct ' which commits them to respect the minimum quality standards in their daily operations.

 

We also have a set of concrete training modules to improve the skills of advisors in business transfer. 

 

And to ensure the right quality of these advisory services, a certification system for advisors in business transfer was developed.

 

These results can be easily adapted and used in other Member States.

So now we all need to make sure that these results are actively promoted across Europe.

Our Enterprise Europe Network with over 600 member organisations will be involved in this process.

The possibility to provide Enterprise Europe Network services to help entrepreneurs find partners for acquiring existing businesses abroad is already foreseen.

But the level of activity in this area varies from region to region, depending on local factors.   

So at EU level we will explore the option of involving the Network in the provision of information on the possibility to internationalise one's business through an acquisition of an existing business abroad.  

Erasmus for Young Entrepreneurs can also be helpful here.

This programme helps new entrepreneurs who at a later stage may decide to acquire an existing business instead of establishing a new one.

 

But, Ladies and Gentlemen, there is one more element which is in my view crucial.

And that is about the availability of finance for takeovers.

The challenge to obtain adequate financing for taking over an existing business can be enormous.

And this is where the Loan Guarantee Facility under the COSME programme can play an important role.

And while this Facility is not exclusively geared towards business transfers, we encourage financial intermediaries to include an option in their offer.

And a number of intermediaries have either set up a dedicated product to support this or have made it clear in their eligibility criteria that they can also cover the financing of business transfers.

A good example is the German development bank KfW who runs a start-up product which also covers those new entrepreneurs who are taking over an existing business.

Conclusions

So ladies and gentlemen, this is briefly where we are.

What do we need to do next?

It is very simple.

We need to continue our work on all fronts and at all levels with determination and patience.

And we need to adapt in the light of experience.

So we need to apply the solutions that were tested and worked.

But we need to do it in close cooperation with the Member States and the regions.

Why?

Because most transfers happen and will need to be organised at national or regional levels.

What does this mean in practice?

This means raising awareness among current owners so that they know that they need to prepare for a smooth transfer.   

This means a thorough market analysis and mentoring throughout the whole transfer process.

This means intelligent and simplified regulatory procedures and a transfer-friendly tax regime.

And it also means the sources of finance for the acquisitions that can help preserve a business and sustain it in its new phase.

That is why I would like to encourage Member States to come up with their own national Action Plans to facilitate transfer of business.

Such Action Plans could address this issue at grass-root level in a comprehensive way.

And they could be fine-tuned to each country's needs as well as institutional and regulatory specificities.

They will have different scopes and focus as each country is at a different stage. 

I look forward to fruitful discussions and new ideas.

And I wish you all the success!

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