Two in five European family-owned businesses expect leadership or ownership changes before 2035, and the next generation of business leaders faces financing conditions that bear little resemblance to those their predecessors navigated.
The European Corporate Governance Institute reports that each year roughly 450,000 European businesses change hands. Yet an estimated 150,000 firms and 600,000 jobs are lost annually due to unsuccessful handovers.
Banks have grown increasingly wary of lending to next-generation borrowers who lack their parents’ track records, particularly as Basel III and IV capital requirements reshape lending behavior. Corporate bank loans for succession financing are now considered among the most complex investments due to inherent uncertainties throughout the transition process.
“It’s fair for a bank to ask: how do we assess a younger successor against decades of their parent’s track record?” says Al Christy Jr., founder and CEO of EquitiesFirst, an alternative financing firm. “The traditional lending model can break down when soft information disappears overnight.”
Faced with tighter lending from traditional sources, some family businesses may turn to firms like Christy’s to secure equities-backed financing, capital financed against existing equities holdings.
The Credit Crunch
According to UBS data, European corporate lending at banks has declined 15-20% since 2007, even as U.S. banks increased lending 1.8 times over the same period. However, banks supply around 85% of corporate debt capital across Europe, far above the 50-55% share they hold in the United States.
ECGI research analyzing over 1,500 hypothetical loan applications found that bank loan officers require professionalization practices before approving succession loans: independent nonfamily board members, regular family meetings, and advisors addressing emotional and relational aspects. Yet many UK family businesses operate informally, creating a catch-22 for firms that need capital precisely to professionalize.
Private Debt Surges
The European private debt market has quadrupled since 2014, with direct lending now comprising three-fifths of total volume. That expansion has delivered consistent returns: the Lincoln European Senior Debt Index posted 8.5% compound annual growth between January 2019 and March 2024
Private lenders typically charge 200-400 basis points above liquid loan markets, and they may institute restrictions that constrain operational flexibility. The result is higher costs of borrowing, with Euro area borrowing costs remaining structurally higher than pre-pandemic levels.
“The private debt boom speaks for itself,” says Christy. “The challenge isn’t finding capital—it’s finding capital that doesn’t tie your hands when you’re trying to modernize a business.”
For successors lacking liquid capital to buy out siblings or pay inheritance taxes, standard private lending terms can prove challenging. Against this backdrop, firms like EquitiesFirst, which provides liquid capital financed against share portfolios, could stand to see growing interest from UK family business heirs seeking liquidity without ceding control or accepting traditional debt restrictions.
Globalization Pressures
A 2022 study published in the Journal of Business Research found that family-owned firms may prioritize socioemotional wealth—authority, influence, and identity from business control—over pure financial returns. But that conservative instinct can collide with the modern reality: digital technologies and international competition are reshaping competitive dynamics, forcing family businesses to internationalize and scale rapidly or risk obsolescence.
It’s a dynamic Marc Puig navigated when he led Spanish beauty group Puig through its April 2024 IPO, which raised €2.6 billion.
“Being forced to be accountable to the market was a way to balance the power of the family,” Puig told the Financial Times. Revenue soared over 10% to €4.79 billion in 2024, driven by the global expansion of brands including Rabanne, Jean Paul Gaultier, and Carolina Herrera
Alternative Paths
According to KPMG research over 60% of M&A deals now involve family businesses acquiring other family-owned enterprises, often using family offices to manage acquisitions that drive digital transformation and international growth.
Some heirs forge independent ventures. Brad Harris, son of Flight Centre co-founder Geoff Harris, launched a corporate training company focused on institutionalizing management development—financed independently rather than through the family firm.
For families with concentrated equity positions, financing parallel ventures poses challenges. Alternative financing could allow successors to borrow against existing shareholdings while maintaining exposure to long-term positions, providing capital for new initiatives while maintaining family ownership of the core enterprise.
Timing Matters
The Organization for Economic Co-operation and Development estimates that only about 30% of family businesses survive to the second generation; just 12% make it to the third.
In many cases, successors must secure external financing to cover share purchase costs, taxes, payments to family members, and restructuring expenses. A typical structure involves establishing a holding company that obtains a bank loan to pay the predecessor, with cash streaming from the family firm to repay the debt.
This arrangement has tax advantages but concentrates risk. If the business underperforms during transition, the debt burden can become unsustainable.
“Successors may need breathing room to prove themselves without betting the entire family legacy on year-one performance,” Christy notes.
EquitiesFirst’s approach—treating equity as an asset that can be used to secure financing rather than sold—can potentially give successors time to establish their track record while maintaining ownership stakes.
Contemporary European successor generations are globally exposed and determined to professionalize operations while preserving family values. The families that endure will understand succession as an ongoing process requiring financial creativity, governance discipline, and willingness to professionalize without sacrificing the family character that led to generational success.
