Why Saving Small Businesses Matters: The Community Impact of SME Acquisitions — by Mukul Pandya
As economic challenges gather strength and demographic shifts reshape business landscapes around the world, the fate of small and medium-sized enterprises (SMEs) hangs in the balance. The headlines often focus on startups or large corporations, but the unsung heroes of local economies — the established SMEs that provide essential services and employment — face an existential threat. With millions of business owners approaching retirement age without clear succession plans, communities worldwide risk losing not just businesses but vital social and economic foundations.
Recent data from KfW Research shows the scale of this challenge in Germany alone: some 224,000 SME owners were planning to hand over their businesses by the end of 2024, with approximately 626,000 business transfers planned by 2027. This represents about 125,000 successions annually. Yet many business owners struggle to find suitable successors, with 74% citing this as their primary challenge.
The situation in the United States mirrors this European trend. Researchers note that within the next 10–20 years, millions of dollars in enterprise value will require some form of management transition or liquidity event in the U.S. alone. Millions of businesses are expected to exit the market over the next two decades as closely held and family-owned businesses lose their primary owners to death or retirement, often without clear succession plans. As Lindsey, Mauck, and Olsen note in their study, “One sub-group of small business, family-owned businesses, account for 64% of U.S. GDP, 62% of U.S. employment and 78% of new job creation and face an expected retirement rate of 40% in the next five years. These demographic facts lead to the observation that retiring business owners will sell or bequeath $10 trillion worth of assets over the next twenty years.”
The consequences of failed succession extend far beyond balance sheets. Observers believe that when SMEs close rather than transfer ownership, they take with them jobs, services, and community connections built over decades.
The True Value of SMEs
When an SME closes, the impact ripples through communities in ways that statistics often fail to capture. As Dmitri Ivanov, an entrepreneur who acquired Metro Vein Centers in the US via a traditional search fund model, explains: “When small and medium-sized enterprises close due to a lack of succession planning, the consequences extend far beyond financial loss. Employees lose their jobs, creating personal and financial instability, while customers lose access to the services they rely on. The broader community is impacted as well, because it loses services, income, and tax revenue.”
While Ivanov’s experience reflects the US market, similar challenges exist in Europe, as shown by Javier Fernandez's experience. Fernandez, who acquired the Spanish company Rafe Group with backing from a Swiss family office, has witnessed this impact firsthand. “We acquired the company with 80 employees between the logistics company and the demolition workers. Now we are at 130,” Fernandez notes. The company's positive impact extends beyond direct employment, contributing to local economies through various activities and supporting NGOs by donating recovered furniture from large projects.
This ripple effect illustrates how SMEs weave themselves into the fabric of local economies, creating an ecosystem that benefits numerous stakeholders beyond their immediate operations.
Metro Vein Centers: Healthcare with Community Impact
Ivanov's acquisition of Metro Vein Centers demonstrates the transformative potential of entrepreneurship through acquisition (ETA). A Wharton MBA and now a serial entrepreneur and investor, Ivanov faced multiple challenges including personnel issues, liquidity problems, and the COVID-19 pandemic, yet implemented a patient-first approach that transformed the business.
By accepting more than 200 insurance plans and focusing on exceptional patient experience, Metro Vein Centers now treats more than 50,000 patients annually suffering from chronic venous insufficiency. The company has grown to 65 locations with more than 500 jobs preserved or created, generating both healthcare and economic benefits across multiple communities.
The company's remarkable turnaround - achieving a Net Promoter Score of 95 compared to the healthcare industry average of 56 - illustrates how acquisition entrepreneurship can preserve and enhance critical community infrastructure while generating strong financial returns for investors.
Ivanov now mentors other acquisition entrepreneurs, particularly in healthcare services: “If these entrepreneurs through acquisition didn't exist, the impact would be tremendous,” he explains. His approach creates a multiplier effect as each successfully mentored entrepreneur preserves and enhances vital community businesses.
Rafe Group: Elevating Industry Standards
At Rafe Group, which specializes in demolitions, dismantling, and waste management, the acquisition represented more than preserving jobs—it meant elevating industry standards and expanding capabilities.
“We have invested in a Director of Health and Security to make sure our employees have everything they need,” Fernandez explains. “We have introduced new German technology for the projects and better equipment for our employees.”
This investment in safety standards, technology, and professional management has transformed the company's market position. “We've gone from executing projects ranging from €150,000 up to €350,000 to executing projects of €2 million plus,” says Fernandez. “The market is very happy to work with professionals in this market niche because it's not professionalized.”
Rather than simply maximizing short-term profits, Fernandez has focused on professionalizing the company and creating a diverse workforce, preserving its core service while enhancing its sustainability and impact in the communities it serves.
The ETA Solution
While succession crises loom large in Europe, the US and elsewhere, ETA and management buy-in (MBI) offer promising solutions. Unlike traditional startups, MBI involves experienced entrepreneurs acquiring existing businesses, bringing fresh leadership while preserving the company's value and community impact.
Academic research supports the efficacy of this approach. According to a 2023 scoping review by Hoffmann, Kanbach, and Stubner, ETA and MBI have emerged as meaningful contributors to entrepreneurial capacity and business revitalization with the potential to substantially contribute to socio-economic rejuvenation.
“SMEs are integral to preserving the unique identity and culture of local communities,” notes Ivanov. “They often embody the history, values, and character of a place, offering personalized services that larger corporations cannot replicate.” What distinguishes successful ETA from other transactions is the entrepreneurial intent behind the acquisition. According to researchers, ETA involves a focus on growth strategies rather than merely harvesting existing value. This entrepreneurial mindset drives innovation and expansion while maintaining the business's core strengths.
A Win-Win-Win Solution
For communities facing the potential loss of vital SMEs, ETA represents a win-win-win solution. Business owners secure their legacy and financial future, entrepreneurs gain a platform for growth, and communities retain essential services and employment.
As SMEs continue to form the backbone of economies worldwide, supporting successful business transitions becomes increasingly critical. Educational institutions are taking note—business schools like Stanford, Harvard, and IESE are developing dedicated programs to prepare entrepreneurs for acquisition opportunities.
For policymakers, the challenge lies in creating environments where business transitions can thrive. This includes addressing regulatory complexity, improving access to financing, and developing networks to connect retiring business owners with potential acquirers.
For entrepreneurs considering this path, Ivanov offers sage advice: “Look beyond the balance sheet and consider the company's role in the community. Engage with employees, customers, and local leaders to understand the company's local impact, both in terms of economic contribution and social value.” The lesson is clear: when we save SMEs through thoughtful acquisition and succession planning, we sustain the vital connections that make communities thrive.
