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(Bloomberg) — Steffen Cyris, the owner and chief executive of Schrutka-Peukert, a Bavarian manufacturer of refrigerated deli counters and dry-age beef rooms, boasted at last year’s Christmas party about the company’s packed order books, brushing off Germany’s broader economic woes and telling employees to prepare for some extra work this year.

But within a matter of weeks, that optimism was gone. Butchers and bakeries canceled their orders, pointing to subsidies Germany stopped at the beginning of January. Now, with the country sliding deeper into recession, Cyris is increasingly concerned about the long-term prospects of his business.

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“The situation is so tense that I’m not sure I’d decline an offer from an investor should I get one,” he said.

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Cyris’s unease reflects growing frustration among Germany’s roughly three million family-held companies — still the backbone of the country’s economy — which find themselves approaching a breaking point. With stiff economic headwinds, elevated borrowing costs and a proliferation of red tape, owners increasingly see critical investments in new technologies as unfeasible or not worth the trouble and are looking to bow out.

“The number of small and mid-sized German companies coming up for sale has been piling up for years,” said Jens Krane, head of mergers and acquisitions at Commerzbank AG, which specializes in the country’s Mittelstand, or family-owned businesses. After the pandemic and energy crisis pushed many to the edge, “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.”

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Germany’s Mittelstand has built a reputation globally for many highly specialized companies that are spread across the country and often dubbed as hidden champions. Traditionally owners preferred to pass on their companies within the family and only considered a sale if they had to.

Burc Hesse, a corporate partner at law firm Latham Watkins, said companies are now more open to offers from investors such as private equity funds. 

“What we keep hearing from German founders and owners is that the complexities of running a business are greater than ever before,” Hesse said. “Price is becoming less relevant when selling your company.” 

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Conditions have become even more challenging after Germany’s constitutional court last year ordered the ruling coalition to stop excessive off-budget funding. The government had to curb spending, which also limited some funds for businesses that were already struggling with higher energy costs.

“The German Mittelstand is bubbling over,” said Peter May, founder of May Consulting, which specializes in family-held companies. “I receive calls from unsettled family entrepreneurs almost every week: Should we sell? Do we perhaps even have to? Is it still worth being an entrepreneur in Germany?”

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In one of the most prominent examples, the Frankfurt-based Viessman family sold its namesake heat-pump manufacturer to US firm Carrier Global Corp. last year in a cash-share deal valued at €12 billion ($13.1 billion). The sale caused an outcry within Germany’s corporate community, but the move was needed “to build a global, future-proof climate champion with more industrial size and scale,” CEO Max Viessmann told Bloomberg News in a statement.

As part of the deal, the company’s heir became one of the largest shareholders of Carrier Global and joined the board of directors of the Palm Beach Gardens, Florida, company. Viessmann is using part of his proceeds to get into investing, and has plans to expand his family-office activities.

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Excessive red tape, a perennial complaint in Germany, is another barrier owners say is adding a layer of complexity and distracting from day-to-day operations, according to May. Germany introduced a law last year, for instance, that requires companies with more than 50 employees to set up an anonymous whistleblower system that can cost tens of thousands of euros. The German government has also been clawing back pandemic-era rescue funds, creating additional headaches for some companies.

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“The country is suffocating from excessive bureaucracy that permeates all areas of life,” said May.

Finance Minister Christian Lindner, a member of the pro-business Free Democrat party, voiced similar concerns last month, noting that in the past decade, Germany has slipped in the ratings for business locations.

Another challenge for owners of Germany’s family-run businesses, many of whom belong to the boomer generation that helped rebuild the country after World War II, is the matter of succession. 

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“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,” said 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.

Around 125,000 small and mid-sized companies will be transferred to new owners every year until 2027, and that nearly three-quarters of them see succession as a problem, German development bank KfW wrote in a recent note. 

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Even if there is a successor, the prospect of a sale is rarely off the table. Norbert Stein, founder of Vitronic camera maker, hired an outside chief executive in 2020, only then to sell the firm to a rival company owned by billionaire Czech investor Renata Kellnerova. 

Other company owners, including Cyris, are considering shifts to opportunities outside Europe.  

To mitigate some of the business he’s losing in Germany, Cyris has begun moving part of his business to the US under the brand The Aging Room. He’s now selling dry-age beef rooms to fine dining restaurants and butchers in states including California and Florida, and is exploring options for getting an investor on board. 

“Invented in Germany, made in the US, might be our way forward,” Cyris said.

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