The questions and answers listed on this page represent an excerpt of the experience gained from over 100 successfully completed transactions of Corporate Finance Mittelstandsberatung GmbH. The process of buying and selling a company is extremely complex, so only the most frequently asked questions can be discussed here.
A sales process is a complex procedure. It is usually decisive for the owner of the company what price he will receive for his company and what will become of his company after the sale is completed. Particularly with regard to the purchase price, there are numerous parameters that are decisive and which the entrepreneur can influence in his favour prior to the sale. Factors that can have a negative impact on the company valuation or the purchase price should therefore be analysed and optimised without fail. These include, for example, dependencies on customers and suppliers, investment backlog, the lack of a second management level, the company's dependency on the company owner, pension provisions that are balanced and not reinsured, and unfavorable operating processes. Consequently, it is necessary for the owner of the company to deal with the issue in detail in the run-up to the sale of the company, to carry out an honest analysis of the current situation and to initiate improvement measures.
Our many years of experience have shown that in particular inappropriate sales prices and deliberately concealed deficits of the target company can lead to a breakdown of talks. As a consequence, the existing risks should be disclosed before the due diligence.
Usually it is not necessary to reveal the names of customers before signing the sales contract. However, in the course of an M&A transaction process, the potential buyer must be informed about whether there is any dependency on certain customers, how many customers there are, where they are located and from which industries they come.
Experience has shown that the direct approach of a potential investor by the seller can lead to extremely adverse consequences. For example, the announcement of the sale of the company could cause customers or employees to leave the company. The solution is therefore usually to involve a third party (e.g. an M&A advisor) for the first inquiry. The consultant introduces the target company using an anonymous teaser, establishes confidentiality on the basis of a non-disclosure agreement and then sends the potential buyer an information memorandum with all sales-related data.
In general, identifying potential buyers is a highly complex matter. Since some of the potential investors cannot be found in a database or are directly identifiable by other means, a precisely defined buyer profile must be created in advance. Only after this profile has been defined can a meaningful search be carried out. As a rule, strategic investors (competitors or suppliers), capital investors and MBI/MBO candidates (external or existing management) can be distinguished.
This question is difficult to answer in general. A good time for a sale is usually when the order situation and market development show a positive trend and there are no obvious indicators that the company to be sold is in a bad shape. Such indicators that can make a sale more difficult are, for example, neglect of customers and suppliers, a poor relationship with employees or failure to invest.
The sale of a company is always individual. However, in order to give you an overview of the process of selling a company, we have summarized an exemplary M&A transaction process in a sales mandate for you.
1. the project start: During the project start we discuss the main goals of the project with you, present the project plan and together we get a first overview of the circle of potential investors. In doing so, we pay particular attention to ensuring that all project participants (lawyers, tax consultants, auditors) are involved in the sales process from the very beginning in order to ensure a smooth sale of the company. We also carry out an indicative valuation of your company and collect information that we need to prepare various "marketing documents" (e.g. a teaser and an information memorandum). The discreet handling of your information is a matter of course and has top priority for us.
2. non-binding offers: In this step, CF-MB carries out a professional and objective company valuation and prepares the marketing documents on the basis of which we approach potential investors. At the present time, the documents are still in an anonymous form, so that no interested party can draw conclusions about your company. Only after an investor has signed a confidentiality agreement will he or she receive further details about your company. Based on this information, the selected interested parties subsequently submit a non-binding offer. CF-MB then selects the best and strategically most sensible offers together with you. This enables us to further narrow down the circle of potential buyers.
3. binding offers: CF-MB will set up a data room for you, which will be used for due diligence. All project participants are then given a certain time frame in which they have the opportunity to put your company through its paces. At the same time, possible site visits to your company and management presentations to potential buyers will help you to better understand and assess the investors and their motives. At the end of the due diligence process, the prospective buyers submit a binding offer, on the basis of which the final narrowing down of the company is carried out.
4. closing of the transaction: In this last phase the final transaction structure is determined and the contractual terms are finalized. Once you have reached an agreement with the buyer, the contract is signed and the negotiations are completed. Once the antitrust authorities have approved the transaction and all agreed conditions have been met, the transfer of ownership of the company takes place with legal effect.
The duration of a company sale varies from case to case. This can be explained by the fact that there are numerous factors that can delay a transaction. These include, for example, the need for the approval of shareholders on the buyer's side (executive board/supervisory board/works council/investors, etc.), an elaborate due diligence process due to the numerous risks to be evaluated, or a time-consuming auditing obligation. However, since in the M&A sector the sales and associated purchase process follows a fixed pattern, indicative statements can be made. Based on our practical experience, a sales process takes between 6 and 12 months.
Of course! However, as soon as the company to be sold is a restructuring case, some special features must be taken into account. It is particularly important that assets that are still valuable are available and reactivatable, which could be interesting for a potential buyer. This includes, for example, exclusive rights, customer contracts, supplier contracts or certain unique selling points. The many years of experience of Corporate Finance Mittelstandsberatung GmbH shows that in particular cases of restructuring (compared to "normal cases") can be handled more quickly. The buyer of a reorganisation case is usually in a better position than a previous owner to negotiate waivers of claims or to eliminate imbalances.
Unused potential usually has little or no influence on the value of the company, as it is mostly of a purely speculative nature. If they were really available, they would probably already have been implemented. However, exceptions confirm the rule here as well. For example, a strategic investor can identify synergies with his own company or other unused potential and will therefore pay a premium on the calculated market value.
In corporate finance jargon, an fire sale is also called a "distressed M&A" case and refers to the sale of an economically ailing company under time pressure. The difference to a classic M&A transaction on the seller's side lies in the usually clearly limited number of potential buyers, the shorter duration of the sales process and the seller's poorer negotiating position. While a classic sales process usually takes between six and eight months, only half of this time is usually available for an fire sale. The result of the increased time pressure is that investors are not able to carry out a thorough due diligence and thus (in the case of a purchase) take a significantly higher entrepreneurial risk. Due to this initial situation it is often very difficult for the entrepreneur interested in selling to find a potential buyer. However, if he has found a potential buyer, he will most likely use the inferior negotiating position of the selling side to acquire the company at a price significantly below market value.
The value of a company is a central parameter for all parties involved. The purchase price is particularly important for the selection of potential buyers. If the purchase price is too low, the seller is disadvantaged and potential buyers conclude that the low purchase price means low company profits, which could make the company acquisition unattractive. A purchase price that is too high in turn excludes potential buyers who cannot afford the amount. In addition, an objective and comprehensible valuation is essential in order to pass the audit of the financing credit institution. For all these reasons, it is highly advisable to have a professional company valuation carried out by an M&A consultant.
The position of the managing director's remuneration is rarely apparent from the balance sheets. It is usually indispensable for the buyer to know the amount of his future remuneration, as it secures his existence. The level of managing directors' salaries is also compared with the industry average, as too large deviations can have tax and valuation implications.
Due diligence is the investigation and valuation of a company. A distinction is made between different types of due diligence. Examples include general, economic, financial, legal, tax and environmental due diligence. The buyer therefore examines what risks he is taking by purchasing the company. This examination usually takes place within a specified period of time in a separate "data room". The further course of the transaction (termination of talks or submission of a binding offer) depends on the result of the due diligence.
The sales process is usually divided into different phases, each of which requires specific documentation. In a first step, an appealing cover letter and an anonymous teaser are required in order to contact potential interested parties anonymously. Furthermore, CF-MB will prepare a professionally prepared information memorandum for you, which will contain details on numerous key topics. For example, the information memorandum contains an executive summary, investment reasons, a company history, information on the legal form, location, organization, employees, management, products or technology, sales and marketing, customers and suppliers, finances (such as an analysis and planning of the P&L, balance sheet and cash flow) as well as key points of the transaction. Each individual document serves the purpose of not only informing potential investors about the target company, but also to arouse their interest. The teaser and the information memorandum therefore have a convincing component in addition to the informative one.
During the sales process, the company to be sold usually holds talks with several prospective buyers. An exposé serves to describe a company up for sale in a comprehensive and anonymous way. Since prospective buyers often examine several alternative offers in parallel, the exposé must enable them to realistically assess an offer. At the same time, the exposé also takes on an advertising function. In order to arouse the interest of potential buyers, the focus should be placed in particular on the positive development of the company and expected future profits. CF-MB will of course prepare a professional exposé for you.
Yes, the law requires both parties to notify the employees of the target company of the sale in writing prior to the conclusion of the sales contract.
This danger does exist. The sale of a company is a sensitive process that can be associated with many emotions and fears among the parties involved. These include, for example, employees who are worried about their jobs, banks who are worried about the increased risks involved in a handover and customers who fear that they will no longer be supplied. As a result, confidentiality should be agreed in the initial phase of the sales talks by means of a confidentiality agreement. As the negotiations become more concrete, the company should rely on a transparent communication policy in order to counteract the potentially emerging concerns of stakeholders in a preventive manner.
As a rule, severance payments for employees leaving the company cannot be avoided. The only exception is when the owner of the company closes his business for reasons of age. Under the current legal situation, the legislator cannot prescribe that an entrepreneur must look for a successor.
The extent to which redundancies occur after the sale of the company depends entirely on the buyer. Therefore, it is advisable to get an exact picture of the potential buyer before selling the company. Has the potential buyer already carried out comparable transactions in the past? Were redundancies made after the company was purchased and if so, at what levels? The future of the employees therefore depends on a detailed research process and possible agreements with the buyer.
In an asset deal, a company sells asset components. The proceeds subsequently flow to the company and must also be taxed there. In contrast, in a share deal, one party (usually a private individual) sells its shares. These proceeds then flow to the private individual and must be taxed by him. As a rule, the asset deal is more interesting for a purchaser from a tax point of view, but is usually disadvantageous for the seller.
In practice, three evaluation methods are usually applied. These include the discounted cash flow method (DCF), the analysis of comparable listed companies and the analysis of comparable M&A transactions. The choice and design of the respective valuation method depends in particular on the availability of the relevant information. As a CF-MB, we guarantee that you will receive a professional, objective and comprehensible valuation based on our expertise.