Company Acquisition - Consulting

Are you considering acquiring a company or part of its shares and are looking for consulting in this M&A transaction?

Then you have come to the right place. I will conduct a business valuation together with you. This is done by analysing the business and its environment and then simulating it for the future. The future is uncertain and for this reason, a lot of different scenarios will be taken into account (stochastic simulation). Risk will be unveiled at a significant level. Afterwards, the company is valued using various methods.

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A company acquisition is a process in which a company is transferred from the seller to the buyer. The company value is calculated by using a method for business valuation. The transfer can take place either as a share deal or an asset deal.

Consulting for the acquisition of a company especially includes an environmental and a business analysis, a business valuation, and support during the M&A transaction. A special characteristic of a company acquisition is that unveiling chances and risks and the assessment of the planned strategy is done with an information disadvantage and has to be conducted with diligence.

In the case of a company acquisition, the company value is calculated by using a model of the approach of functional business valuation and is called decision value, which represents the maximum acceptable purchase price. For reasons of argumentation, a lot of other methods should also be used for calculating the company value (e.g., capitalised earnings method and DCF method).

Definition of Objectives

Reasons for acquiring a company can be, for example, an alternative to a start-up, diversification (horizontal, vertical, conglomerate) of an existing company, or inorganic growth by skilful takeover of competitors. While these conflict situations are non-dominated (optional), there are also dominated conflict situations (not optional) such as the obligation to pay compensation under relevant legislation.

Before acquiring a company, it's wise to question the actual objective and the possible ways to achieve it again. During the acquisition process, it is therefore important to keep the alternative of reconstructing the acquisition target with the associated costs in mind. If a company is added to an existing one through acquisition, it is also relevant how it fits into the corporate strategy and how the company can be integrated. Here I am available for advice if needed.

Analysis & Strategy Development for the Business

For every business valuation, a profound analysis of the business and its environment must be conducted (Due Diligence). The intended strategy for the future should also be taken into account. Therefore, the business and its environment are simulated on many different development paths.

Importantly, the buyer is structurally in a rather disadvantaged position compared to the seller. The latter has often gathered years of experience and may withhold information under certain circumstances. He may also have optimized the company in the years prior to the sale, so that decisions may have been made that increased profit but are either not sustainable or hinder long-term growth.

BusinessValuation for the Acquisition

Based on the simulation of the business and its environment, a business valuation can be conducted.

The decision value, the maximum acceptable purchase price, is determined in a company acquisition using the functional business valuation, while argumentation values are calculated using more or less theoretically sound methods. These include the DCF method, the capitalised earnings method, multiples, and several others. An arbitration value (umpire value) is only calculated in a company acquisition when a neutral assessment is needed or desired.

The conflict situation of a company acquisition can be multidimensional. For example, alongside the purchase price, other decisions such as the takeover of employees or real estate are up for debate. The purchase can also be agreed upon as a one-time payment, as well as in instalments or annuity payments. The latter are particularly relevant for start-ups through company acquisitions (company succession). However, since the payments cover long periods of time, this also affects the company value and thus the purchase price.

The valuation model includes withdrawal preferences, other cash flows, and taxes. In addition, the focus is on a simulation of many different development paths so that risk can be disclosed and you have a good basis for decision-making. The decision value for the company acquisition consists of a range with a probability distribution.

Pricing and Financing

The purchase price of a company can be paid in various ways:

Financing through equity
Financing through debt (loans, bonds)
Financing through equity or debt and stretching the purchase price over a period

Financing through equity and debt with a one-time payment needs no further explanation. The last point will often be of importance in practice. The seller may want to sell his life's work and is interested in annuitizing the purchase price through his successor. This can happen, among other things, as a temporal annuity or life annuity (lifetime, extended, shortened) and include many other aspects such as providing for the spouse. Since the duration of the annuity depends on the lifetime, it may be advisable to involve an insurance company.

Buying in instalments (i.e., a fixed period of, for example, five years) is particularly an option for start-ups with good expertise but low equity capital and no collateral for a loan. Other structuring options such as other long-term liabilities or other recurring payments will not be explained in more detail here.

I will be glad to advise you on the subject of pricing and financing.

Company Acquisition - Law & Taxation

On the subject of law and taxation, the following should be stated. During my career, I have acquired and maintained in-depth knowledge in tax planning of German tax law. This helps me to assess and model the consequences of a company acquisition well. Nevertheless, I am not a tax advisor and therefore do not provide tax advice.

In an M&A transaction, it makes sense to involve the future tax advisor and corresponding lawyers. Each expert has their justification during an M&A process, just as every doctor in the hospital has their specialty. Especially when it comes to cross-border transactions, it can quickly become complex.

My focus is on business valuation and your support during the M&A transaction. However, it should be mentioned that a distinction is often made between a share deal, i.e., a universal succession, and an asset deal, i.e., a singular succession. In a share deal, the company along with the legal entity is transferred, and in an asset deal, only individual assets are transferred to a newly founded company.

Company Acquisition - Negotiations

Finally, negotiation is at the forefront. Often, the seller is emotionally attached to a company and can significantly overestimate or underestimate its value. It is very important here to analyse the needs of the seller and incorporate them into the valuation model. This applies especially to natural persons. For example, a guarantee to take over cherished employees can be of great importance. It is also important to address needs such as financial security in retirement.

Use the alternative scenarios and value calculations according to different valuation methods in your negotiations to argue. It is important that no hasty concessions are made during negotiations, but that the valuation model is adapted to new aspects. Always keep in mind that you should never go below your decision value and that there is also the reconstruction value. It can also happen that there is no area of agreement in price finding.