Are you thinking about merging your company with another one and are looking for consulting regarding this M&A transaction?
Then you have come to the right place. For the M&A transaction merger, I simulate with you the pre-merger companies and the merged company, including the environments, on thousands of development paths.
Call NowA company merger is a process where one or more independent companies are merged into a newly founded company.
The company share of the old owners in the new company can be determined using a method of business valuation.
Consulting for a company merger especially includes an analysis of the environment and the companies to be merged, a business valuation, and support during the merger process (M&A transaction). Essential in the merger transaction is that a joint strategy must be developed and harmonization must take place on many levels (e.g., accounting, merchandise management).
The company value can be determined in the case of a company merger using a model of functional business valuation and is called the decision value, which represents the marginal quota (minimum quota) in the company to be merged. Other methods (e.g., capitalised earnings method and DCF method) should be used for valuation purposes for argumentation reasons.
The goals of merging a company are particularly to achieve synergy effects. In production, the technology of the other company may be utilized. In administration or sales, the cost structure may perhaps be streamlined. It can also lead to greater bargaining power vis-à-vis suppliers or customers, resulting in better purchase or sales prices. In advertising, duplicate cost structures can be avoided. Perhaps the merger also enables expansion in the international context.
The causes of possible synergy effects can be diverse and are not fully presented here. In addition to synergy effects, the distribution of responsibility (relief) and increased expertise through multiple shareholders and managing directors can also be significant. Usually, the conflict situation is non-dominated, i.e., voluntary, but there are also dominated (non-voluntary) situations due to, e.g., legal regulations.
It is essential to question the objective and also consider alternatives such as organic growth or the simple purchase of a company.
A merger is somewhat more complex than the mere purchase or sale of a company. It is important that the companies to be merged and their environment are analysed individually. Then, each of these companies should be simulated individually and subsequently under a joint strategy. The synergy effects must be realistically quantified. This process is complex; for example, the ICT systems, accounting, and merchandise management must be unified.
Unlike in the purchase or sale of a company, the focus is not on determining a price but on determining a marginal quota. The decision value is a marginal quota. How many percent of the shares must one receive at least in the new company to not be disadvantaged? For the business valuation, as already described in the previous subchapter, an analysis of the environment and the companies as well as a simulation for the respective companies are carried out individually and then jointly.
The decision value in the case of a company merger is determined using functional business valuation and is a marginal quota (minimum quota), while argumentation values can be calculated using many different methods, some of which are more and some less theoretically sound. An arbitration value (umpire value) enables a fair distribution of the benefit from both parties in a company merger and can be determined upon request.
The conflict situation is usually multidimensional, meaning that the negotiation points not only include the future quota in the company to be merged but also many other aspects, especially where synergy effects occur.
Subsequently, a valuation is carried out under the desired withdrawal structure, the other cash flows, and the corresponding taxes. The decision value is determined as a marginal quota. It should be noted that a combination of quota and compensation payment is also conceivable. Payment of a compensation amount is useful, for example, to achieve a minimum quota (e.g., for a blocking minority of 25%) or to avoid an absolute majority of 75%. This will not be discussed further here.
The valuation is carried out through simulation. Thousands of different scenarios are run.
Some remarks on the subject of law and taxation follow. During my studies, I systematically acquired in-depth knowledge in tax planning (German tax law) and maintain this knowledge. This is absolutely important because taxes and law have an impact on the merger.
Nevertheless, the possible constellations are manifold, and especially in the international context, it becomes complex. It is therefore important that, despite an in-depth understanding, further experts for the specialist areas of tax law and law are involved. It makes sense to rely on the existing contacts, i.e., tax advisors and lawyers of the companies to be merged, as they already know the companies and their history. It unduly complicates the M&A transaction if (tax) legal circumstances cannot be fully understood and avoidable mistakes occur.
My focus is on the simulative business valuation and your support during the M&A process.
Negotiations related to the company merger are somewhat more complex, as they are usually multidimensional negotiations. There can be many points of friction. If personnel costs can be saved, the question arises on which side and how many employees will be dismissed. What will the area of responsibility of individual employees look like after the merger? Which real estate will continue to be needed? How can potential conflicts, also at the shareholder level, be prevented? It is essential that a detailed joint strategy is developed before a merger. If you are in negotiations, I am happy to assist you. It is important that you keep alternatives, such as organic growth or the purchase of another company, in mind.
During the negotiations, keep an eye on the calculated values and let the valuation model be updated with new aspects. It is an iterative process. However, it can also become apparent during negotiations that a merger bears too much potential for conflict and should not be pursued further. Breaking off negotiations in a timely manner is often difficult, among other things because a preliminary decision has already been made.
After the negotiations have been successfully conducted, it is important that tax advisors and lawyers review the results and prepare the documents accordingly. My focus is on determining the decision value and your support during the transaction. For tax implications and legal assessment, relying on the appropriate people is significant. Especially in the case of transformations and in the international context, (tax) legal advice is essential.