Do you want to sell your company or part of its shares and are looking for consulting for this M&A transaction? Then you have come to the right place. For getting the best result for you, the company might be prepared and optimised and then valued. For getting good results in your negotiations the business and its environment will be simulated on thousands of possible paths and afterwards the company will be valued using various methods.
A company sale is a process where a company is transferred as a share deal or an asset deal from the former owner (seller) to the new owner (buyer). Through business valuation, the company value can be calculated, which is vital for the transaction.
Consulting for the sale of a company especially includes an environmental and a business analysis, a business valuation and support during the M&A-transaction sale. Essential during the sale of a company is that in many cases an adequate successor has to be found, and the seller might be interested in a price paid as an annuity (natural person).
The company value, in the case of a company sale, can be calculated by a model provided by the approach of functional business valuation and is called decision value, which represents the minimum acceptable sale price. Next to this approach, for reasons of argumentation, also other methods (such as the DCF method, or the capitalised earnings method) should also be used for calculating the company value.
Reasons for selling a company might be age, reluctance, reorientation, change of the family situation, heritage, forced sale, compensation, or even expropriation. If the decision is taken freely, one speaks about a non-dominated conflict situation otherwise, the conflict situation is dominated (forced).
Before selling the company, it’s important that the objectives are substantiated and reviewed. In the case of company succession, it’s especially important how the price is structured. More details will be given later under “Pricing and Financial Security”.
However, in some cases, it can turn out that the company should better not be sold, but the objectives can be reached better with another solution. In a challenging market situation, a business consulting might be helpful. Another alternative could be a merger with a competitor. In cases of reluctance or heritage, a third-party manager can be employed. Subsequently, it is assumed that the company should be sold.
Before offering a company for sale, it’s wise of going through the various steps of a business consulting (environmental and business analysis, strategy development and implementation). If one has for example three to five years, neglected potentials might be exploited and the company can be sold at a higher price. Next to this also private relevant objects like cars or even properties can be transferred into the private sphere. Generally speaking, the strategy will be adjusted for the upcoming sale.
For the M&A transaction sale, pricing is the most important part. As also described various times in other places, the business and its environment are simulated in a variety of ways. Mostly, the information base on the seller’s site is better than on the buyers. Apart from the usual financial data, a lot of experience is given, which was gained over the years. This allows better estimates about the future of the company. Nevertheless, sound analysis and projections have to be made (Due Diligence). Based on these projections, a business valuation can be conducted.
The decision value, in the case of a company sale the minimum acceptable sale price, will be calculated by the approach of functional business valuation, while argumentation values will be calculated using a variety of methods. It may be the DCF-method, the capitalised earning method, multiples, the substance value method, the mean value method and some others. In some cases of a company sale, an arbitration value may also be calculated to fairly share the benefits of the transaction between the parties.
The conflict situation can also be multidimensional, which means for example that the takeover of employees or the withdrawal of properties are part of the negotiations.
Apart from the sole simulation of the company, the valuation model also needs to be adjusted for the seller. Next to his withdrawal preferences also other cash flows and taxes matter. The valuation will be a simulation and the result will be a decision value calculated as bandwidth together will a probability distribution. Getting a clear and realistic picture of the value of your company is essential.
The price of the sale can be paid as described in the following:
Especially with annuities, there can be different configurations namely,
There can be other combinations as well, which include for example the financial security of the spouse. (There are other variants for payments as well, but they will not be considered here.) Next to a sole annuity, there can of course also be a combination of annuity and one-time payment.
Together we can find the appropriate pricing structure that fits best for you.
For one client, it might be important to get the price as one-time payment because he is going to invest it right through into another company.
Somebody else found a qualified successor, but he cannot pay a one-time payment and takes part of the price as a loan and pays the rest as instalment.
Another client wants to sell his life’s work and is interested in getting a monthly or yearly annuity. In the best case, it is adjusted to inflation and includes his spouse because he did not pay enough into the pension insurance during his lifetime.
Every combination has a massive influence on the total price. Also, the taxation can differ depending on how the pricing is structured. More on this will be explained in the next part.
Next, some information about law and taxation should be given. I have a deep understanding of tax planning (German tax law). However, I’m not a tax advisor and I don’t give tax advice.
If a company is sold in an M&A transaction, various experts are needed. It’s like in a hospital, where every doctor has his own medical discipline. My field of expertise regarding the M&A transaction is in the coordination of the transaction and the business valuation. For questions in taxation and law, it seems best to trust in the experts the company already partnered with in the past. They know the legal history. Especially in an international context, law and taxation swiftly get complex and unnecessary mistakes can happen. This can be avoided.
I will focus on my part in the transaction while having a good general understanding. Nevertheless, it should be explained that in general, one can distinguish between a share deal and an asset deal. In a share deal the business, together with its legal entity, is transferred while in an asset deal, a new legal entity is created into which assets and liabilities are transferred.
The last step in the M&A transaction sale is the negotiations and the sale itself. Often the sale of a company is also emotional. Even if one is elucidated about the emotional level of the transaction, it continues to, at least partly, influence oneself. Here I want to point out that I can conduct the negotiations together with you as advisor. It is important that the negotiation positions are not crossed, and you don’t yield too early.
Trust is the information base we worked out together. Use the different scenarios and values calculated by different methods for your argumentation. If new proposals are given, don’t hesitate to let me update the valuation model and let’s discuss the advantages and disadvantages. In some cases, it’s better to wait for another buyer than to sell one life’s work below value.
After successful negotiations, it’s important that a tax advisor and lawyer take a glance at the results. They can inform about the potential danger before the final contract is signed. My focus is on calculating the value of the company and assisting you during the company sale. But a sale includes various points of view. This is especially true for transnational transactions.