Rely on our expertise in
the sale of companies

In principle, there are personal and business reasons for selling a company. Personal reasons are regularly the retirement of a managing partner due to age or illness without a successor in the family. But also new life plans or the desire to diversify the assets (often bundled in the company) more broadly.

Operational reasons can be, for example, the strategic separation of a business or product area or the too small size of a business to be able to compete in a consolidating market.

Within the framework of a structured M&A process, the M&A advisor will first define the documents necessary for the M&A process together with the seller and – if desired – also assist in their preparation. In order to be able to handle these data clearly, they are already placed in an electronic data room at this point and presented by the M&A advisor to potential buyers in the form of a detailed sales prospectus, also known as an information memorandum or fact book. In parallel, the M&A advisor draws up a list of potential investors considering the client’s wishes (long list) and approaches them anonymously, if necessary, after the client has approved the long list and the other transaction documents. If there is interest in principle, the potential buyer will sign a confidentiality agreement and then receive the information memorandum or fact book. Should the interest continue, the potential buyers will submit indicative, non-binding offers to present their purchase price expectations and structural ideas. The interested parties whose indicative offers correspond to the seller’s ideas are then invited to examine the data room, including the opportunity to ask questions (“due diligence”). If the due diligence result is satisfactory for the potential buyer, the final step is to negotiate the purchase agreement. If a version acceptable to both buyer and seller can be developed, it must be signed in accordance with the formal requirements.

When a company is sold via a share deal, only the owner or shareholder changes. Current contracts, such as with customers and suppliers, but in particular also employment contracts, remain unaffected by the sale of the company. An exception are possible contractual “change-of-control” provisions with customers or suppliers.

This logic only applies to the share deal; in the case of an asset deal, the contracts with customers and suppliers usually have to be concluded anew. Employment contracts in Germany, for example, remain in place with all rights even after an asset deal.

Basically, there are three groups of potential buyers.

Strategic buyers acquire companies in the same stage of the value chain (acquisition of market shares) or along their own value chain (suppliers or customers).

Private equity investors buy companies in order to develop their size or their portfolio of offerings. They also might sell the companies at a higher price with the debt relief effect (“leverage effect”) within 3-6 years. 

Family offices usually acquire companies in order to hold them permanently and to receive a continuous distribution as “interest”. Here, too, it cannot be ruled out that there will be a resale at some point – but this is usually not part of the strategy and the holding periods are significantly longer than for private equity investors.

Both types of financial investors (private equity and family office) are dependent on the existence of a functioning, industry-experienced management in the target company.     

The internal preparation of a company sale takes about 2 to 3 months depending on the complexity of the company structure and the information available in the company.

The actual M&A transaction with discussions and negotiations with external interested parties as well as due diligence and purchase agreement negotiations takes about another 4 to 6 months, so that the entire M&A transaction usually takes 7 to 9 months.

However, it is helpful and optimises the transaction value if the seller continues to advise the buyer for a transitional period of 12-24 months during familiarisation and later in the event of special challenges.

In most cases, a complete business valuation takes about 2-4 weeks. It should be taken into account that for a detailed business valuation an integrated business plan must be available, including profit and loss account, balance sheet and cash flow. 

Only when this detailed planning has been prepared together with the management can the M&A advisor carry out the business valuation and subsequently document it, including explanations and comments.

This cannot be answered in a general way.

There are different methods to determine the value of a company.

If a detailed business plan including profit and loss account, balance sheet and cash flow is available, a detailed discounted cash flow method (DCF for short) can be applied. Here, future financial surpluses in the form of cash flow are discounted to the valuation date. 

If there are comparable public company transactions or comparable listed companies, a multiples method is feasible with significantly fewer key figures of the company. 

For example, this simplified method uses the average EBIT (earnings before interest and taxes) of the last 3 years multiplied by the relevant industry multiple (often between 4x and 8x) and the net financial liabilities subtracted.

M&A advisors, experienced tax advisors or auditors can provide a first rough estimate of the company value in a non-binding initial meeting. As a rule, all that is needed are the last two annual financial statements and the YTD results.

Then – to roughly determine the value of the company – the simplified multiples method can be used to multiply, for example, the average EBIT (earnings before interest & taxes) of the last 3 years by the relevant industry multiple (often between 4x and 8x) and subtract the net financial liabilities.

Theoretically, every seller is free to define the price of his or her shares. The question is whether a buyer can be found at the desired conditions.

The realisable market value of a company depends – as with all other goods – on the relationship between the supply by the seller and the demand by the buyer.

For listed companies, this is easy to calculate, as the current value of the shares multiplied by the number of shares gives the market capitalisation and thus the market value of the company.

Finding the market value of unlisted companies is much more complex. Although the company valuation is a first indication for a market value, in the end the offers for the purchase of the company submitted by interested buyers within the framework of an M&A process are the decisive market assessments. If one of these offers corresponds to the seller’s ideas and the M&A transaction is implemented, this is also the market value of the company. 

It is important that communication is in one hand and centrally controlled. This applies both to communication with all potential buyers (everyone must always have the same level of information in order to be able to really compare the offers as the seller) and, at a later stage, with key employees within the company.

A well-established communication strategy increases the interest of potential buyers in the company during the M&A process.

Another key success factor is choosing the right time for the sale. Is there already potential management among the staff? What is the state of the industry cycle? Are there incalculable (external) risks?

The individual situation of a company can be discussed in advance with an experienced M&A advisor – usually without obligation – in order to be made aware of the possible hurdles for a sale.    

Since most entrepreneurs sell a business only once or twice in a lifetime, they should seek professional advisors.

The corporate structure should be checked with the tax advisor at an early stage for possible transaction obstacles or tax risks.

If a structured M&A process is to be implemented in order to come as close as possible to the personal wishes of the seller with regard to the successor philosophy and the transaction value, an M&A advisor should also be mandated. This advisor relieves the seller through his/her work during the entire M&A process, so that the entrepreneur can concentrate on the operative day-to-day business.

In order to ensure that the legal due diligence can already be professionally accompanied, an experienced M&A lawyer should not only be involved in the purchase agreement negotiations. At the latest when the indicative offers are received in the M&A process, an experienced lawyer should be involved.   

In principle, each shareholder or owner of shares in a company can dispose of them freely and thus also sell them. However, this is often prevented by a pre-emptive right of the other shareholders, which is regulated separately in the shareholders’ agreement.

It is ideal if there are already experienced employees in the company who can be described to the potential buyer as possible management successors.

It is also helpful if the company can show a relatively constant turnover or profit trend. However, since there are internal or external special factors in every company that continuously influence the development of turnover or profit over the years, it is particularly important to prepare and explain these in a comprehensible way for potential interested parties.

The sales and purchase agreement (also often abbreviated to “SPA”) obliges the seller to sell the company to the buyer. It usually includes not only the purchase price and the object of purchase, but also possible conditions, guarantees and regulations on legal consequences. The sale of companies is often subject to special formal requirements that must be taken into account in the company purchase agreement.

A distinction is made between purchase agreements for the sale of business shares (“share deal”) and partial businesses or assets (“asset deal”). 

If a company or an operation of a company that is managed as a separate entity is sold, this M&A transaction is exempt from VAT pursuant to Section 1 (1a) UstG, as it is a sale of a business as a whole (according to German law).

If a company or an operation of a company that is managed as a separate entity is sold, this M&A transaction is exempt from VAT pursuant to Section 1 (1a) UstG, as it is a sale of a business as a whole (according to German law).

The sale of a company does not affect the amount of share capital, which must always be at the required minimum level even after the M&A transaction.

However, it is not uncommon for the new owner to make changes to the share capital – above the minimum amount – in the course of a company purchase.