Every M&A transaction is different
therefore it needs an individual solution

Mergers and Acquisitions (M&A for short) is the English-language term for mergers and takeovers or purchases of entire companies or company shares (acquisitions).

Potential buyers often pursue strategic goals with the M&A transaction, such as faster growth in the traditional market or along their own value chain.

The aim of financial investors such as private equity companies or family offices is to achieve an attractive return by further developing the acquired company/part.

The term M&A covers all types of transactions in which a company, company shares or operational assets of companies are acquired. It does not matter whether the acquired company or division continues to exist independently or is integrated by the buyer into its existing organisation after the M&A transaction.

There are different reasons for M&A transactions.

Since only about 40% of business successions take place within the entrepreneurial family, non-family succession in SMEs is often an occasion for M&A transactions.

However, market competitors or companies along one’s own value chain are also regularly acquired in M&A transactions in order to expand one’s own business model or to gain market share or grow faster through these corporate acquisitions.

The best time for an M&A transaction (mergers and acquisitions) depends on various factors and can vary from case to case. The main factors influencing the timing of an M&A transaction include the company’s objectives and strategy, the market situation, the financial situation, economic developments and also bargaining power towards suppliers and/or customers.

For example, the M&A transaction should be in line with the company’s long-term goals and strategic direction. Ideally, the transaction creates value for the company. 
All of the above factors need to be examined and analysed with a professional M&A advisor before the project begins.

As a rule, one speaks of a merger when the transaction takes place between equal parties with the aim of jointly better aligning the newly created company for future market requirements.

An acquisition is usually referred to when the buyer gains control of a company or part of a company after a transaction.

An M&A boutique is a management consultancy specialising in corporate transactions. It is usually independent and run by partners or managing partners.

The focus of most M&A boutiques is on mid-market corporate transactions.

The M&A boutique is to be distinguished from the M&A departments of investment banks or M&A departments of large auditing and tax consulting firms. These M&A teams are not independent, but part of the respective parent company.  

The M&A advisor accompanies the entrepreneur throughout the entire M&A transaction process. He/she helps to define all relevant documents, compile them in the data room and prepares the information in a detailed sales prospectus, called information memorandum or fact book. The M&A advisor draws up a list of potential investors according to the client’s wishes (long list) and approaches them after the client has approved the long list and the other transaction documents. The advisor accompanies all discussions and negotiations as a mediator between buyer and seller within the framework of the M&A process and is even available at the final signing/notary appointment for possible open settlements or discussions.

The M&A advisor does not provide tax or legal advice.       

The internal preparation of an M&A process 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.

The M&A advisory fee consists of two components. A fixed, usually monthly, lump-sum fee during the M&A process (“retainer”) and a variable, performance-based component, which usually amounts to 3 to 5 percent of the transaction value (“success fee”).

The amount of the success fee depends on the expected structural complexity and the expected transaction value.

M&A transactions are usually not financed exclusively through equity. However, the exact financing structure can vary depending on the specific circumstances of the transaction, the size of the companies involved, the industry and other factors. In addition, to recourse to equity and debt capital, alternative financing instruments such as vendor loans, earn-outs or re-investments are also used. Especially for medium-sized entrepreneurs facing a succession situation, the sometimes complex financing structures are largely new and present sellers with challenges. At this point you should consult an experienced M&A advisor who can transparently show and explain the different financing structures to you. 

M&A transactions with a strategic rationale are often analysed and permanently controlled by the controlling department of the acquiring company during and after the M&A process with regard to the attainability of the strategic goals. Thus, controlling is often already involved in the financial due diligence and the preparation of the internal business plan and thus also in the valuation of the company (part) to be acquired.

After the acquisition, controlling works on the development and implementation of the integration strategy and checks the fulfilment of the business plan.

A structured sales process offers numerous advantages for companies. For example, structuring the process increases efficiency by optimising workflows and allowing the seller to focus on day-to-day operations.
Companies with a well-designed and effective sales process are able to better differentiate themselves from other companies on offer and operate more successfully in the transaction market.

Overall, a structured sales process can help to increase efficiency, the likelihood of success of the transaction and, last but not least, the purchase price. It is important to note, however, that the success of a sales process is highly dependent on its implementation and the quality of the M&A advisors.

Business valuation plays a central role in M&A transactions as it determines the price the buyer is willing to pay for the target company. The seller wants to achieve the highest possible price for his/her company, the buyer wants to pay the lowest possible price. Valuation is a complex process that serves to determine the fair market value of the target company. Thus, a plausible and transparently derived enterprise value is elementary for the success of the transaction.

It is important to note that there are different methods for valuing a business, including the capitalised earnings value method, the multiples method and the net asset value method. The choice of the right method depends on various factors, including the industry in which the company operates, its financial performance and the objectives of the transaction.

There are a variety of reasons why M&A transactions can fail.

1. The seller’s price expectations are not in line with the market.
2. Excessively high realised purchase prices, which subsequently cause difficulties for the acquired company because the refinancing of the purchase price is not successful.
3. Incorrectly assessed synergy effects can cause a business plan – which was based on an M&A transaction – to be missed by a wide margin, and refinancing can then also be jeopardised.
4. Due diligence is not carried out with the necessary care and material risks are not identified in the audit.
5. A lack of cultural understanding of each other often causes major communication problems between the buying and purchased company. This often makes the leveraging of synergies and integration much more difficult. Winner-loser communication in the companies should always be avoided.
6. Lack of capacity in the management of the buying and bought company also leads to problems with integration and synergy creation.
7. External factors such as the wrong timing within an industry cycle or crises that endanger the business model are also a reason why M&A transactions fail.

The chance of success of an M&A transaction is significantly increased by the involvement of a team of tax advisors, lawyers and M&A advisors with transaction experience. The proposed M&A transaction should be provided with sufficient (time) resources throughout the entire process for both the buyer and the seller and should be critically scrutinised again and again.   

Examples of M&A boutiques in Germany:

ABACUS Corporate Finance,
Alantra,
Daiwa Corporate Advisory,
GCA Altium,
Houlihan Lokey,
Lazard and
Rothschild.