Every year in Germany, over 70,000 business owners face the question “How do I find a suitable successor?” A study by the IMF shows: Millions of jobs are affected by this in the next decade. At the same time, there are numerous potential buyers with sufficient financial strength. Among them are strategic investors, investment companies, family offices and individuals. One can therefore speak of a “seller’s market” and a “buyer’s market” at the same time. Nevertheless, both sellers and potential buyers find the search for a buyer or a suitable object to buy difficult. What are the reasons?
The search for a buyer is complex
First of all, a company is not a fungible asset, but a complex, evolved and individual entity. Furthermore, for many sellers the sales process is a first-time and unique event. They are well acquainted with the operational and strategic issues of their company. However, they often lack the knowledge of a structured, optimal procedure in the search for qualitatively suitable successors. Furthermore, day-to-day business often ties up the owners’ capacities. As a result, the time-consuming, professional search for a suitable successor fails for reasons of time or is postponed. Finally, owners are rightly extremely sensitive when it comes to disclosing the intention to sell. After all, making the intention to sell known can have negative effects on the workforce, customers, suppliers or financing banks.
In practice, it can be observed: Owners who are willing to sell often approach the search for a buyer unsystematically. In doing so, they only involve trusted people from their known circle in their plan to sell. However, these people do not necessarily have the experience, networks and other possibilities to initiate a professional, systematic search for a buyer. A random approach, however, carries the risk that the sale will fail, take a disproportionately long time or not achieve the highest price.
So what is the best way for me as a company owner or shareholder to proceed in the search for a suitable successor? Or to put it another way: How do I prepare a targeted search for a buyer?
Procedure in the search for a suitable successor
First of all, it is advisable to draft a neutral short description of the company (so-called “company teaser”). This should contain the key data of the company. This includes products, market segment, customer structure, region, turnover and earnings. But it should also include the legal form, the amount of shares to be sold, the type of transaction envisaged and the special features of the company. It can be useful to include an indication of the expected purchase price or the method of determining the purchase price in the short description.
It is important that the company is described in the short description with its essential characteristics. However, it must not be possible to identify it from the description. Information on the company name, website or similar and special characteristics that enable the company to be identified should therefore be avoided. Otherwise it would become apparent on the market that a certain company has already been offered for some time (at a certain purchase price) without having been sold. And this can negatively influence the perception about the saleability or the value. Furthermore, the announcement of the intention to sell can trigger the aforementioned consequences among employees and business partners. And this without the chance of professional communication towards them.
In addition, possible target buyer groups should already be defined in this phase. For example, are members of the existing management team suitable successors in addition to strategic investors, investment companies, family offices and external individuals? Should competitors be considered as possible buyers? Or would a purchase already fail due to antitrust regulations?
a) Placement of the short description in networks
The brief description is the essential basis of the buyer search and serves as initial information for potential buyers or multipliers. Professional business succession advisors continuously maintain their extensive network contacts with the relevant multipliers. These include banks, associations, law firms, tax consultants, strategic investors, financial investors and individuals willing to buy. These advisors can place the brief description specifically in their contact networks. This typically increases the prospect of generating high quality interest within a short period of time. Such a placement is coordinated by professional advisors with the seller beforehand. In this way, certain groups of buyers are included in the process or excluded from being approached.
b) Placement of the brief description in company exchanges
Independently of this, you can consider posting the neutral short description on one or more company exchanges. In Germany there are a large number of company exchanges run by different operators. In addition to nationwide exchanges, there are regional exchanges and special exchanges for certain sectors or professional groups (e.g. tax consultants and engineering firms).
Brief overview of the most common company exchanges
The company exchange operated by KFW and the Federal Ministry of Economics and Technology ?nexxt-change? is the largest company exchange in Germany. On this platform, which is free of charge for transferees and transferors, you will find the most advertisements for Company sales and Company applications. Basically, there are more smaller commercial and trading enterprises as well as catering businesses than medium-sized and larger companies. Offers can be posted free of charge. Therefore, some are no longer up to date.
The ?German Enterprise Exchange? is subject to a fee for seller and buyer. Typically, the offers contained here are current. There are significantly more offers from medium-sized and larger companies.
The company exchange ?www.unternehmenskauf-24.eu? is one of KERN ? The succession specialists operated free platform with ?full-service accompaniment?. This exchange presents all exclusively managed mandates of the nationwide locations of the KERN succession adviser. The content of every offer for sale and every candidate’s application is checked in detail before it is activated. The platform contains more than 2,000 current private Prospective buyers (management buy-in candidates, MBI), Financial investors and strategic investors with tested search profiles.
Managed exchanges offer decisive advantages
The advantage of enterprise exchanges is to generate a larger public for the offer. However, if a company exchange is not qualitatively accompanied in terms of content, qualitatively unsuitable demand may be generated. For example, it can lead to contact with prospective buyers without sufficient equity capital or without sufficient experience. In addition, care should be taken to ensure that it is not transparent to attentive observers how long a specific or identifiable company has been “on the market”.
Practical experience shows that stock exchanges can offer a good complement in the search for a suitable successor. However, succession advisors can often already identify higher quality demand directly and discreetly through their networks without the need to post the offer on an exchange. The advantage of involving business succession experts is also that they can answer the prospective buyer’s initial questions about the business; the seller himself does not need to make a recognisable appearance to the outside world at this stage. The advisor thus represents a filter for the seriousness, suitability and capital resources of the prospective buyers.
Confidential information about the company to be sold shall only be disclosed after
- of such a quality audit,
- express release by the seller
- Signing of a non-disclosure agreement (?NDA?)
be issued to interested parties. A detailed company exposé should already have been prepared for this purpose. This should contain the name of the company, a detailed description of its activities and key financial figures, etc. The company’s name should also be included. When preparing the contents of the exposé and the form of presentation, succession experts can help with their experience from a large number of other projects.
Both the targeted approach of networks and the use of company exchanges generate a high level of effort in the follow-up. This includes initial talks with prospective buyers, checking the seriousness of the enquiry as well as its professional and financial background, checking the buyer’s objectives and wishes, answering questions, etc. This work can be done professionally by experienced succession advisors for the seller. Experienced succession advisors can professionally take over this work from the seller.
Summary: Systematic buyer search pays off
The search for a buyer, i.e. the search for a suitable successor, involves identifying, approaching and selecting prospective buyers. This represents one of the greatest challenges for company sellers. The success of the company, the existence of the company and its jobs and the achievement of an optimal purchase price depend on it. A systematic approach is recommended for the search for buyers. This generates a greater and qualitatively higher demand and thus helps to maximise the proceeds from the sale and to ensure the continuity of the entrepreneurial work.
The advantages of involving professional business succession experts in the search for a buyer are summarised:
- Systematic, targeted search for a suitable successor involving their extensive networks
- Stock of a well-maintained own pool of interested parties willing to buy
- Preliminary screening of prospective buyers according to suitability, seriousness and financial strength
- Discretion, maintaining anonymity of seller and company
- Time and cost savings, relief for the entrepreneur
- Increasing the probability of success
- Structured process support and negotiation facilitation
A professional search and selection of prospective buyers is a good starting point for the successful implementation of the subsequent steps in the sales process: initial discussions with prospective buyers, company tours, inspection of the company by prospective buyers, ?Letter of Intent? (declaration of intent to purchase), purchase price and purchase agreement negotiations, signing and handover of the company.
Tips for further reading:
How do you recognise a reputable business sale advisor?
What does a company sale or succession cost?
Lack of business successors threatens family businesses
Burden or pleasure? Company succession in family businesses
Lack of entrepreneurs becomes a future issue in the SME sector
Short.Crisp.Confidential - The Teaser
Free webinars on business succession
First, there are two possibilities: First, the short description can be placed in networks. These include in particular multipliers such as banks, associations, law firms, tax advisors or other investors. In this way, you receive qualitative feedback more frequently. On the other hand, the short description of the company can be advertised in business exchanges. As a rule, this reaches more potential interested parties.
The largest company exchange is nexxt-change. It is operated by KFW and the Federal Ministry of Economics and is free of charge. Therefore, some advertisements are no longer current. Basically, more smaller commercial and trading enterprises as well as catering businesses can be found here.
The Handelsblatt publishing group operates the fee-based German Enterprise Exchange. As a result, the offers here are usually up to date. There are significantly more offers from small and medium-sized enterprises and larger companies.
Also KERN operates its own company exchange with “full-service accompaniment”. Accordingly, all advertisements from sellers and potential takeover candidates are checked in detail here. The 2,000 search profiles of prospective buyers and investors were also checked.
First of all, the search for a buyer is professionally organised. The consultants’ large network is included in this process. To this end, they offer a large pool of interested parties who are willing to buy and have been screened. In addition, qualified business succession consultants offer a high degree of discretion as well as structured process support and negotiation facilitation. All this saves time and money and relieves the entrepreneur. In addition, the probability of success of the business succession increases significantly.
