Selling a company is one of the most emotional and nerve-wracking processes in the life of an entrepreneur. After all, a company is not only to be placed in capable hands, but also to be sold at the right conditions become.
In principle, a well-run business model is gladly taken over; it often does not fail because of the interested parties. The big problem is agreement between the two parties. The price of a company is often the most important factor.
The list of conditions to be negotiated is long. But in the end, disagreement on a single point is enough to cause the contract to fail. In order to support entrepreneurs in their sale, the following are Typical dealbreakers and helpful tips described for a successful negotiation.
You don't have much time to read? Here are the tips at a glance:
Table of contents
- 3 typical dealbreakers
- Company sale procedure
- Power of informal networks
- 10 tips for selling your company
- 1 Willingness to compromise on the terms of payment of the purchase price
- 2 How likely is an agreement
- 3 Negotiate non-compete or consultant position
- 4 Selling companies: The halo effect (colloquially the "first impression")
- 5 Professional appearance of the entrepreneur
- 6 Choose the right marketplaces for company sales
- 6 Change-of-Power Clauses in Contracts
- 7 Understanding the role of banks
- 8 Reduce risk with maximum liability and limitation periods
- 9 Vendor due diligence can increase the sales price
- 10 Professional advice
- Company sale conclusion
3 typical dealbreakers
1. Legal uncertainty
No two sales of a company are alike, but one thing always remains the same: buyers shy away from uncertainty. If legal difficulties arise during the review of a company, for example Legally ineffective transfer transactions in the company's history, the sales process quickly stalls or is aborted directly.
2. Purchase price and terms of payment
The purchase price is often the most important decision criterion for or against the sale of a company. However, not only the amount is decisive, the payment terms are also relevant. For whether the purchase price is paid in one sum, in instalments or partly performance-based should not be neglected.
3. Liability issues
No matter how convinced a buyer is about a company, liability issues can turn a lucrative deal into a fiasco. A good example from practice is the Bayer-Monsanto deal. At the latest with this prominent M&A case, liability issues have once again moved to the forefront of the risk review. Therefore, the prospect of future liabilities or risks has a major influence on whether and at what price a purchase offer is made for a company.
Company sale procedure
As with any commercial transaction, the sale of a company is preceded by an examination by the potential buyer. Depending on the buyer and the company, this so-called Due Diligence last several weeks and is usually carried out by external auditors, legal experts and management consultants carried out. However, this examination is only possible if the seller grants access to internal documents. Therefore, a confidentiality agreement is signed before the due diligence.
In a Letter of Intent the seller and buyer communicate their positions. If deal breakers can be identified from this document at an early stage, negotiations can be terminated before the start of a DD due diligence. This not only saves time and money, but can also result in a Disclosure of the most important company secrets be prevented. This is especially important when the potential buyer is a competitor.
Power of informal networks
Over many years, M&A specialists such as KERN have built up a resilient network with a large number of (regional) banks, savings banks, associations, lawyers, tax advisors, guilds and chambers. They know thousands of potential buyers and their exact search profiles.
In most cases, they are aware of the financial possibilities of strategic investors, individual candidates and financial investors. In other words, this network offers company sellers the great opportunity to address a large number of potential buyers quickly, specifically and anonymously. Often without even having presented the company anonymously in an exchange.
At Kern Invest you will find solutions for your company sale
10 tips for selling your company
In addition to the dealbreakers mentioned above, we would like to provide you with further useful assistance for the Company sale give. It is not just about avoiding pitfalls. The following tips will help the business owner to Company sale procedure successfully and to hand over the company to the successor with a good feeling.
1 Willingness to compromise on the terms of payment of the purchase price
The payment terms are an important part of the company purchase contract. The seller likes to have immediate payment of the full purchase amount, while the buyer wants as many performance-based contract components as possible. It is advisable for the seller of a company to be prepared to compromise on this point. Because a Payment in instalments can be worthwhile for both sides. A distinction must be made here as to whether it is a Seller loan or a so-called Earn Out variant (oriented towards future success).
The buyer does not pay the full purchase price until the company has also achieved the jointly agreed target figures in subsequent years. The seller can demand interest on the outstanding amount in the case of a seller's loan. However, a notary should be consulted for a company contract with such payment terms and a bank guarantee or other collateral should not be waived.
2 How likely is an agreement
A company sale only succeeds if both parties can agree on a contract in the end. But the path to this goal leads through long, possibly tough negotiations. However, in many cases a detailed LoI can find out before the negotiations whether an agreement is at all likely. Therefore, much emphasis should be placed on the Letter of Intent (Memorandum of Understanding) be laid.
3 Negotiate non-compete or consultant position
From Company purchase agreement the further future in the competitive market of this company may also depend on it. Therefore, consideration should be given to whether a Non-competition clause is to be integrated. The mere risk that the seller could start a new competitor company may induce the buyer to prevent this possibility by adding a premium to the purchase price. Alternatively, the seller can be engaged as a consultant in his old company. This buyer wish is often easy to integrate.
4 Selling companies: The halo effect (colloquially the "first impression")
In contract negotiations it is important to convince the buyer as quickly as possible of all the positive characteristics and the opportunities of the company. The halo effect can help to shape the sales strategy. This states that the special emphasis on only one important, positive characteristic leads to the other side recognising other positive qualities more quickly.
Incidentally, this effect has been successfully applied, among others, by Barack Obama in his first election campaign. Therefore, the seller of a company should particularly emphasise the core competence of his company, e.g. the above-average quality of his products, services or the USP (unique selling proposition). If the buyer is convinced of the special features, he will also value other competences.
5 Professional appearance of the entrepreneur
At the Business valuation not only play the positive and negative characteristics of the company a role. Unprofessional behaviour on the part of the entrepreneur can raise doubts about the information provided. After all, how the entrepreneur behaves is how he conducts business. Reliable information and quick answers to the buyer's questions do not play an unimportant role.
6 Choose the right marketplaces for company sales
In recent years, a large number of marketplaces have established themselves alongside the two large company marketplaces Nexxt Change and the German Unternehmerbörse. These are often small and focused on one region or one industry. As a result, the small number of visitors only leads to a manageable number of enquiries from interested parties or even outdated purchase offers are presented.
Specialists like KERN know which M&A platforms are promising. They invest in expensive access to high-quality and non-public platforms in order to discreetly present their clients' sales offers to a large number of vetted prospective buyers.
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6 Change-of-Power Clauses in Contracts
The attractiveness of a company also lies in the attractiveness of its contracts and contractual partners. An entrepreneur who already makes supplier or rental contracts more flexible before selling the company can increase the sales price. Change-of-power clauses (or change-of-control clauses) come into force when control of a company changes. Among other things, special notice periods can be agreed for customers and suppliers. Such clauses facilitate integration into the supply chain of the acquiring company and thus reduce the buyer's risk. However, there is also a great danger associated with such clauses: Customers and suppliers who, from the buyer's point of view, should remain on board can then terminate at any time. As always, there are the famous two sides to a coin.
7 Understanding the role of banks
A company sale is usually financed not only from own funds. Therefore, the company transaction depends not only on the buyer's assessments, but also on the buyer's bank. The bank receives most of the information from the Due Diligence. However, the financing bank can obtain information from the house bank via the so-called bank information.
In this case, the house bank arranges a Impression about the entrepreneur and the company. Therefore, problems known to the house bank should definitely be communicated to the buyers in advance. If the bank information turns out worse than expected, this will have a negative impact on the purchase price. It is advisable for the buyer to also have concrete discussions with the house bank for the Company acquisition to lead.
8 Reduce risk with maximum liability and limitation periods
A major contentious issue in any corporate transaction is liability. Since the legal rules are not particularly attractive to either the buyer or the seller, individual regulations are made in the company purchase agreement. The buyer does not want to be surprised by unexpected liabilities and risks and therefore tries to make a Shifting most of the liability onto the seller. For the seller, on the other hand, it makes sense to include two clauses in the contract.
On the one hand, a maximum liability amount that is in proportion to the purchase price. On the other hand, a liability risk can be excluded with an individual limitation period if the buyer only learns of the payment obligation after this period. Even though this may have a Negative influence on the purchase price has, these regulations protect so that more of the purchase price remains in the long term.
9 Vendor due diligence can increase the sales price
A Vendor Due Diligence (relevant in larger transactions and can be used well in the bidding process) is carried out by the seller in order to find out about weaknesses and possible problems before the negotiation and to be able to remedy them. The results of the vendor due diligence are also presented to the buyer before the negotiation. Even though this is associated with time or financial effort, a Vendor Due Diligence to boost the sales process at several points. For one thing, all the risks from the seller's liability already discussed in advance no longer apply.
Furthermore, a stalemate or breakdown in negotiations can be prevented if serious legal problems, such as an ineffective transfer of the GmbH in the past, have already been settled before the client conducts his due diligence. Furthermore, vendor due diligence can increase the purchase price, because buyers calculate a ?uncertainty discount? on the purchase price offered. The better the buyer can assess the company, the smaller this discount will be.
10 Professional advice
Company takeovers are part of the business strategy for large companies. Therefore, they have their own experts or already have business relationships with external M&A advisors, tax advisors and lawyers. For many medium-sized entrepreneurs, the sale of a company is a one-off transaction. Therefore, they always have doubts about being "short-changed" by the large experienced company with all its experts. And there is often not enough time in their everyday lives to be able to comprehensively complete such a complex project with so many issues in addition to their daily tasks.
However, many of these entrepreneurs shy away from going to their own business sales consultancy. Often, self-made entrepreneurs tend to I'll do it myself' mentalitythat can stand in their way during a corporate transaction. This is because external advisors can use their experience not only to prevent a company from being sold below value, but also to keep legal risks within bounds.
In unfamiliar waters, the captain of a ship often trusts a pilot experienced in this sea area. As such a companion, we also see ourselves as KERN ? The follow-up specialists: From the multitude of our projects, we know where dangerous cliffs and shoals of an Company succession lie. In addition, we are familiar with the questions of a wide variety of prospective buyers and know what is important for the successful handling of a company sale.
Company sale conclusion
At first glance, numbers seem to be the driving factor for selling a company. However, sellers underestimate that buyers are afraid of buying a pig in a poke. Therefore, soft factors also play an important role. A Competent appearance, good communication and reliable exchange of a lot of useful information can increase the buyer's sense of security.
In this way, the purchase price can also be increased through trust. For uncertain sellers it is worth consulting external advisors. The entrepreneur can decide according to his or her needs whether these advisors should only provide advice on the sale of the company or whether they should intervene in the negotiations themselves.