Business people discuss the process of selling the business

The compa­ny sale process in 4 phases

Selling a business is a delica­te matter. The number of possi­ble sources of error is high. An incor­rect compa­ny valua­ti­on leads to a purcha­se price far too low or scare away all interes­ted parties.

The disclo­sure of compa­ny inter­nals to compe­ti­tors that have been passed on by a prospec­ti­ve buyer can have parti­cu­lar­ly dire conse­quen­ces. To clari­fy the process of selling a compa­ny, the most important steps are explai­ned below.

But before analy­sing, one point must be made: Every business sale is diffe­rent. There­fo­re, many decis­i­ons depend on the indivi­du­al situa­ti­on. For there are worlds between a sale in the context of a retire­ment succes­si­on, a restruc­tu­ring sale or a takeover forced by a competitor.

You don’t have much time to read? Here is the compa­ny sale proce­du­re in brief

In the prepa­ra­to­ry phase of the sale of the compa­ny, the goals and the strategy to achie­ve them are deter­mi­ned. Here the especi­al­ly the compa­ny valua­ti­on is important. Becau­se the value of the compa­ny deter­mi­nes the purcha­se price.

In the marke­ting phase, it is important to identi­fy and approach the right poten­ti­al buyers. This group of people should be aligned with the strategy for the sale. It is also important to decide early on whether a bidding process or an indivi­du­al search should be implemented.

In the compa­ny due diligence (DD) and negotia­ti­on, the interes­ted parties check what risks they are taking on with the compa­ny purcha­se. Start­ing from the Result of this test a final purcha­se offer is made, which can be negotia­ted. If both parties agree, the result of the negotia­ti­on flows into a compa­ny purcha­se agreement.

Prepa­ra­ti­on phase

In the course of a compa­ny sale, the first step of the prepa­ra­ti­on phase alrea­dy plays an important role. It repres­ents a decisi­ve basis for the success of the entire sales process.

Prepa­ra­ti­on of the sales documents

Profes­sio­nal inves­tors recei­ve many diffe­rent purcha­se offers and also tend to reject an offer quick­ly if the data is unclear. A seller must there­fo­re make use of the short atten­ti­on he recei­ves in the offer phase. It is there­fo­re important to most relevant infor­ma­ti­on about the compa­ny and to create infor­ma­ti­on documents from them.

The easie­st way to prepa­re the infor­ma­ti­on is to evalua­te inter­nal data. To filter out the most relevant data, it is important to put yours­elf in the buyer’s shoes. Which infor­ma­ti­on increa­ses his interest and is really relevant for the business model? What is the USP (unique selling propo­si­ti­on) and what are the growth opportunities?

In any case, a buyer should think about the Strengths, weakne­s­ses, oppor­tu­ni­ties and threats be clari­fied. There­fo­re, a SWOT analy­sis can form the basis of the sales documents.


M&A advice and tasks

For many entre­pre­neurs, the sale of their business is a once-in-a-lifetime event. However, not only is a lot of money at stake, but liabi­li­ty risks must also be minimi­sed. That is why many entre­pre­neurs look for a profes­sio­nal M&A consul­ting.

These advisors have many years of experi­ence with corpo­ra­te transac­tions and support the entre­pre­neur with their know-how. Their tasks range from the orien­ta­ti­on of the sales strategy to the legal review of the comple­ted purcha­se agreement.

In this way, entre­pre­neurs are not only protec­ted from mista­kes that could reduce the purcha­se price, but can also reach a large number of interes­ted inves­tors in the shortest possi­ble time through the advisors’ network. Regard­less of the fact that a project Compa­ny sale has an extre­me­ly high time requi­re­ment and this can be intel­li­gent­ly compres­sed via advisors.

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M&A strategy

In order to be able to choose the right strategy, the goals must be clear­ly defined. The most important questi­on an entre­pre­neur should ask himself is: Do I really want to sell 100% of the shares immedia­te­ly or would I rather sell the shares step-by-step? And what do I want to sell? Depen­ding on how these questi­ons are answe­red, diffe­rent buyers come into question.

The compa­ny sale

If an entre­pre­neur no longer wants to have a direct stake in his compa­ny, a sale at 100 % is a good option. And at the same time a Compa­ny sale not a blueprint.

Some inves­tors are willing to pay the majori­ty and up to 100 % of the purcha­se price in cash, other inves­tors prefer a purcha­se price based on the future develo­p­ment of the compa­ny. And the parame­ters for part of the purcha­se price should be speci­fied as precis­e­ly and concre­te­ly as possi­ble in writing with all options.

Both sides should clari­fy early on whether there will be a transi­tio­nal phase with the seller for familia­ri­sa­ti­on and how long this can be. In the majori­ty of cases, the seller and trans­fer­ring entre­pre­neur must agree to a non-compe­ti­ti­on clause. Someti­mes even family members are included in this non-compe­ti­ti­on agreement.

The compa­ny succession

At the Compa­ny succes­si­on many compa­ny owners who have founded and built up a compa­ny find it diffi­cult to accept that their compa­ny may be merged with another compa­ny in the future. The ideal of the endless conti­nua­tion of the previous histo­ry into the future is uncon­scious­ly in the foreground.

Family entre­pre­neurs are also more willing to forego money if they belie­ve that the compa­ny and the employees will be in good hands and the acqui­rer will presu­ma­b­ly develop the future with a high sense of respon­si­bi­li­ty towards history.

This wishful thinking of a trans­fer­or or seller also plays a role in an intra-family genera­ti­on change. However, it is usual­ly easier for the trans­fer­or to clari­fy and trust this important questi­on within the frame­work of similar values and the common vision of the generations.

Business valua­ti­on

The Business valua­ti­on is a subjec­ti­ve assess­ment of the value of a compa­ny. Models are used to deter­mi­ne a “fair” price for a compa­ny from various compa­ny data. price for a compa­ny from various compa­ny data.

The most important valua­ti­on methods in the purcha­se of a compa­ny are the discoun­ted cash flow method, the capita­li­sed earnings value method, the sub-total value method and the multi­ples method.

In the discoun­ted cash flow and capita­li­sed earnings methods, the estima­ted future cash flows or annual surplu­s­es are discoun­ted and added up. In the subto­tal value method, the value of all assets is estima­ted (makes sense in business models where fixed assets are more valuable than earnings).

In the multi­ples method, key compa­ny figures such as equity, turno­ver or profit are multi­pli­ed by common values to obtain a rough estima­te of the company’s value. The simpli­fied, tax-based capita­li­sed earnings value method, on the other hand, is not suita­ble becau­se it usual­ly uses factors that are signi­fi­cant­ly too high. Logical from the point of view of the tax autho­ri­ties, it nevert­hel­ess does not corre­spond to the usual market value.

Company sale-process-CTA-company-value-assessment-free-and-confidential

Can the value of the compa­ny be increased?

Irrespec­ti­ve of the options in commer­cial law for balan­ce sheet valua­ti­on, given suffi­ci­ent time by the seller, every business model should be exami­ned in detail for develo­p­ment poten­ti­al. After many years of entre­pre­neur­ship, “tunnel vision” often obscu­res important oppor­tu­ni­ties for new markets, products, services or scaling.

Today, in combi­na­ti­on with artifi­ci­al intel­li­gence, there are excel­lent analy­ti­cal tools and sellers can then weigh up whether they would prefer to invest another 2-3 years to develop the value of the company.

If a compa­ny sale is planned, the value of the compa­ny can possi­bly be signi­fi­cant­ly increased through a targe­ted exami­na­ti­on of the business model and the balan­ce sheet struc­tu­re. Alter­na­tively, the value of the compa­ny can be SWOT analy­sis should be taken into account. If the compa­ny is protec­ted against risks, for examp­le with special insurance polici­es, the value of the compa­ny can be increased. However, the costs for this must be taken into account.

Infor­ma­ti­on Memoran­dum / Compa­ny Exposé

The Infor­ma­ti­on Memoran­dum, also Compa­ny Exposé helps interes­ted parties to gain a compre­hen­si­ve overview of the compa­ny. In additi­on to a brief intro­duc­tion to the histo­ry, the products and the strate­gic orien­ta­ti­on, the follo­wing infor­ma­ti­on is provi­ded ?hard? and ?soft? factors listed. The ?hard? factors are the compa­ny figures with which the interes­ted party can deter­mi­ne a compa­ny value.

The ?soft? factors include those points that cannot be quanti­fied or can only be parti­al­ly quanti­fied. Here, for examp­le Leader­ship levels, Market environ­ment, staff training, unique selling propo­si­ti­ons and custo­mer and suppli­er relati­onships descri­bed. The SWOT analy­sis is one possi­ble tool for produ­cing this information.

Buyer approach and marke­ting phase

Within the 4 phases of the sales process, the buyer approach should not be negle­c­ted under any circumstances.

Poten­ti­al buyers / compa­ny successors

A compa­ny can be sold to diffe­rent types of interes­ted parties. Each type of buyer should be approa­ched differ­ent­ly, as diffe­rent inves­tors also have diffe­rent incen­ti­ves in a business transaction.


Inter­nal employee

At Manage­ment Buy Out (MBO) the manage­ment of a compa­ny acqui­res the compa­ny shares and thus gains control over the compa­ny. MBOs are often a planned genera­tio­nal change in which the buyer alrea­dy has all the infor­ma­ti­on about the compa­ny in advance.

Exter­nal manager

At Manage­ment Buy In (MBI) an exter­nal actor acqui­res control over the compa­ny. However, they have signi­fi­cant­ly less infor­ma­ti­on about the compa­ny. There­fo­re, purcha­se price negotia­ti­ons are often much more diffi­cult than with an MBO.

Compe­ti­tor / Strate­gic Investor

The acqui­si­ti­on of a compe­ti­tor offers a varie­ty of strate­gic advan­ta­ges. Thus Custo­mer and suppli­er relati­ons, research and develo­p­ment results and the compe­ti­ti­on is reduced at the same time. In additi­on, the integra­ti­on of the acqui­red compa­ny into the value chain of the strate­gic inves­tor can create syner­gies and increase the value of the company.

Finan­cial investors

The business model Buy compa­ny for finan­cial inves­tors is to resell the purcha­sed compa­ny at a later date at a profit. The goals of finan­cial inves­tors are often Start-ups or compa­nies in growth sectors.

Finan­cial inves­tors are often invest­ment funds or successful entre­pre­neurs who alrea­dy have a large amount of capital. This is inves­ted in many compa­nies in the hope that the invest­ments in successful compa­nies will prevail and genera­te a large return in the future.

Active buyer search with the long list / short list method

The Long List/Short List method is a syste­ma­tic proce­du­re for the Identi­fi­ca­ti­on and classi­fi­ca­ti­on of poten­ti­al buyers for the company.

The Long List lists all the crite­ria that a buyer should fulfil. Based on this list, all suita­ble buyers are rough­ly identified.

The crite­ria of the long list are weigh­ted on the short list. The result is a ranking of the most suita­ble poten­ti­al buyers. These can then be further subdi­vi­ded accor­ding to the most important decis­i­on criteria. 

Approach prospec­ti­ve buyers

The classes created can be used to target poten­ti­al buyers. HereThe highest effort should be inves­ted in the Courting the candi­da­tes of the most relevant class flow.

Should no prospec­ti­ve buyer emerge in the most important class, talks with the compa­nies of the second and possi­bly the third class will be inten­si­fied. Since these actors are proba­b­ly aware that there are better matching purcha­se candi­da­tes, an indivi­du­al commu­ni­ca­ti­on strategy should be worked out for each target group.

Passi­ve buyer search with a compa­ny exchange

While the long list/short list method is used to actively search for poten­ti­al acqui­rers, a compa­ny exchan­ge makes it possi­ble to draw the atten­ti­on of inves­tors to a compa­ny for sale on a broad basis, who are interes­ted in an Compa­ny acqui­si­ti­on are interes­ted. For this purpo­se, the entre­pre­neur or advisor creates an anony­mous sales adver­ti­se­ment. The adver­ti­se­ment should menti­on basic infor­ma­ti­on and arouse curiosity.

If inves­tors are interes­ted, they can then contact the seller or advisor and get to know them. Every seller who wants to do this himself and direct­ly should think about his anony­mi­ty in advan­ce and consider how long he can maintain it. An advisor is the perfect safety buffer for a long period of anonymity.

With a compa­ny exchan­ge you recei­ve quali­fied adver­ti­se­ments from interes­ted parties

The confi­den­tia­li­ty agreement

Selling a business without an exchan­ge of infor­ma­ti­on between buyer and seller is impos­si­ble. The Non-Disclo­sure Agree­ment (NDA) is inten­ded to prevent the prospec­ti­ve buyer from passing on or publi­shing the infor­ma­ti­on received.

Although compa­nies publish annual finan­cial state­ments every year, this does not include much sensi­ti­ve infor­ma­ti­on. And funda­men­tal­ly, an open inten­ti­on to sell is a poten­ti­al risk for a seller.

If, for examp­le, contracts with suppli­ers fall into the hands of a compe­ti­tor, the latter could use them to deter­mi­ne the exact manufac­tu­ring costs of the product produ­ced and start a price war. There­fo­re, sensi­ti­ve data should only be shared after agreed confi­den­tia­li­ty and binding clari­fi­ca­ti­on of a sustainable invest­ment interest. 

Corpo­ra­te audit and negotiation

No compa­ny purcha­se can be comple­ted without thorough checks. They form important pillars in the course of a purcha­se process and for deter­mi­ning the final purcha­se price of the company.

The due diligence

At the Due Diligence is a due diligence process that should be speci­fi­cal­ly prepared with a pletho­ra of questi­ons from the interes­ted party. The aim is to Econo­mic, tax and legal risks of a compa­ny acqui­si­ti­on to identify.

For this purpo­se, the prospec­ti­ve buyer is given access to a wealth of compa­ny data, the so-called data room. As negotia­ti­ons progress and the buyer’s questi­ons deepen, this data room can be expanded.

A due diligence is mostly carri­ed out by the seller and is orien­ted towards the questi­on needs of the poten­ti­al buyer. In the case of larger compa­nies, an excep­ti­on may be a Vendor Due Diligence be.

If risks and problems are identi­fied via DD before entering into final contract negotia­ti­ons with a prospec­ti­ve buyer, these can be commu­ni­ca­ted to the prospec­ti­ve buyer during the negotia­ti­ons or remedi­ed by then. A detail­ed and funda­men­tal due diligence ultim­ate­ly protects both sides from possi­ble claim risks after a purchase.

The sale of a compa­ny from a tax perspective

Taxes are an important issue when selling a compa­ny. On the one hand, taxes may be incur­red when trans­fer­ring control of a compa­ny, and on the other hand, sellers alrea­dy try to find out during due diligence how future taxes can be avoided.

If a business is passed down within the family, a Gift tax for the new entre­pre­neur if the compa­ny is passed on at a price below the value of the compa­ny. The prospec­ti­ve buyer, on the other hand, checks which legal form can save him taxes. Certain legal forms and contrac­tu­al constel­la­ti­ons can help both sides to save taxes.

The Due Diligence Checklist

Due diligence invol­ves the use of documents from the areas of finan­cial state­ments, taxes, finan­cing, compe­ti­ti­on analy­sis, sales, marke­ting, purcha­sing and logistics, business organi­sa­ti­on, HR, land and buildings and compa­ny law.

In princi­ple, the documents should fully reflect the last 3-5 years. During Annual finan­cial state­ments and market analy­ses for business valua­tions are used, all Contracts (share­hol­der agree­ment, custo­mer and suppli­er contracts, employ­ment contracts) review­ed for legal risks become.

The comple­te trans­mis­si­on of all important documents is parti­cu­lar­ly important for the seller. Liabi­li­ty is trans­fer­red for all risks that were known to the buyer. If infor­ma­ti­on is withheld, the seller must also be liable after the sale of the business.

Take a look at our Due Diligence Check­list to find out more about what will be tested in detail.

Contract and conclusion

The final step in the process of selling a business is the contrac­tu­al arran­ge­ments. Although the sales process is coming to an end, atten­ti­on should still be paid. Often there is a strong emotio­nal tensi­on on both sides at this stage. The appro­pria­te commu­ni­ca­ti­on thus takes on a parti­cu­lar­ly high signi­fi­can­ce for achie­ving the final signature.

Asset Deal or Share Deal?

The trans­fer of a compa­ny can take place in two diffe­rent ways. At Asset Deal the compa­ny sells indivi­du­al assets to the buyer. All assets should be recor­ded and trans­fer­red individually.

In practi­ce, this is often diffi­cult, especi­al­ly if intan­gi­ble assets are to be trans­fer­red, since the entire purcha­se price must be divided among the indivi­du­al assets. In additi­on to assets, liabi­li­ties can also be transferred.

At Share Deal on the other hand, it is not the assets but the shares in the compa­ny that are trans­fer­red. This means that control over the compa­ny, inclu­ding all assets and liabi­li­ties, changes from the seller to the buyer.

The asset deal offers the possi­bi­li­ty to take over only certain parts of a compa­ny. In this way, the buyer can minimi­se the liabi­li­ty risk by not assum­ing certain liabi­li­ties. On the other hand, the expen­se of an asset deal may be signi­fi­cant­ly higher in detail and contracts with custo­mers or suppli­ers could be subject to a termi­na­ti­on risk in the process.

The bidding process

The bidding proce­du­re is a process in which the highest bidder can be deter­mi­ned from among the interes­ted parties. For this purpo­se, in a first phase all interes­ted parties are asked to submit a non-binding offer. Based on these offers, the seller selects the most promi­sing investors.

In a second phase, these recei­ve exten­ded access to inter­nal data and can thus submit a binding offer. In the final phase, those who have submit­ted the best bids are given access to the Most confi­den­ti­al infor­ma­ti­on. Contract negotia­ti­ons then take place with these interes­ted parties. This proce­du­re is clear­ly struc­tu­red and can be imple­men­ted within a manageable period of time.

The Letter of Intent

The Letter of Intent (Letter of Intent in advan­ce of an upcoming DD) is an important tool in contract negotia­ti­ons. Both parties record their most important inten­ti­ons in detail and in writing. In this way, it can be recog­nis­ed at an early stage whether an agree­ment is at all possible.

The compa­ny purcha­se agreement

If the buyer and seller were able to reach agree­ment during the contract negotia­ti­on, the Compa­ny purcha­se agree­ment is drawn up. This descri­bes all negotia­ted points, such as the number of compa­ny shares taken over (in the case of a share deal) and the purcha­se price.

Although a compa­ny purcha­se agree­ment for the sale of a compa­ny is in princi­ple not bound to any parti­cu­lar formHowever, parts of the contract, such as shares in a limit­ed liabi­li­ty compa­ny or real estate, may requi­re notari­al certification.

The Earn Out Clause

An important compo­nent of a compa­ny purcha­se agree­ment is the Earn Out Clause. In additi­on to the purcha­se price, this clause guaran­tees the seller a perfor­mance-related additio­nal price. The buyer and seller agree on this, Condi­ti­ons and amount of subse­quent, further payments, firm.

Such a perfor­mance-based payment serves in many cases as a compro­mi­se in the case of widely diver­gent price expec­ta­ti­ons or risks in future develo­p­ment. It also serves as additio­nal motiva­ti­on if the entre­pre­neur conti­nues to work for the company.

Closing of the transac­tion - signing and closing

The final step in the sale of the business is the signing of the contract and its fulfilm­ent. Closing. The trans­fer of the shares in the compa­ny takes place when all neces­sa­ry contrac­tu­al condi­ti­ons, for examp­le payment of the purcha­se price, have been fulfilled.

Free KERN expert guide to selling a business

You can find more detail­ed infor­ma­ti­on and useful tips in our guide to selling a business.

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