Company acquisition: Everything you should know in 2022
Buying a business is a big decision. There are many different factors that need to be considered before deciding to buy. What does the process look like? What time frame should be planned for? Where do financing pitfalls lurk? We explain everything you need to know about buying a business!
Company sales consulting at over 30 locations in D-A-CH
Over 1,000 business succession consultations since 2004
3 books published on the topic of M&A
We support prospective buyers looking for the right company with our large KERN network from targeted, efficient research to successful takeover (M&A). We are connected to the most important stock exchanges and maintain over 500 direct contacts with banks in the D-A-CH region. This is how we enable inorganic growth as well as the implementation of your entrepreneurial vision.
Company acquisition (M&A) with the support of our KERN network
How to make your business purchase a success. The expert guide for family businesses.
Concentrated expertise and compact information. 20 KERN experts have summarised the most important information for your successful company acquisition (M&A) on 150 pages.
It helps enormously to have a neutral personality as a contact person for all members of the family.
Our internal family succession and the coaching of my sons was handled very sensitively and with commitment by Mr Koerber. Many insights and activities would have been left out in our family without the KERN support of our generational change. It helps enormously to get an outside perspective and to have a neutral personality available as a contact person for all members of the family.
Parents and children from family businesses have a very concrete benefit from this
Our clients are medium-sized companies and the challenges of generational change, company sales or emergency provisions are 'perennial issues' for us. We have been working with Mr Koerber and KERN for years and value his practical knowledge and the oriented training and coaching. Parents and children from family businesses benefit from this in a very tangible way.
For us as a family business, the support provided by Mr Koerber was a great benefit
For us as a family business, combined with the many challenges of the future generation change, the support of Mr Koerber was a great benefit. Especially through mediation, we can now understand each other better and deal with conflicts differently. We recommend working with the experts from K.E.R.N. when problems arise in the succession process!
I have enjoyed working with KERN very much
I have very much enjoyed working with KERN and, as a representative of the buyer side, am always pleased when sellers ? especially family businesses ? receive holistic advice and are specifically prepared for a sale.
... Very satisfied and would recommend Kern at any time and without reservation.
What I particularly liked about Kern and Mr Ingo Claus was the very professional and trusting way in which they dealt with me as a company seller and the interested parties. Mr Claus always acted in a solution-oriented manner and was in constant dialogue between me as the seller and the potential buyers. Even though in the end the sale was not concluded, which was due to external circumstances, I was very satisfied with the work done by Kern, Mr Claus, and would recommend Kern and him at any time and without reservation.
After a lengthy selection process we decided on KERN
By its very nature, there are not multiple opportunities when selling a business. That is why choosing the right management consultant is so important. After a lengthy selection process, we decided on KERN and Holger Habermann. With great personal commitment, Mr. Habermann has successfully mastered all tasks, both in terms of content and management. I would particularly like to emphasise the wide-ranging expertise, the methodical approach, the objective, calm manner and the straightforwardness in the discussion.
... We have achieved our goal and can definitely recommend working with KERN.
The KERN team was recommended to me as part of our company sale and, in retrospect, we are very glad to have received this tip. The negotiation process for the sale was complex, lengthy and sometimes threatened by emotional misunderstandings in the outcome. However, thanks to the great experience and skill of our KERN consultant, we achieved our goal and can definitely recommend working with KERN.
Especially the seriousness and professionalism gave me a secure feeling at all times
My pre-selection decision to 100% proved to be the right one. KERN did a really good job from the preparation of my company in an exposé, to the search for buyers, to the facilitation of negotiations and the complete implementation of my succession. In particular, the seriousness and professionalism gave me a secure feeling at all times. Our goal was successfully achieved in a good 8 months. I am happy to recommend KERN to others.
Without the view from outside, we would probably never have reached our goal so quickly and safely
In the context of my company succession, the merger with a competitor company was the ideal solution. The KERN team, and especially Mr. Koerber, accompanied us sensitively as a moderator and process facilitator and combined the interests of both negotiating partners well. Without the view from outside and the negotiating experience, we would probably never have reached our goal so quickly and safely!
Known from numerous publications
Advantages and disadvantages of buying a company
The advantages include that you acquire an established company that already has customers and enjoys a certain degree of name recognition. You also take over a team of employees who already know the company and how it works.
However, there are also possible disadvantages to buying a business. Buying a business is a big decision that should be carefully considered. Above all, the risks of the purchase should be weighed up. Can I, as the buyer, ensure the important know-how transfer of the transferor? Will customer and supplier relationships remain intact and can I integrate the employees into a common culture and future?
Are you an entrepreneurial type?
Before you decide to buy a business, you should first ask yourself whether you are the right type of entrepreneur. After all, not everyone is suitable for acquiring an existing business. However, if you have the following characteristics, then the chances are good that you will be a successful business buyer:
- You are entrepreneurial in thinking and acting
- You have a vision and want to make it a reality
- You are creative and think out-of-the-box
- You are willing to work with commitment and take risks
- You enjoy dealing with people and appreciate clear communication
To find out if you are an entrepreneurial type, feel free to do the following entrepreneur check.
Position of interest
The interests of the buyers in the acquisition of a company are often different. On the one hand, there are financial investors who are usually looking for a respectable profit in a manageable period of time and who usually want to sell the company again after about 5-8 years. But then there are also investors and buyers who want to manage and develop the company in the long term. Buyers should therefore examine their interests in advance and decide what desired framework this investment should fulfil in the long term.
A financial investor is more interested in the financial aspects of a company and less in the long-term strategic goals. A financial investor is usually interested in selling within a certain period of time (usually 5-8 years) and with a high return.
A financial investor is more interested in the financial aspects of a company and less in the long-term strategic goals. A financial investor is usually interested in selling within a certain period of time (usually 5-8 years) and with a high return.
If you see yourself as a business successor and want to "live" the business like a founder, it is an opportune time for you. Up to 50% of all family businesses will be looking for a new owner in the coming years as baby boomers retire.
It is not always easy to find a company that suits you. It can be difficult to find the right size, the right business model and the right culture. And it is important that you find a company that fits you in its culture and will fulfil important needs in the depth of what you do.
Forms of takeover
There are different forms of taking over a company. Basically, a subdivision into asset deal (sale of the individual components of a company) and share deal (sale of a framework under company law) makes sense.
An asset deal is a transaction in which only the assets of the company are sold. This means that the buyer only acquires the assets of the company but does not assume liability for liabilities. This is a common approach to company acquisitions as it allows the buyer to minimise the risk involved in taking over a company. It may also be the seller's deliberate goal because tax and legal considerations prefer to leave the company with the transferor.
A Sell limited liability company per share deal is a takeover in which the company is often bought as a whole. This means that the buyer acquires the full shares of the company and thus gains control over it. In the process, the company remains a legally independent organisation. However, the new owner not only receives the shares in the company, but thus also control over the company.
Shareholders can also only Sell GmbH shares. The influence of the new owner of the shares depends on the ownership structure and the amount of the shares.
Difference between asset deal and share deal
To put it in a nutshell: In an asset deal, only the assets of the company are sold, whereas in a share deal, the business shares are also transferred. This difference is important as it affects liability risks and possibly also customer and supplier relationships. To look at all the differences in detail, we recommend our article Share Deal vs. Asset Deal.
Types of company purchase
There are different types of a company purchase which relate to the way the purchase is made, the pricing and the terms of the purchase. Some of the most common types of a company purchase are: Management Buy Out (MBO), Management Buy In (MBI) and Leveraged Buy Out.
Management Buy Out (MBO)
A Management Buy Out (MBO) is a method in which the existing management of a company takes control of the company. In an MBO, the management buys the company from the previous owners and becomes the new owner. This has the advantage that all actors often know each other for years, everyone is familiar with the structures and details of the company and the employees already know the successor well.
Management Buy In (MBI)
A management buy-in (MBI) is a type of company purchase in which an individual (or several individuals, almost analogous to a foundation) buys shares in the company to be acquired. The solution of succession with an MBI is the classic succession solution and occurs very often in smaller companies. The contribution of external knowledge and know-how by the MBI and thus subsequent entrepreneur can help to ease the transition to a new strategy and put the new company on the road to success.
The MBI Financing is more often difficult because, depending on the purchase price volume, sufficient own capital should be available for purchase price financing and banks become sceptical if the equity share is too low. Therefore, an MBI must be able to present a good business plan and raise the necessary funds in other ways.
Leveraged Buy Out (LBO)
A leveraged buy-out is a type of company purchase in which a buyer finances a very weighty part of the purchase price with loans and the company itself also borrows extended funds. This allows the buyer to acquire a larger share of the company than would otherwise be possible.
LBOs can be attractive to buyers as they offer the opportunity to acquire a company without having to raise all the funds. They can also lead to a change in the company's equity/debt ratio, making the company more vulnerable in critical market situations.
However, LBOs are associated with risks. For example, it can be difficult to obtain loans to carry out an LBO. In addition, the high debt burdens created by an LBO can lead to the company getting into trouble if the business does not perform as well as expected.
Company acquisition process - Our guide in 10 steps
If you decide to buy a business, there are some things you need to know in the M&A process should pay attention to. First, you need to understand the buying process. The following paragraphs explain the typical course of a company purchase. The first step in buying a company is to find a suitable target company. This can be a challenge, as there are a confusing number of different companies and not all of them are suitable for purchase. You can find your personal roadmap to buying a company in the Outline of the procedure take out.
Create search profile
Especially if you want to buy a company, it is important to create a search profile in renowned stock exchanges. By creating such a profile, you can at the same time get to know yourself better and find out what kind of company suits you best. In addition, with the help of a specific search profile, you can make the right contacts more quickly and thus accelerate the purchase of a company. Here, the wisdom ? If you want to be able to do everything, you can't do anything.
This profile should include your preferences and criteria for the ideal business purchase. The criteria include:
- The type of business you want to buy
- The size of the company
- The location of the company
- The budget you are willing to pay for the purchase of the business or can raise the necessary equity capital.
Find company sale offers
Whether you want to buy your business yourself or hire an external M&A specialist ? finding the right offer is an essential part of the buying process. To ensure a successful purchase, you should prepare well and make sure you gather all the relevant questions before you start looking for the right offer. There are various places where you can look for offers for the sale of your business.
Many entrepreneurs are looking for a suitable buyer for their company. One way to find potential buyers is through a company exchange. Here, companies that are for sale are brokered. DUB, Nexxt Change and KERN Company exchange are some of the largest, reputable and best-known stock exchanges. Many people see stock exchanges as an active and broad-based way to sell or buy a company.
Other opportunities outside of stock exchanges
This is the famous needle in a haystack and usually requires special knowledge and access to databases. After all, no entrepreneur hangs a 'For Sale' sign in front of his company door, just like with real estate.
We have worked out several options for company takeovers and the successful identification of companies. You can find these different options in our technical paper on the topic of
Sales approach and selection
You should not select potential sellers based on price, but understand the business model and be able to develop it in perspective. This requires good communication between seller and buyer to ensure that both sides know and understand the expectations.
It already starts with the selection of suitable objects for purchase and the first contact with the respective seller. In this way, a good first appearance is also the first step towards a successful transaction.
NDA and Letter of Intent
The NDA and the Letter of Intent are two of the most important documents involved in the purchase of a company.
A non-disclosure agreement (NDA) is a legal document that prevents confidential information from being shared. This document is usually signed between two parties before they start negotiating or exchanging data.
A Letter of Intent (LOI) is a document that sets out the intentions of one or more persons in relation to an agreement or transaction. It is not a legally binding agreement, but rather serves to facilitate and expedite negotiations between the parties. The Letter of Intent can also be used to set out the essential terms of a future agreement.
Also indispensable: the Information Memorandum contains detailed information about the company, its business activities and its financial position. The aim of an information memorandum is to give potential investors a comprehensive overview of the company so that they can decide whether to invest in it.
The Business valuation is an essential part of the purchase process. The valuation of a company is usually carried out by an independent financial expert and is based on various factors such as the current and future earnings potential, the competitive environment, the market opportunities and the financial situation of the company. Due to these factors, the valuation of a company can vary greatly.
The following two paragraphs are infoboxes for the "Fairness Opinion".
An important aspect when you consider the Calculate enterprise value is the so-called "fairness opinion". This is an opinion from an independent third party confirming that the price is fair to the company.
In order to obtain a fairness opinion, the company must engage an expert. This expert will then conduct an investigation and issue his or her opinion. As a rule, the fairness opinion is part of the expert's report.
Before you embark on the purchase of a business, you should clarify how you intend to finance it. This is especially important if you decide to buy a larger business. There are different ways to finance a business and which method is best for you depends on various factors.
A good way to learn more about financing is to consult with an accountant or financial advisor. These experts can help you find the best way to finance your business.
The Due Diligence is an essential part of buying a business. It involves reviewing the company's financial records and business processes to ensure that it is a good investment for the buyer and that the seller's claims made so far actually correspond to reality.
The following paragraph is an info box for the "Due Diligence Checklist".
Due diligence is usually carried out by a team of experts who have experience in different areas of the company. As a guide to the crucial elements of due diligence, we have prepared a comprehensive list for you. Use our Due Diligence Checklist gladly for your purchase.
Legal Due Diligence and Tax Due Diligence
Legal due diligence is a process in which a lawyer or other external party thoroughly reviews the documents of the company being bought to ensure that there are no outstanding legal disputes and that all contracts and licences are in order.
Tax due diligence is a process whereby a tax advisor or other external party reviews the records of the business being purchased to ensure that there are no tax risks.
Negotiations and purchase price agreement
After you have found the right buyer, it is time to start the negotiations. Negotiations are an important part of the business acquisition and can often be decisive in whether the purchase is successful or not. It is important that you prepare well for the negotiations and know what you want and what you are willing to give.
There are many different negotiating points in a business purchase, but the price is of course one of the most important. If you can agree on a price, the rest of the negotiations are usually just a formality.
M&A Transaction / Closing
Buying a business is a complex process that requires careful planning and execution. When preparing to buy a business, there are some important steps to follow to ensure that the transaction goes smoothly.
A very important step in the purchase of a business is the closing. The closing is the final step in the transaction and involves the exchange of documents and funds between the buyer and the seller for the final transfer of the business.
Post Merger Integration
The Post Merger Integration (PMI) is an essential part of a successful business acquisition. PMI involves the planning and execution of all activities necessary to ensure that the newly acquired business is seamlessly integrated into the existing business.
An important aspect of post-merger integration is communication. To ensure a successful post-merger integration, it is important that the companies or shareholders and/or managing directors involved work closely together and have a clear plan for implementation.
Duration of a company purchase
If you want to buy a company, you have to be prepared for a relatively long and complex M&A (mergers & acquisitions) process. The exact time frame depends on many factors. As a rule, it takes between six and 18 months to complete a company purchase.
Financing company acquisition
Financing is an essential part of any business purchase and should be carefully planned. The following points should be considered in financial planning:
What kind of financing do you need?
How much money do you need? The possible growth phase after the takeover must also be taken into account.
Can you raise the financing for the necessary equity capital yourself?
Do you need external financing or can you solve it via a vendor loan?
Which lenders are eligible for your purchase?
What is the best way to obtain the necessary funding?
Amount of equity capital and company acquisition without equity capital
The higher the equity, the higher the price a buyer will usually pay for the company. Own equity is therefore just as important on the buyer's side if you want to buy a company, but it is not the only criterion.
Together with the seller, you can make agreements that help to make the equity more resilient and to know that the seller is firmly on your side, at least for a period of time.
Because in such a construct, the seller also has an elementary interest that you, as the purchaser, successfully Company succession through the acquisition of a company.
And there are outside third parties, such as banks, savings banks or financial investors, who can offer all opportunities in a range from public funds to concrete investments and significantly increase the equity base.
At the same time, every buyer must be clear in advance about what his or her needs really are and then also sound out the various options for this at an early stage.
There are many ways to finance a business. Some of them are:
Creditors: You can get a loan from a lender to buy the business.
Investors: You can also find investors who are willing to invest in your business.
Equity: Capital that you invest in the company yourself.
However, please also note the following alternatives, which are not always immediately recognisable.
An earn-out clause is a clause in a sales contract that states that the buyer will not pay a portion of the purchase price until certain targets have been met. These targets can be sales, profit or other financial targets.
Earn-out clauses are often used in takeover agreements to reduce the risk that the buyer pays more for the company than it is worth. The idea behind an Earn Out is that the buyer only pays the full purchase price if the company develops further after the purchase and is actually worth more. This reduces the risk for the buyer and involves the seller in the responsibility after the takeover.
A Seller loan is a loan that the seller of a business makes available to the buyer. This loan can help finance the purchase price and it gives the buyer the opportunity to buy the business with less equity. However, seller loans are not suitable for every buyer. It is important to find out exactly what the risks and opportunities of this method of financing are before buying a business.
The subsidies that entrepreneurs can receive when buying an existing business are diverse. The most common subsidies include loan programmes, tax concessions and financial support from regional development banks or KFW. It is important that you find out in advance exactly which subsidies are regionally eligible for your business project. This is the only way to ensure the best conditions for your business takeover.
How long does financing take?
Depending on the effort and support from traditional house banks/savings banks, public development banks or private financial investors, at least 8 weeks must still be estimated for the financing.
In the case of extensive projects, the combination of different donors or the overlap with the typical holiday periods, you will quickly need 3 or 4 months for this important phase.
Company acquisition checklist (PDF)
The corporate transaction can be an overwhelming undertaking at first glance. But it doesn't have to stay that way if you get professional support. In the first step, you can use our company purchase checklist, which already provides you with an overview of all relevant processes.
Company purchase experience
Over the last 20 years, we have accompanied many company acquisitions and gathered a lot of detailed knowledge for our clients. We would like to share our experience with you so that you can successfully complete your purchase.
Legal aspects in the company purchase agreement
In the context of a company purchase, there are several legal aspects that must be taken into account. These include, for example, which rights and obligations the buyer and seller agree on in the contract. The liability risks must also be carefully weighed up.
Before concluding a contract, the buyer should therefore Company purchase agreement get detailed information and advice.
Transfer of business
If you want to buy a company, it is important that the transfer of operations goes smoothly. This includes the transfer of all essential company functions and processes to the new owner. There are various ways in which a transfer of business can take place.
The most common type is that the buyer takes over the company completely and keeps the employees. In some cases, however, the buyer may only want to take over part of the company or lay off employees.
If you decide to buy a business, it is important to find out about the different options beforehand and discuss with the seller which option is best for you.
Takeover of existing employment contracts
However, before you terminate or change an employment contract, you should definitely consult a specialist lawyer. There are a number of points you need to consider in order to avoid legal problems. As a rule, when a company is bought, all employment contracts of the previous employees are taken over with all rights and obligations. This also applies to employment contracts regulated by collective agreements.
However, the sale of the company may also result in changes with regard to working conditions, for example with regard to the place of work or working hours. In this case, it is advisable to clarify all necessary framework conditions in advance so that no stressful events occur in the later implementation.
Takeover of existing insurance contracts
If you are buying a company that already has insurance policies in place, you should familiarise yourself with the terms of the policies. This includes finding out which risks are covered by the insurance and which are not.
Even though most insurance companies take over the policies when you buy a business, you may have to pay a higher deductible or certain risks may no longer be covered.
Agreeing on a non-competition clause
If you decide to buy a business, it is important to agree on a non-compete clause with the seller. This prevents the seller from competing with you after you have bought the business. It is also advisable to stipulate this in your purchase contract. This prohibition should be for a certain period of time and is considered enforceable without compensation at 2 years. Sometimes it is advisable to include family members of the seller in the prohibition.
When you buy a company, you also assume liability for all claims that arose against the company before the purchase. These claims may be financial or other in nature. For example, a customer may make a claim for damages because he or she was not satisfied with a product of the business. Even if the customer suffered the damage after the purchase of the business, the new owner is liable for the damage. This can be regulated via warranty provisions and liability clauses in the purchase contract at the expense of the seller.
As a rule, liabilities exist that the company enters into in order to conduct its business. These can be, for example, loans, rental contracts or supplier invoices. When you buy a company, you should therefore always find out about its liabilities. Because these can increase the risk of buying a company.
When you buy a business, there is also an assumption of tax liabilities. This means that you are responsible for all outstanding invoices and taxes that the company has not yet paid. Therefore, before buying a company, it is important to check exactly what tax debts the company has and whether you can take over these. It is also important to agree on guarantee and liability provisions at the expense of the seller.
Business acquisition advice
An experienced M&A advisor can help you prepare for the purchase and develop the best possible strategy for your company or for yourself personally. The advice usually includes a detailed analysis of the company to be bought, including a determination of the company's value, a review of strategic alternatives and a risk analysis.
In the negotiations with the seller, an M&A advisor has the task of keeping the relationship with the buyer unencumbered and assumes the role of critical questioner and purchase companion.
Company acquisition FAQ
We would recommend a business plan to every buyer of a company. It serves as a first step towards clarity and perspective for the intended investment project.
It is also the standard for potential financial partners to accompany the company acquisition.
Without a detailed business plan, which describes in detail all risks and opportunities, the project for a company acquisition should not be carried out.
The costs for a possible accompaniment by experts are very different. Are there fixed cost rates, are there profit-sharing schemes, etc.?
Based on the purchase price of a company, assume approximately 3 to 8% of the transaction amount. Understandably, this also depends on the complexity of the entire M&A process and your personal support needs. An experienced transaction consultancy has suitable lawyers and tax experts in its network and will involve them in the process if necessary.
The big advantage is that an established M&A consulting can guide you safely and quickly through a purchase process and find completely different arguments and approaches for a price reduction during the possible price negotiations than you could possibly manage yourself.
Then the assignment has definitely been worthwhile and you avoid mistakes in the complexity of the contracts.
First of all, it is important to inform oneself well about the company before making a purchase. One should therefore clarify exactly all the details, such as what products or services the company offers, how it is positioned financially and what future plans it has and also exists in the corresponding market segment.
Another point to consider is the company culture. It is important to know whether the company values a certain work ethic, what management style is practised and whether the employees are satisfied. The question of the sustainability of a business model is also important. More and more people are paying attention to the fact that the company operates sustainably when making their purchasing decisions.
In most cases, the process begins with a review of the business by the buyer to determine if the business is a good investment. Financing and the legal aspects of the purchase are then discussed and clarified. Once these points are settled, the purchase contract is signed and the purchase is completed.
This question first depends on the given framework conditions of a transaction. In what form is the company being offered and is the seller at all prepared to possibly make a switch between the two basic types.
On the tax level, the legal framework of a company alone leads to a corresponding solution. Buyer and seller will try to take into account the needs of both sides in the basic form of asset or share deal.