Company sale of a mechanical engineering company in Corona times
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Sale of a mechanical engineering company

How does the sale of a mechanical engineering company succeed in Corona times?

Selling a mechanical engineering company is very challenging in these economically difficult times. Some machine and plant manufacturers have announced short-time work. Machines that have already been produced cannot be delivered or installed due to travel restrictions. Using the successful company sale of Kremer Machine Systems as an example, we will show you how a company sale can be successful in corona times.

The starting position

In autumn 2019, one of the two shareholders of the small company in Münsterland approached us about the planned sale of a plant engineering company. The general data was right. The company generated a turnover in the millions with a good 15 employees and a return above the industry average. The company works worldwide as a specialist for a large number of plant manufacturers and industrial customers, so there were no cluster risks.

Both shareholders had decided to sell the business unit in order to be able to devote themselves to new entrepreneurial tasks. In particular, so-called strategic investors, i.e. companies from the same or an upstream or downstream industry, were considered as buyers. Furthermore, the company was interesting for individuals with industry experience (MBIs) and as an add-on investment for financial investors.

How do we go about selling a mechanical engineering company?

After a kick-off workshop, we prepared the company to approach interested parties within four weeks of the project start. We adjusted the figures and then determined the purchase price corridor. At the same time, we developed a comprehensive company exposé that serves as a sales document for potential investors.

In addition, research began into industrial service providers, machinery and plant manufacturers as well as financial investors who could be interesting buyers for the project. The goal is a so-called long list that summarises potential buyers and evaluates them according to certain predefined criteria. These are, for example, creditworthiness, turnover size, growth dynamics and the congruence of the products and services offered.

As a next step, we matched this qualified list with our buyer database. As a result, we were able to qualify the potential interested parties with information on transaction readiness and history. As a result, we finally condensed the list of well over 100 potential interested parties to around 75 candidates to be approached in the list of favourites. This completed the preparatory work for the Company sale of this machine and plant manufacturer was completed. The company sale of a machine builder could start.

Now, in close consultation with our clients, we contacted the potentially interested parties. In addition, we simultaneously placed an anonymised offer for sale on several company exchanges and in our extensive network of banks, associations, chambers and tax consultants. In this way, we were able to gradually conduct more than 60 qualified initial discussions. 

The first introductory talks with prospective buyers took place less than three weeks after the start of the prospecting process. The good preparation of the project with company evaluation and exposé paid off very quickly in this project: The interlocutors of the first of five get-to-know-you talks were ultimately also the buyers.

The Corona crisis (almost) stopped the project

But before that could happen, a number of obstacles had to be navigated. During the first talks, the Corona crisis hit us slowly and then with full force. First of all, our client's clients stopped all plant construction projects in China, and the subsequent lockdown in Europe also slowed down business in the domestic market. Against the background of this business outlook, the company's valuation corridor decreased from day to day.

In mid-March, we decided, together with our clients, to put the project on hold for a few weeks. During this time, we wanted to gain clarity on how to proceed and see what impact the pandemic would have on further action.

Open and clear communication with the remaining interested buyers about the temporary halt of the project and a possible resumption of talks after four to six weeks was ultimately decisive for success here. Thus, both sides had time to sort themselves out under Corona conditions and to develop a strategy to overcome the crisis. Our client decided to continue the project despite the lowered purchase price expectation.

With the KISS principle to successful project completion

The new start at the end of April with two remaining interested buyers led to the successful sale of a mechanical engineering company within a few weeks. KERN's moderation skills as a transaction advisor were particularly in demand here: the main focus was on actively shaping communication between buyer and seller and avoiding long delays in the course of the project. This meant above all organising the conclusion of a letter of intent (LoI), the subsequent due diligence and the negotiation of the final purchase agreement in a targeted manner and taking into account the individual interests of the parties involved.

In the end, the prospective buyer prevailed, with whom we developed the transaction structure and the contracts according to the KISS principle (Keep It Simply Short, English for 'just keep it short'). These did not contain any complex contractual and transaction structures known from the international M&A business with legal and tax implications that were difficult to understand.

As succession advisors, we are involved in the search for buyers for a wide variety of projects on a daily basis. For this reason, we know the different and often hidden ways of approaching potential buyers. We thus take on a pilot function, recognise changing environmental conditions early on and successfully guide entrepreneurs through the shoals of this complex life decision.  

What are the challenges for you as a corporate seller?

  1. Work on your unique selling proposition and the sustainability of your business model. Despite the Corona dip, the industrial services provider was able to prove that its business model is viable for the future. Essential for the successful sale was the clear specialisation. This unique selling proposition was a valuable addition to the prospective buyer's range of services.
  2. Build a second level of leadership. The structures of small family businesses are often tailored to the owner. Our example company had a second level of management and tied one of the shareholders even beyond the sale. Work on making your company function without you. Try - if you don't already have one - to build up a second management level or hire a non-family managing director.
  3. Don't stop investing. Dependence on a few major customers, an outdated product range, a high average age of the workforce and an investment backlog make it difficult to sell a company even in economically good times. Invest in your employees, your products and also in your fixed assets.
  4. Prepare your company sale well. Good preparation of the handover process pays off for sellers, especially in difficult times. This is because prospective buyers expect meaningful documents that present the business model and a resilient and, above all, adjusted set of figures before an initial meeting. Prepare a project plan. Because of many operational requirements, sales projects quickly fall out of focus even in economically good times. As a result, the intervals between the individual steps are sometimes extended by several weeks. The danger of a project abort increases.

What sellers and buyers say

As you can see, the sale of a mechanical engineering company is successful even in a difficult environment. And as partner Heiner Kremer confirms, the involvement of a transaction-experienced advisor is also worthwhile for smaller family businesses: "Mr Claus from KERN - Unternehmensnachfolge worked with us in a very trusting and targeted manner. He set the right impulses right from the start and approached the right interested parties in the search for buyers. Without Corona, we would have reached a successful project conclusion even faster with TEC as one of the first interested parties?

Dennis Mausberg, Managing Director of TEC GmbH, is also pleased about the investment: "TEC and ROBUR are pleased to welcome KMS and Mr Kremer as a new valuable member of the team and plan to further expand the Gescher site and the existing customer relationships together".

Image: Fotolia.com

TIPS for further reading:

Selling a business - How to increase the value of your business

MBI - Success model for corporate succession

Earn-out clauses in the sale of a company

Selling a print shop: How does it work?