According to the Institute for Research on Small and Medium-Sized Enterprises in Bonn (IfM), many small and medium-sized enterprises in Germany will face the challenge of finding a succession plan in the coming years. The IfM estimates that 150,000 companies in Germany will be transferred between 2018 and 2022. This corresponds to 30,000 business transfers per year and affects 2.4 million employees. Due to demographic change, this estimate has increased by another 15,000 companies and 400,000 affected employees compared to the five-year period from 2014 to 2018.
It Makes Sense to Weigh All Options
As a general rule, in preparation for the succession process, all options for succession should be discussed based on the family’s strategy. If no internal successor from within the family is available, succession outside the family through the sale of the business can be a promising path. Two alternatives must be weighed in this context: first, internal succession via an MBO (management buyout), and second, external succession—that is, the sale to a strategic buyer, financial investor, or MBI candidate.
Bidding Process Optimizes Enterprise Value
If shareholders are seeking a timely sale of the company with a high probability of success and favorable terms, a bidding process is recommended. Such a process follows a clear procedure and optimizes the valuation and other terms for the sellers. By personally reaching out to a broad range of potential strategic and financial investors—both nationally and internationally, via telephone and certainly also through social media—a favorable competitive environment can be created, typically resulting in multiple offers.
The bidding process allows sellers to focus on the bidders with the best strategic and personal fit. This process can also significantly exceed the sellers’ financial expectations. Nevertheless, the M&A advisor must manage expectations. After all, a buyer pays a capitalized earnings value and possibly a strategic premium, but not a premium for the entrepreneur’s past efforts.
Determining Enterprise Value in Preparation for a Sale
Determining the company’s value is an important step even during the preparation for succession or the sale of a business. Multiplier methods, such as the macx.® company valuation calculator, can help generate an initial reliable estimate based on just a few data points. Based on the input, the user receives an estimate of their company’s equity value via email: first, the calculated average or expected value, and second, a possible range for the company’s value. This range illustrates the extent to which risks and opportunities that could influence the company’s value are factored into the calculation. The equity value is calculated as the company’s value minus financial liabilities plus cash on hand and cash equivalents.
More information about the free company valuation calculator from macx.®:
www.macx-transaction.com/uwr
