It’s actually a truism that a business can’t be sold just like that. However, not everyone among the estimated 30,000 to 40,000 business owners who face a succession problem—and want or need to sell—is aware of this. And this process, in particular, should be handled professionally.
The majority of companies up for sale aren’t particularly attractive to strategic buyers or financial investors. This is primarily due to their lack of scale. As a result, the buyer is often a party with little experience in the process. These are the findings of a working group of the Federal Association for M&A, which has developed standards for M&A transactions involving companies with less than ten million euros in revenue. One of the participants was dub.de Managing Director Nicolas Rädecke.
Small Transactions:
Selling a company valued at 0.5 to 5 million euros is always a balancing act. On the one hand, given the comparatively low enterprise value, transaction costs for advisory services must not be too high; on the other hand, sound advice ensures the success of the sale. It is common to see transaction processes—including due diligence and the resulting audit efforts and transaction costs—that complicate the succession plan and increase the purchase price.
Information asymmetry:
In practice, the problem often arises of how to transfer the entrepreneur’s knowledge to their successor so that the successor can make informed decisions. Especially for companies of this size, the personnel resources and data necessary for due diligence are usually not available, neither on the seller’s nor the buyer’s side.
The Purchase Process Is the Purchase Process:
Whether there are 20 or 20,000 employees, the basic logic of a transaction remains the same. This is illustrated in the following chart:
:format(webp))
Process Simplification:
The process is not set in stone—quite the contrary: The German Federal Association of M&A develops tools such as templates and checklists that can help streamline the process steps. The prerequisite is that both the buyer and the seller can understand the simplified process; if so, the likelihood of successful implementation is high. In particular, if both sides prepare well for the process, the combined effort can be significantly reduced.
Building Trust:
It is crucial that a relationship of trust is established between the client and the advisors, as well as between the parties involved. This simplifies the transfer of knowledge and leads to a smoother sales process. Every step on the buyer’s side must be handled with the utmost sensitivity; family business owners are deeply attached to their life’s work and want to be valued, not questioned. Clarity and transparency are therefore essential prerequisites for a successful contract conclusion. The entire process model should therefore be clearly communicated during the initial consultation. Potential obstacles in the sales process, such as personal claims or complex inheritance structures, should be addressed early on.
Opportunity & Risk Analysis:
Due diligence is indispensable; it is a central element of the sales process. Once the buyer and seller have addressed the previous issues, the due diligence phase can be shorter. It is also advisable to follow a multi-stage process in which additional costs are incurred only once certain conditions continue to be met.
Valuation:
Many acquisitions fail—that is the simple reality—due to price negotiations. This makes it all the more important for the valuation of small and medium-sized enterprises to be completely transparent and pragmatic. Only then can buyers and sellers reach an agreement. Frequently high asking prices cannot be financed either by financial institutions or by the company’s own cash flow. On the other hand, it is important to verify early on whether the prospective buyer has sufficient equity. In any case, it makes sense to engage a professional advisor. For those who haven’t found what they’re looking for yet, we recommend visiting dub.de/beraterboerse.
As the workshop revealed, transactions involving small businesses can be handled more streamlined, but they are more challenging because they require greater commitment from both sides. Checklists, criteria catalogs, sample agreements, and best-practice examples that provide guidance are helpful for a more efficient process.
