Prospective buyers shift their priorities when acquiring a company. The very first step is to define their own search criteria. Fundamental factors such as industry, company size, number of employees, and region play a key role here.
Does the asking price align with my financial capabilities? Once a specific company is under consideration, an initial quick assessment is made: Does the company’s profitability align with the asking price? Is this truly a succession plan for retirement? Does the purchase include real estate? Is the company in debt? Are there likely to be qualified employees, or is the business heavily dependent on the owner’s personal leadership?
In practice, prospective buyers differ significantly. Financial investors primarily seek sustainable returns, products or services with stable demand, and growth opportunities.
So-called strategic investors—such as competitors—first look at the company’s positioning in the relevant markets and potential synergies to capitalize on inorganic growth opportunities or leverage synergies from shared distribution channels—though, of course, not at any price.
And finally, especially in the case of smaller companies with purchase prices of up to around €3 million, MBIs (management buy-ins) are also frequently found on the buyer side. In addition to the criteria mentioned above, personal considerations also play a major role here: Do I feel confident I can handle this? Will I actually be able to secure financing for the purchase price? Is there good chemistry with the seller, with whom I’ll likely be working for quite some time?
From the seller’s perspective, it’s already clear that there are steps one can take in preparation to spark interest among potential buyers. These definitely include stepping up sales efforts and, if necessary, “shifting focus” toward demonstrating profitability. It is also advisable to consider potentially spinning off the real estate (which may or may not be sold as part of the deal), clarifying any unfunded pension provisions, and addressing any outstanding corporate law issues—such as the buyback of smaller minority stakes.
If interest from a buyer materializes following an initial anonymous review, the buyer will sign a confidentiality agreement and will then expect to receive a detailed information memorandum as well as up-to-date financial information. Well-prepared and professionally formatted documents send positive signals to the prospective buyer, building trust, helping them quickly form a clearer picture, and reducing the number of questions.
Incidentally, the submission of a detailed business plan covering at least three years is already highly appreciated at this stage. This also helps answer the inevitable question regarding how the asking price was derived.
Once a face-to-face meeting—so-called management discussions—and a site visit have taken place, the prospective buyer will submit an indicative offer and propose a purchase price based on their own valuation. At this stage, a potential buyer expects transparency and—with an eye toward other potential bidders—fair treatment.
Prospective buyers value a professionally facilitated sales process that ensures not only a well-managed flow of information but also the expected transparency.
If an agreement is reached and aletter of intent is signed, the intensive due diligence phase typically begins—that is, the detailed review of all documents and information pertaining to the company. Today, “data rooms” are set up virtually and populated according to a scope agreed upon with the prospective buyer.
In this process, prompt and, above all, complete disclosure of all relevant documents is expected. In many cases, the effort required on the seller’s side for due diligence is greatly underestimated. Business owners who have kept their documents up to date over the years have a clear advantage. At this stage, all relevant information—including that which may reduce value or pose risks—should already be known.
Surprises during due diligence do not please any buyer and can erode the necessary trust. Ideally, the draft purchase agreement is prepared and finalized in parallel with the due diligence process.
Once all reviews are complete and any so-called “findings” have been addressed, the buyer may wish to renegotiate the purchase price and the guarantees to be provided. If the buyer’s concerns are well-founded, the seller should be open to discussion. This is where the advice and negotiating skills of the retained attorney and M&A advisor on the seller’s side are once again crucial. Finally, nothing stands in the way of a successful closing.
