Time flies, especially for successfully managed companies. In addition to the daily challenges that must be overcome, new ideas and projects are conceived and put into action to further develop the company and make it even more successful. More often than not, the time to start thinking about succession planning comes suddenly, because the business—built with passion and dedication—typically serves as a personal retirement plan, and the founder wants to ensure that this life’s work is carried on as successfully as possible.
In less than half of all family-run businesses, the company is successfully continued within the family or by someone from the family circle. With approximately 30,000 businesses changing hands each year, this means that external successors are sought for more than 15,000 companies—a staggering number!
Since an entrepreneur typically sells their business only once—and consequently has little to no prior knowledge or experience in this area—it makes sense in many respects to enlist the help of an expert. After all, the search for a suitable successor takes place in parallel with “normal business operations” in several stages, usually spanning several months or even years—and what small-to-medium-sized business owner has the resources to fully manage this entire process on their own while still achieving the best possible results?
Depending on the desired and agreed-upon scope, the selected expert (M&A advisor) will handle either individual aspects or the entire sale process. A realistic and independent valuation of the company is the first step in this process (the specific valuation methods will not be discussed here). Once agreement has been reached on the target purchase price, the search for suitable prospective buyers begins. This requires an anonymized brief overview of the company, which is extracted from a more comprehensive and detailed overview. To ensure that suitable prospective buyers are targeted effectively, the seller compiles a “long list.”
A “blacklist,” on the other hand, ensures that, for example, unwelcome competitors of the company being sold are not approached. In addition to the standard online marketplaces, the M&A advisor’s often very extensive network is used in particular to search for potential buyers.
After researching, selecting, and vetting the prospective buyers, they are then presented to the seller, and a joint decision is made regarding with whom to proceed with the sale negotiations. A letter of intent is signed with the most promising prospective buyers, and a detailed review of the seller’s company data is initiated. For the due diligence that follows, the seller must compile extensive documentation to present the buyer with as complete a picture of the company as possible.
Once the final prospective buyer has received all relevant information and approved it, nothing stands in the way of concluding the purchase agreement. This agreement is typically drafted by the buyer’s side, reviewed by the buyer or the buyer’s attorney, and then notarized (signing). With the final “closing,” ownership is transferred from the seller to the buyer.
This process essentially outlines the steps involved in a sale and is managed and coordinated by the advisor in every respect. It is already evident from this that this is a highly complex process that should not be handled “on the side.” After all, the ultimate goal is to select the “right” successor—someone to whom you can entrust your life’s work, with whom the remaining employees will develop a good working relationship, and who will successfully continue to run the company—all at the best possible price.
