But what really matters when a company is up for sale, and what are the reasons for failed transactions?
Before contacting potential buyers, a thorough analysis is required. A SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) will enable an initial assessment. In addition, the retained specialist consultant will assist with the business optimization of the target company—and will also review its internal accounting systems. Based on the findings from these analyses, considerations will be made regarding how to “dress up the bride.”
Experience shows that these analyses often identify deficiencies that can be rectified. If this is not possible, it is crucial to convey this information to potential buyers in an appropriate manner. It is extremely detrimental if the potential buyer’s advisors identify deficiencies that were not previously taken into account. This weakens the negotiating position. It is also in the seller’s best interest to present tax-optimized structures. From the seller’s perspective, the present value of the realizable tax benefits is an argument for increasing the sale price. It is of great importance that the sales documents be prepared competently and professionally. This includes the preparation of an information memorandum.
Conflicts of Interest with Management
Conflicts of interest between the seller and the company’s management can jeopardize the successful completion of a sale. Disagreements can arise in various areas. Here are a few examples:
The seller aims to achieve the highest possible sale price. An optimistic business plan supports this goal. The business plan is typically developed by management and must also be presented to potential buyers by management.
Management is well aware that the buyer of the company has a right to expect that the stated goals will actually be achieved. For this reason, company management tends to set targets as low as possible and highlight risks. If the targets are exceeded, this creates favorable conditions for recognition and subsequent bonus negotiations. If management acts in its own interest, the lowest possible purchase prices are agreed upon.
The entrepreneur generally wants to sell 100% of the business. Management often expresses interest in acquiring shares or portions of the company as well.
Entrepreneurs occasionally attempt to resolve this conflict by granting management a share of the sale proceeds—sometimes a very substantial one—even if there was no prior involvement under corporate law.
Conflicts of interest can also arise with the tax advisor. When strategic buyers acquire a company, the tax advisor typically loses their client. Experience shows that this often creates a strong incentive to sabotage corporate sales for personal gain. However, this can be counteracted through long-term tax advisor contracts.
Part 1: Careful Preparation: Crucial to the Success of Corporate Transactions
Part 2: “Deal Breakers”—Insurmountable Obstacles to Closing the Deal
