Seller's Guide for a Company Transaction
How to plan the sale of a company properly?
It is not difficult to sell a company somehow - but it is not easy to sell one successfully!
Some tips for a successful and good sale of a company and advice on good timing are provided below.
- When is the best time for selling a company?
- Preparations for the sale
- Search for potential candidates
- From the customer's perspective
- Identifying a buyer
- Negotiating successfully
Question: When is the best time, to offer the company for sale?
Answer: Whenever the company does not have to be sold!
If the company is strong and is in a phase of growth, it is, of course, the easiest time to achieve a high sales incentive. But the exact time for a successful sale is also dependent on other, specific time variables.
A good time to put your company up for sale is when the company strategy has proved to be successful and financial means for further investments and expansion plans are required. This is the ideal time for buyers to enter a company.
The same applies to sellers. Theoretically, the possibility now exists to get the highest price.
A good time is when the market is favourable.
An extensive analysis of the market environment can help in determining the best time for selling a company. The following questions must be asked:
- What is the situation for other companies in the same industry sector?
- How is the market for products and services of the company?
- What kinds of prices are currently being paid?
- Are other companies in this industry sector up for sale?
- Are buyers looking for possible objects of purchase in this branch?
The company value must be increased so that the company becomes attractive for a buyer.
Advice on increasing the company value:
- Increase your profits! Careful: Short-term profits that have been obtained through cutbacks in long-term investments or necessary expenditure on training and marketing can become risky. This is because, if the company cannot be sold (which could also be the case), dangerous complications could crop up.
- Work out a long-term strategy for increase in sales! Here, there is an advantage if more solid ties can be formed with the most important buyers. Openness and clarity in management and in the representation of the financial situation are important for increasing the company value as well as accounting that is appropriate to the branch.
- Ensure management of the company! If the management of the company is an important part of the company value, but is not planning to manage the company further, you should think about how a valuable replacement can be created or the lost value can be compensated for in another way.
- Clarify taxes and asset conditions! All questions and doubts, such as, for example, on taxes and asset conditions, should be clarified before the sale. If inconsistencies turn up during the sale process, buyer will become suspicious and the company value will drop drastically.
- Reduce risks! Buyers should reduce company risks as far as possible. For example, important areas of responsibility can be redistributed over the management before the sale. The company's clientele should also be expanded so that there is no dependency on a few buyers.
Most of these suggestions require a long start-up period. However, they are often already pursued as a company goal in the company itself.
Clarification of problems and doubts
Sellers should not be shy at revealing possible problems with the company to the buyers. Such problems could otherwise delay the purchase later on and reduce chances of success, if they are brought up during negotiations. The buyer of the company will probably ask for an accurate report on the financial situation and accounts of the company during negotiations. The seller should therefore determine the problems and doubts beforehand and be prepared with possibilities for getting rid of them or explaining them.
Finally, lawyers should also be consulted to clarify whether any legal problems can be expected.
Use M&A databases like CompanyBazar® with hundreds of offers and enquiries form all industy sectors - worldwide.
A company expose is usually necessary for further discussions. Professional consultants can be very helpful in this. They are usually indispensable in the preparation of this document. Their experiences can make a “clever” representation of the company possible. Consultants are also required to find potential buyers in the corporate landscape. Most entrepreneurs only know a few companies themselves who could be interested in buying their company! However, there are often other, potential buyers unknown to them who turn out to be better possible buyers. Professional consultants should be in a position to identify the best-interested parties and to address them. Usually several possible buyers are approached at the same time and thus competition between the potential buyers is challenged.
Do not forget: A strict time frame should be indicated within which the interested parties make their offers for a takeover.
When selling a company, one should continuously remember that the ideas, priorities and objectives of the buyer could easily be quite different from one's own.
Possible interests of the buyer:
- Achieving a better position on the market
- The possibility of being able to offer a concept or a product to a larger market
- Acquisition of know-how, individual persons or intellectual property
- The intention of bringing new ideas into the company, for example, through a new management or investment.
It is important for the seller to identify exactly who the buyer is. Buyers could be pursuing different goals with a sale.
Different types of buyers:
- The competitor: He owns a company that is competing with the company being offered for sale. He already knows the market in detail. The objective in most cases is to increase the market share, to rationalise the purchased company, reduce costs and increase turnover.
- The customer: He wants to increase the size of his company and reduce costs, by owning his own supplier, possibly being able to control production and then merging the two companies
- The foreign buyer: He usually wants to break into the domestic market and achieve good access to the country
- The financial investor or the conglomerate: Here, the main interest lies in the profits that investments can bring. As a consequence, the most important thing is who leads the company. In this case, the company is checked in detail and targeted at personal ideas.
A few issues must be clarified to conduct the negotiations successfully and to bring them to a satisfactory results before starting the process:
- How serious are the intentions for purchasing of the interested parties?
The answer to this question can considerably determine the strength of the buyer: If the intention of the buyer is so obvious, the seller has a stronger position in negotiations.
- Is the buyer being pressurised to finalise the deal successfully?
In some cases, this pressure on the buyer could lead to a faster agreement. The buyer must make fewer concessions.
- Does the company of interest have to finalise a successful deal in public?
This pressure can improve the vantage point of the seller during negotiations.
Important tips for successful negotiations:
- Do not lose sight of the sales strategy
- Do not take on too many conditions
- Control of the timing of negotiations should not be handed over to the other party
- The agreements should not turn out to be too complicated
- Do not get lost in details