PRELIMINARY WORK: DEVELOPING AND ASSESSING STRATEGIC OPTIONS

Before deciding whether to buy or sell a company, strategic options must be developed and assessed. Based on concrete strategic goals and the current situation of a company, the question arises as to which strategy promises success and is realistically feasible. If we look at the recent past in our economy, we see that sales and acquisitions have obviously gained in importance for the realization of these strategies. Organic growth from own resources is in the majority of cases no longer a valid option. This is also shown by a survey conducted by CMS AG. Out of 80 companies surveyed in Switzerland, 9 have been acquired, 18 have sold parts of companies and 45 have acquired companies or parts of companies. However, success is in no way guaranteed with an acquisition or sale. Practice shows that such processes are only successful if they are approached with care and professionalism  

STEP 1: DEFINE THE REQUIREMENTS FOR POTENTIAL BUYERS

Once the decision has been made to sell a company or part of a company, the first step is to determine what requirements a future owner must or should meet. This involves requirements such as the type and location of the activity, markets and products, continuation of the company, retention of the company location(s), etc.

STEP 2: DETERMINING THE VALUE OF THE COMPANY

Determining the value of a company is one of the difficult tasks of an M&A process.The different valuation methods ultimately only reflect a business/mathematical value. Nevertheless, it is of course important to have an idea of the price that can be achieved. What the market is ultimately willing to pay, however, only becomes apparent when concrete offers are made. In order to get a first idea of a realistic price, it is possible to analyze comparable transactions in recent times, a frequently used method being the so-called EBITDA multiples. These multiples indicate how many times the EBITDA is included in the sales price. Even if this value does not guarantee a sale price, it at least gives a first impression of what has been paid in the market for comparable companies.

STEP 3: IDENTIFY POTENTIAL BUYERS

In most cases, the management of a company is the best judge of which companies in the market are potential buyers. However, it is also the task of the M&A consultant to complete the list of the management by means of an

management by means of an industry analysis. This is especially true in the case of an international search for a buyer, as the management often only knows the companies they encounter directly on the market.

In addition, there are any financial investors. In most cases, these are also not known by management and are brought in by the M&A specialists.

STEP 4: CREATING A BLIND PROFILE

In order to avoid revealing which company is for sale during initial contacts with potential buyers, a so-called blind profile is created. This is a brief description of the company on offer. This usually contains information about the product/service spectrum, approximate size information such as turnover, possible contribution margin, number of employees.

STEP 5: CONTACTING POTENTIAL BUYERS

The initial contact with potential buyers should be made through M&A consulting. In practice, this is done by selling and buying companies are dominant strategies The company value is ultimately determined by the market. Identifying the right prospective buyers is the basis for the subsequent success of direct telephone contact with the responsible departments in the buyer company. In most cases, this is the CEO or, if available, the internal M&A manager. In this contact, it is briefly clarified whether there is any interest at all in principle. In many cases, the blind profile is sent after the conversation and the person contacted is given a certain period of time to register his interest.

STEP 6:

CREATE THE INFORMATION MEMORANDUM

The information memorandum already contains much more information about the offered company. In addition to the name and location(s) of the company, it provides information on products, markets, sales figures, contribution margins, EBITDA and excerpts of balance sheet data.The exact content of the information memorandum is determined on a case-by-case basis and can vary greatly in scope and message. However, the aim of the IM must be to enable the potential buyer to make an initial non-binding offer on the basis of this data.

STEP 7: DELIVERY OF THE INFORMATION MEMORANDUM

Upon receipt of the signed Confidentiality Agreement, the prospective buyers will receive the Information Memorandum,

together with instructions on what the non-binding offer must contain. In addition to the price offered and the dates for submission of the offer, this may also include information on strategic reasons for such an acquisition, type of financing, etc.

STEP 8: EVALUATION OF THE OFFERS

The evaluation of the submitted offers is carried out on the basis of the offered prices and the previously defined requirements for potential buyers. Depending on the quality and number of submitted offers, up to three candidates are determined with whom to proceed to the next round.

STEP 9: MANAGEMENT PRESENTATION

Meetings are arranged with the selected candidates in which both buyer and seller exchange further information in direct contact. The seller side gives an in-depth insight into the company in a presentation. This personal meeting gives both sides the opportunity to better identify whether a future relationship offers the expected opportunities in terms of strategy and culture. As a result of the management presentation, the potential buyers are asked to review their non-binding offer and modify it if necessary.

STEP 10: DUE DILIGENCE

After receipt of the adjusted non-binding offers, a decision is made as to which candidates will be admitted to due diligence.

will be admitted. The information provided in the so-called data room is now comprehensive.

With the exception of very critical documents such as detailed customer data with sales and margins, everything is disclosed. The due diligence must enable the prospective buyer to really grasp the value of the company given to him and to concretely identify synergy potentials, risks and opportunities of the purchase.

STEP 11: REQUEST BINDING OFFERS

With the completion of the due diligence, the potential buyers are requested to submit a binding offer. This contains, among other things, the final price offered, information on how this price will be financed, any other information required by the seller, the conditions that must be fulfilled for the purchase to be completed and the duration of the validity of this offer. In many cases, the binding offer is accompanied by a first mark-up of the purchase contract, i.e. the offer is a first statement on the purchase contract prepared by the seller.

STEP 12: OFFER AND CONTRACT NEGOTIATIONS

Depending on the attractiveness of the offers received, negotiations are continued with one or more parties.

will be continued. In the case of several candidates, the offers are negotiated again and all are given the opportunity to modify them. In addition to the price discussion, topics such as warranty services, purchase price retention (escrow) to secure any warranty services, etc. are priority negotiation points in this phase. At the end of this phase, a decision is made with which bidder the actual contract negotiations will now be conducted exclusively and for how long this exclusivity will be granted. The corresponding decision is communicated to all co-bidders, but the final sale is not yet decided.

The actual contract negotiations are conducted exclusively with a prospective buyer. In this phase of the process, the details of the purchase contract are settled. If an agreement is reached within the previously determined exclusivity period, the purchase contract is signed.

STEP 13: CLOSING THE SALE

There are cases when signing the contract and closing the sale can coincide. This is the case when there are no reservations in the signed contract. In most cases, however, it is the case that certain conditions still need to be clarified or competition law procedures still need to be awaited.

STEP 14: INTEGRATION

The integration of two companies is probably one of the most important factors for the success of an acquisition and also the most common reason why such processes fail. Both buyer and seller should be aware that intensive support is necessary, at least in the first phase of the transition. In addition to the integration of structures, processes and systems, the connection between two corporate cultures must also be actively shaped.

Process steps of a company sale