1000 reasons for the purchase/sale of a business

As a certified M&A manager, Reinhold Wanner and his team have come across many reasons why companies are bought or sold. In a multitude of projects at home and abroad, transaction sums range from a few tens of thousands of euros to multi-digit millions.

But first, why is this actually called M&A?

Mergers & Acquisitions – M&A for short – is a collective term for various transaction forms in the corporate sector. For example, fusions, company acquisitions, business transfers and leveraged buyouts. In addition, outsourcing/insourcing, MBO/MBI, spin-offs, carve-outs or corporate cooperations.

Ultimately, there are many different reasons why a sale or the search for a target (company that one would like to buy) may occur. Here is an excerpt from the “1000 reasons” that we encounter in practice.

Motives for the sale of a business:

• The age of the managing director of the company
• There is no suitable successor in the family or the next management level
• Illness of the managing director
• The children are not suitable to take over or have other plans or talents.
• As a small or medium-sized enterprise, it is becoming more and more difficult to survive in the market. This is due to purchasing conditions, liquidity management, insufficient down payments or cash management in a group of companies as a solution
• Lack of energy to develop the company strategically
• Lack of personnel for the necessary growth or to achieve the required turnover
• Poor or declining profitability of the company and the lack of will to restructure it
• Competition in the market is getting tougher and tougher
• Increasingly strong competition is coming from low-wage countries

Typical motivations for a purchase:

• Dependence on a supplier, external process or technology. This leads to a purchase as a solution to have the issue in-house; e.g. know-how purchase.
• Organic growth is not satisfactory, therefore growth by purchase.
• Achieve economies of scale in purchasing by bundling requirements. This leads to lower purchasing prices.
• Employees cannot be recruited. They are bought with the target
• The distances to the customer are too far or there is a lack of proximity to the customer.
• Diversification or risk minimisation through the purchase of a company in another sector or market.

If you are selling a property, then you go to the real estate agent. But if a company is to be sold, then often the typical path is not to the M&A specialist. Normally it’s to “talk” in one’s own environment or to engage the financial advisor or another service provider one trusts.

What are the reasons for this?

• You don’t know any M&A companies in the vicinity.
• One suspects that the costs are high and the company is too small for professional advice.
• You don’t have enough time to search for a suitable service provider.
• One is afraid to give the most confidential data and information to third parties outside the company.
• One does not even know that there are specialised companies that sell companies professionally.
• You have been “turned down” by a large M&A house in a big city because the company is supposedly too small.

What are the reasons for engaging a professional M&A firm for the sale?

• You get professionally sound advice.
• The costs are usually no higher than for a property sale. Although the effort behind it is many times higher.
• You do not have to deal with the search for a suitable buyer yourself. That means you can take care of your own core business.
• The advisor has practice in getting to the owners or decision-makers and is not turned away at the switchboard. A successful advisor has a network of potential buyers and sellers.
• The M&A professional prepares professional sales documents (teaser, InfoMemo, long and short lists), as professional prospective buyers are used to.
• The entire sales process is conducted professionally and diplomatically – even without emotion.
• The M&A house is trained in negotiation and gets the maximum out of it with the appropriate arguments.
• The M&A advisor is able to correctly evaluate the – often alleged – weaknesses of the company uncovered in the due diligence and counter them professionally and without emotion.
• Initially, one does not appear on the market as a seller, but remains absolutely anonymous. If the request to sell becomes known too early, there is a massive risk of losing customers or employees!
• You receive templates and contracts that have been checked by lawyers in order to ensure confidentiality and to conclude preliminary contracts quickly and easily.
• The service provider knows the customs, pitfalls and tactical variations of sales processes.
• And finally: you usually sell your life’s work only once and a profound service provider carries out such often complex transactions on a daily basis. In this respect, important problems and deal breakers are automatically excluded.

Of course, the arguments of the sale also apply analogously to the process of a possible search for companies or participations. Furthermore, it can be argued that

• The M&A advisors have an extensive network and know various owners personally, so that a suitable match can be found more quickly.
• There are also networks abroad and the advisor has colleagues in the most important countries. This means that they can communicate in the local language without misunderstanding and maintain local contact throughout the entire process from initiation to closing.
• He is a trained auditor or has a qualified auditor at hand who can separate the wheat from the chaff in the pre-selection of targets and identify “the ideal company”.
• The consultant takes care of the translation of the documents – which are often in the national language – and a harmonisation with the key figures and designations customary in Germany.
• A good advisor organises all the information, discussions, visits etc. in such a way that you can use your valuable time efficiently and obtain the maximum information for your decisions.