Company sale
We find the best buyer for your company
If you intend to sell your company, we will assist you in finding the best buyer. We prepare the necessary documentation and business plans, lead the negotiations and optimize the offers on your behalf. We will guide you through the entire process until a successful closing of the transaction.
The sale process at a glance
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Preparation
~ 4-6 weeksTogether with our client we define the strategy and a project plan. What is the best time to contact potential buyers? Which groups of buyers could be interested to buy your company, and for what reason?
We prepare a comprehensive documentation for potential buyers, e.g. an information memorandum which is a holistic presentation of your company, its technology, customers and market, plus a complete financial plan, and an anonymous teaser.
It is important to us to deliver a professional and positive presentation of your company, that includes the current status but puts an emphasis on future opportunities. To do this, we take the perspective of potential buyers and ask ourselves what makes your company especially interesting.
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Approach
~ 4 weeksWe identify potential buyers and approach them. We always go beyond the obvious candidates and will identify parties that you would not have expected to be interested. To do this, we conduct intensive research, conduct expert interviews and use powerful databases. It is important to us to engage with all potential buyers in the same timeframe. Our client should be enabled to compare different offers and decide on the most attractive package. We proceed very carefully and will only disclose company name and details after a confidentiality agreement has been signed. -
Negotiation
~ 4 weeksWe coordinate the communication with the buyer and lead negotiations for you up to the signing of a term sheet, in which the cornerstones of the transaction are defined. We work with you to prepare meetings and presentations thoroughly. Furthermore, we derive valuation scenarios and think of ways to optimize the purchase price in your interest.
It is important to us to define a transaction structure that meets your expectations as closely as possible. Beside purchase price optimization, other factors such as the integration of your company, the role of the management, or the incentivization of employees might be important for you.
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Due Diligence
~ 4-6 weeksOnce a basic economic agreement is reached, the buyer will examine your company in greater detail. We will help to set-up a well-structured virtual data room for this purpose, containing all essential information, like contracts, reporings, legal documentation etc.
It is important to us to start early with the preparations for the due diligence so that the review runs smoothly and quickly. Critical information, e.g. concerning technological know-how, customers or current projects must be treated with care. We are well aware of this responsibility and will work with you to develop appropriate solutions, for example by anonymizing documents or limiting access rights to certain information.
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Signing & Closing
~ 4-6 weeksVery often the final agreement, the so-called Share or Asset Purchase Agreement, is negotiated in parallel to the due diligence. Even though specialised lawyers play an important role in this step, we coordinate the process very carefully in order to secure the deal and avoid unnecessary costs or risks.
It is important to us to involve experienced transaction lawyers, as this will make contract negotiations more efficient. We are happy to introduce you to various legal advisors – the decision stays with you.
Our role is to make sure that all parties pull in the same direction. We act as a moderator if problems and any hurdles might arise. Overall, we feel responsible for the success of the company sale transaction up to the signing and notarization of the agreement.
Advantages of involving an M&A advisor in the company sale process
High quality and professionalism
You have done your best in growing your business, the sale should now also be done to a very high standard. An experienced M&A consultant will help you anticipate potential problems during the sale of the company, avoid mistakes and ensure overall success.
Industry-specific approach
A software company functions differently than a service provider or a technology-oriented mechanical engineering company. When selling a company, we do not impose a standard procedure on your company, but develop a tailor-made concept. Our years of experience in various industries enable us to get up to speed quickly and efficiently.
Relief of the management
A company sale is a very time-consuming process and means additional workload for the management and all parties involved. Through our consulting services, the management team can continue to focus primarily on the actual business and ensure that operational and economic goals are achieved.
Maximizing the purchase price by generating competition
We want to attract several interested parties for your company at the same time and maximize the willingness of potential bidders to pay. For this purpose, we provide potential buyers with the information and arguments that justify a high enterprise value.
Increase the probability of a sale
A well-structured and professional company sales process increases not only the value of the company but also the probability of a successful conclusion. Good project management avoids mistakes and incorporates the interests of potential buyers. The best company sale will result from a well thought-out and dynamic approach.
Business valuation methods
When selling a company, an independent business valuation by an M&A consultancy will help you to achieve the best possible selling price.
In practice, there are two main approaches to calculating a company’s value when selling: the discounted cash flow method and the application of multiples on sales or earnings (“transaction multiples”) that are common in the industry.
Discounted cash flow method
The analysis of the expected cash flows of a company is theoretically the most fundamental approach to company valuation. A DCF model includes the initial investment (as a negative cash flow) and the expected positive or negative cash flows in the future.
The so-called terminal value, i.e. the value of the company in e.g. ten years, is also included. All payments in the future are discounted to take account of the cost of capital and the general risk of possible negative developments. However, the uncertainty of very long-term planning and the high influence of the underlying assumptions on the result are problematic.
Multipliers on sales or earnings
The multiple method divides company valuations of comparable transactions by certain reference figures. The usual benchmarks are sales or EBITDA (earnings before interest, taxes, depreciation and amortization).
However, in practice it is often difficult to actually find similar companies that have been sold in the recent past and for which the relevant figures have been published. Multiples can differ greatly depending on the industry, size, development of the company and business model.
Company valuation as important preparation for sale
Despite the weaknesses of the above methods of business valuation, they are an important preparation when planning to sell a business. With your own company valuation, you gain an understanding of the corridor in which a valuation will usually lie and can better prepare yourself for negotiations.
You will also identify the factors that positively or negatively influence the valuation of your own company. And of course: The potential buyer will in most cases use similar models and you can meet him prepared and on an equal level.
Company valuation example: sales multiple for software companies
Example 1: High-growth startup
A startup founded a few years ago generates sales of 10 million euros per year, 100% of which are so-called recurring revenues. The loss last year was two million euros. The average revenue growth in the last years was 70% per year.
An EBITDA multiple cannot be applied, but it is not unrealistic to assume that a revenue multiple of 10 will be paid upon sale of the company. The enterprise value is thus 100 million euros.
Example 2: Established company with positive EBITDA
An established company generates revenues of 50 million euros per year, with an average annual growth of 5%. The company has no recurring revenues and generates an EBITDA of 15%, i.e. 7.5 million euros per year.
In this case, it would be realistic to target a revenue multiple of 2 (or an EBITDA multiple of about 13) in a sale. Thus, the enterprise value is also 100 million euros.
Individual valuation in the sale of a company
The two very different examples should make it clear that criteria such as the growth and business model of a company can have an extremely high influence on the company valuation.
The second company would in no case be able to achieve a similar sales multiple as the first company. Quick and sweeping statements about the value of a company should therefore be taken with a grain of salt. The company and its particular position must be considered on a case-by-case basis.
Call us for a confidential exchange of ideas. We look forward to discussing our approach, our industry expertise and references for our work.
Dr. Andreas Brinkrolf
Managing Partner
brinkrolf@quantum-partners.de
+49 89 414144 355
FAQ
There is no such thing as an objective valuation when selling a company. Ultimately, the value of the company will be the price a buyer is willing to pay. Nevertheless, there are approaches with which a realistic range of valuations can be determined and discussed in advance of a company sale.
To do so, a consultancy researches comparable transactions and considers the relationship between the company’s own sales or profitability ratios and the available ratios of such sales (“transaction multiples”). For listed companies operating in the same or similar segments, the corresponding valuations are analyzed (“comparables”). In addition, based on a business plan, future cash flows can be incorporated into a discounted cash flow model (“DCF valuation”). A consultancy uses multiples and comparables to get a feel for an achievable valuation even before the actual M&A process begins.
The starting point for researching a list of possible buyers (so-called long list) is to consider for whom the company is interesting and for what reasons. Possible buyer groups are, for example, foreign competitors who will succeed in entering the market with the takeover. Suppliers who work in neighboring market segments and who can integrate the company’s range of services into their own portfolio. Companies upstream or downstream in the value chain that want to integrate more vertically, etc. In addition, there is the large class of financial investors who want to take over and further develop independent businesses.
As a professional M&A advisor, Quantum Partners combines various methods and sources to arrive at a comprehensive, yet qualified longlist. Among other things, we draw on special databases, our own research, expert interviews and our broad network. Together with the client, the longlist is then condensed into a so-called shortlist. This contains the potential buyers who will be contacted in the first step.
In the first step, a comprehensive company presentation (the so-called information memorandum) is typically required. In addition, a complete financial plan with a retrospective, a forecast for the current fiscal year and a plan for the next 3-5 years is required as the basis for the figures section, so to speak for quantitative corporate planning. Owner-managed businesses can often take a pragmatic approach to their financial planning. Sometimes there is no formal budget because the business owner or entrepreneur does not have to answer to anyone. However, the buyer of a business can in no way do without a clean and detailed financial plan. He also wants to understand exactly how sales, margins and earnings have been composed in the past and are expected to be in the future. In most cases, he will also need a projected balance sheet as well as investment and cash flow planning.
In an advanced transaction process, usually after conclusion of the letter of intent (LOI), the buyer will want to investigate the company carefully. This is done in what is known as due diligence. In this risk assessment, the buyer is supported by appropriate experts. The scope and length of a due diligence depends in particular on the size and complexity of the target company. The main areas of investigation include, in particular, the formal topics of law, finance and taxes, the market, customers and business model (“commercial”), as well as technology and IP. If risks (so-called red flags) are identified at the target company during the due diligence process, this can have an impact on the company valuation and the further course of negotiations.
In the run-up to a due diligence, Quantum Partners prepares a well-structured virtual data room together with the seller, in which the buyer can access all necessary information. We will be happy to provide you with a comprehensive due diligence checklist free of charge and without obligation upon request.
Typically, the transaction process takes about six months from preparation to closing. The specific duration is significantly influenced by the complexity of the company and the preparation of the seller side. If the necessary documentation is available and the company being sold has very good management information systems, a process can also be completed in about four months. However, this would be very fast. In reality, there are often gaps in documentation and controlling that lengthen the preparation. If you are thinking about selling your company in the medium term, we can help you prepare efficiently as part of a ready-to-exit project.
Often, the topic of selling a company is associated with disadvantages for the employees involved. This may be the case with very large acquisitions, where the focus is on achieving synergies and reducing costs. In the case of technology-oriented or medium-sized company sales, with which the buyer, for example, opens up a new market segment or enters a market, the sale can open up new opportunities and potential for the employees involved.
For example, employees of a regionally active company may be offered different career opportunities in a larger group, or they may be able to take on more interesting, internationally oriented tasks. Often, better resources, a strong brand name or the better sales network of the new partner are available. Normally, the buyer of a company wants to ensure that employees continue to perform well under the new owner. Therefore, it is often considered how to additionally motivate employees after a transaction.