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Sale of a company in the services segment in a succession situation
Company sales are best planned well in advance. If possible, you want to sell at a time when the company is flourishing. You want your employees to be prepared for the change. You have plans for the time afterwards with regard to new projects or a quieter phase of life
This planning is sometimes not possible. In the most drastic case, when the owner passes away unexpectedly and relatives (who work in the company) have to deal with several issues at once. The unexpected loss, the effort required to keep everything running – and the decision as to whether selling the business is not ultimately the most sensible option.
Of course, this in turn depends on various topics. To pick just two, the management of companies is often structured in such a way that competencies complement each other. Typical examples are administration/finance versus marketing/sales. The loss of one of these core competencies, even if you have been looking over each other’s shoulders for a long time, can be very painful and cannot be easily compensated for due to very individual personality profiles.
Even if management tasks can be taken over, at least in the medium term, until a successor has been found for this area, companies always have a differently structured substructure. This middle management level is just as critical to success, as it gives the management the head and resources to devote to strategic tasks – and for stability in crisis situations.
Your company is currently undergoing a transformation and you would like to find out about options for selling your company?
In this case, the founder and managing director had passed away unexpectedly. In addition to the emotional loss, a close relative was confronted with the whole burden of continuing the business. The blessing in disguise was that a friend of the family, who had already successfully built up and sold companies, offered his help and made contact with in rebus corporate finance.
Ultimately, it was the team aspect underlying the project that led to its success
The first consideration was, of course, the decision to initiate a company sale – or not. Weighing up the above and other, more private circumstances is much easier if you can fall back on various friends and business partners who have both expertise and empathy.
As with any company sale, it is important to consider the market for the company in question. In the case of a service company, it is important in which specific segment, in terms of industry and geography, the company has customers. This determines the potential synergy with a buyer from the same or a similar sector.
The first question the buyer will ask is about the duration of the various customer relationships and therefore the likelihood that they will still be thriving after a certain period of time.
Services are of course provided by people, so the next question is the qualifications of the employees – and also the length of time they have been with the company.
Other questions depend, among other things, on the extent to which technological assets are used. The condition of these assets will also always be decisive, as this can lead to investment requirements – and whether there are any dependencies, such as licenses
In detail, the list of questions always depends on the background of the respective buyer and whether external resources, such as due diligence service providers, are taken advantage of. This is the rule, but does not necessarily have to take place in this form. Especially if a buyer from the same industry assumes that it can assess the relevant risks due to its familiarity with the business model and M&A.
Depending on the experience of the buyer and seller teams, the issue of a preliminary agreement (LOI) for the final purchase agreement can be handled just as pragmatically and the LOI – which is non-binding anyway – can be skipped. The risk here is, among other things, that one party bears the costs for a draft purchase agreement and only afterwards realizes that this potential buyer and seller are too far apart after all.
Circumstances such as those mentioned at the beginning of this article can lead to a situation where you have to leave 5 straight in many places (as we say in German). However, it should be noted that the error rate increases whenever process modules are skipped, as most of us can only understand and react to complex situations step by step.
In this case, the buyer ultimately took over not only customer relationships and tangible assets, but also the corresponding employees. A situation that could have quickly led to a negative spiral could thus still be controlled. However, this was only possible because all stakeholders went above and beyond the call of duty.
In cooperation with the team of the company to be sold, in rebus corporate finance prepared all transaction-relevant documents, identified the buyer and advised on every step of the process – without providing tax or legal advice.