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Company sales are often compared with real estate sales. There may be similarities, but even a layman can tell you that every property is different from another. However, there is one thing that real estate is certainly not: living objects

The sale of a company, which is quite a living object, is therefore much more comparable to an operation during which organs are replaced. And you naturally have a vested interest in ensuring that the patient not only survives, but thrives.

Like many comparisons, this one falls short too, but it illustrates that selling a company,

whether in the SME sector or still at the start-up stage, is a process that requires a great deal of attention and an eye for detail. And it is also not entirely wrong to see a consultant in a company sale as a doctor who works to a large extent via communication.

Now it would be obvious to associate a medium-sized company with an adult and a startup with a teenager, but here we reach the outer limits of our analogy, because both startups and medium-sized companies are often similarly complex and sometimes fragile organizations.

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The most important differences lie on two levels

In terms of organization and corporate development, startups are expected to have the most interesting part of corporate development ahead of them. Which influences the company valuation. This explains why relatively small organizations can sometimes achieve very high company valuations.

Medium-sized companies, on the other hand, have to be measured to a greater extent by what has been achieved in the past. The longer the history, the more likely it is that future development will also take place within this historical range. This explains why the company valuation is based on current or immediate future parameters.

Next, owners of SMEs and startup founders deal with transactions differently for a number of reasons.

Next, owners of SMEs and startup founders deal with transactions differently for a number of reasons. Transactions and organization are often equally important to the SME entrepreneur. Whereas in the case of a startup, there does not necessarily have to be a significant personnel organization and/or all parties involved worked towards a sale from the outset.

All in all, however, it can be said that the process of selling a company differs less in terms of whether you are dealing with a "startup" or a "medium-sized company", but that the differences from company to company, regardless of which category you want to assign it to, are the decisive factor.

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Are you a shareholder in a medium-sized company or start-up and would like to get a second opinion on your transaction project?

What are the factors that tend to hinder a company acquisition or, if positive, tend to promote it?

Company Stage

This point is the most important and “phase” here does not refer to the startup vs. medium-sized company stage, but rather the simple aspect of whether a company is currently on the “ascending or descending” branch. If you are currently confronted with declining sales or profits, a potential investor will always consider whether he is not “reaching for the falling knife”. A transaction is then not necessarily impossible, depending on sales and profit levels, but the circle of potential buyers/investors is noticeably narrower, the business model, customer relationships and market will be scrutinized in even greater detail than is usual in the context of a corporate transaction anyway and the sale in such a phase will certainly have an impact on the company valuation.

The consultant looking for clients is reluctant to write this, but in such a phase you are well advised to wait another two years until the tide has turned again.

It will take every SME that long to develop a new course and see it bear fruit.

But this also means: think strategically. The German corporate landscape is facing a wave of company successions (although these demographic trends are visible throughout the western world). I am not the one who can assess how supply and demand in the M&A market will develop over the next few years. Let alone long-term macroeconomic factors. However, if the company you hold is currently doing well and you are considering a sale in a 5-7 year timeframe anyway, then perhaps today is a good time to take the first steps in that direction

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It is also interesting to assess the sales prospects of a company that is in the start-up stage but whose sales/profits are currently moving sideways or declining.

Start-up financings and exits are trend-driven. The trend can flatten out and exit candidates, of which there were few in the first place, may have already made acquisitions. In such a case, the cash flow situation will determine the next step. Does the company have the potential to generate sustainable profits? Depending on the level of profits, a resale to another financial investor (“secondary”) or the repurchase of the shares by the founders, albeit at a modest valuation, may be an option.

If not, an asset deal is probably on the agenda, which can make sense for a start-up if you think beyond the usual tangible assets.

Or, and this is hard to say from the outside, the founders/management team are already considering a "pivot", i.e. a further development of the business model through to a completely new approach. This in turn may or may not be supported by the existing investors.

At first glance, it looks as if there are significantly more variables at play here than with a medium-sized company. Ultimately, however, everything revolves around the profit situation, reserves, willingness to use them if necessary and the market.

However, start-ups and their shareholders operate in a different risk scenario from the outset and are more opportunistic in that it is sometimes said that it is better to limit the risk of loss and move on to another project than to enter an even more unpredictable situation. The commitment to the company is therefore different.

This in turn results in a much more sober behavior in the event of a prolonged crisis.

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Are you a shareholder or managing director of a company in the D-A-CH region and would like to better assess the transaction prospects, from financing to exit?

Unity amongst shareholders

Based on my previous experience, three shareholders rarely agree, but there should be agreement on the basic line. Not only with regard to a transaction, but also with regard to operational issues. The potential buyer will have a keen interest in talking to the shareholders at an early stage and will quickly pick up any dissonance. There are usually factual (and emotional) reasons for differences of opinion. If you are not in agreement about a potential transaction, consulting an advisor, initially without obligation, can help you to better assess the situation.

Degree of organization

If it is often said in other contexts that hierarchies are not productive, then in the case of company acquisitions one should avoid the impression that too many processes depend on one person or that too much operational know-how is bundled in one head.

A second management level is already of value from the point at which the accumulation of operational work prevents you from thinking and acting strategically. Just as the search for and induction of employees requires a longer period of time, the same applies to the introduction of organizational levels. Even if a company sale takes a longer period of time (more on this below), it will not be possible to work on the organization at the same time. These aspects should definitely be considered before the transaction.

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Company- & Holding Structures

A distinction needs to be made at this point. One is holding structures, such as a simple UG or GmbH, through which shareholders indirectly participate in the company to be sold. In order for such a structure to be able to develop its tax advantage for the shareholder, it must have been established several years in advance of a transaction, but is ultimately irrelevant for a company sale. The transaction proceeds are simply paid out to the UG or GmbH as a shareholder.

What is very significant are all types of parent companies and sub-companies that are to be sold. For the simple reason that all these companies must be audited independently in the event of a share deal (i.e. the sale of shares) and due to the rights and obligations that are transferred. This can be avoided by means of an asset deal (i.e. the sale of assets instead of shares), but then the question arises, among other things, as to whether all assets necessary for operations have really been sold.

This fits in with a basic rule for company sales. Complexity is almost always negative. Keep it simple. If the advantages of complex corporate structures are not significant and sustainable, they should be avoided if possible so as not to jeopardize subsequent company sales. Significant, as usually only a certain volume of business at least compensates for the disadvantage of additional administration. And sustainable, as this advantage must still exist in the foreseeable future.

If certain structures, subsidiaries abroad as an example, cannot be avoided, it should be borne in mind that company sales and other transactions (such as equity financing) will be protracted for this reason alone.

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What goes without saying

In German, we speak, not without good reason, of secondary and primary virtues. Transactions are a case where order becomes the primary virtue. Some entrepreneurs might assume that basic documents, in the simplest example the annual financial statements for the past X years, are only available during due diligence. Digital companies may have relationships with service providers that are important to them. There should also already be a reporting system there that can be accessed. Otherwise, the project will come to a standstill in the earliest phase, the presentation of the company and its finances, and possibly also the planning. This is all the more true for a later due diligence.

Every consultant will gain an overview of these requirements in the initial discussions and – if both parties decide that they want to work together – will deal with them. From this point onwards, it is important to structure the process of selling the company in such a way that the probability of a satisfactory transaction for the shareholders and the company is increased.

Now there is a lot of talk about the “art of dealmaking”. For these purposes, however, it is more expedient to refer to the process elements of a company sale, i.e. all the technical foundations, if you like, that should be created before something like art can even come about.

This includes

Project Start and Anaysis

In a first step, the consultant will gather all documents that contribute to an understanding of the company. This includes the above-mentioned annual financial statements and annual reports as well as any reporting from external service providers (e.g. online marketing agencies), additional information from the client on their value chain from supply chain to sales and additional information on the market and competition that they have researched themselves.


All of the above information is compiled in several documents. This can include a separate financial plan, but in any case an investor presentation, sometimes also called an “investment memorandum”, which in turn can be designed in different detail for different target groups and purposes.

Approaching Buyers

The buyer approach is based on an exchange with the company about the market environment and any suitable candidates. Companies have often already been approached proactively. And, in addition, the consultant’s research on transactions in this market environment. Of course, the consultant’s network, which either already has contacts in this market environment or to relevant financial investors, or both, is also not unimportant. How these buyers are approached in detail differs from consultant to consultant. The purpose of the initial discussions between advisor and buyer is, of course, to arouse interest and perhaps also to explore the parameters of a possible transaction. The success of this part of the process is of course based, among other things, on targeted analysis and documentation.

Presentations and Negotiations

How the next steps are carried out depends on the team of the advised company as much as on how the buyer conducts the discussions. An intensive, direct exchange involving the most important decision-makers makes sense if certain key parameters are already clear or to discuss a more complex issue. As a rule, it makes sense not to discuss all the details from the outset, but to clear any “deal breakers” and “red flags” out of the way first. However, the personal chemistry between the parties acting together after the transaction cannot be considered important enough, so in this project phase you have to strike a balance between friendly discussions, which always require a lot of resources, and making progress on factual issues.

In this process sequence, we are not talking about a company that is insolvent or under threat, nor are we talking about a bidding process.

It is then justified to leave important particularities to the left and right and to make the statement that the above presentations and initial negotiations ultimately lead to the conclusion of a (mutual) preliminary agreement (LOI) or to obtain a so-called buying offer from the buyer.

It should be noted that LOIs are not binding. So please look your negotiating partner in the eye and assess how binding you consider an LOI to be. Whether and to what extent the LOI partner adheres to the preliminary agreement is decisive for the success of the entire transaction project, not just with this partner.

This is because, in the next step, exclusivity is regularly expected for the performance of the due diligence of the company, which can take various forms. In no case can the exchange with other potential investors be continued in the same way as before.

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Due Diligence

As part of due diligence (DD), every stone is lifted. Professional buyers always commission their own management consultants who specialize in certain aspects, such as examining the market and the business model as part of “commercial due diligence” or reviewing the annual financial statements and related documents as part of “financial due diligence”. At the same time, due diligence is rarely equally comprehensive, which is partly due to the investor’s in-house expertise. If a private equity investor appears as a buyer who already owns portfolio companies in this segment, he will assume that his expertise exceeds that of one or other management consultancy.

It can be assumed that the buyer will bear the corresponding costs.

This in turn gives rise to his need for the temporary exclusivity mentioned above. If the seller changes his mind and wants to conclude a deal with another party, the buyer would have literally sunk these start-up costs. Which should be avoided.

A more detailed description of the DD process is perhaps not necessary here if you realize that, on the one hand, questions are regularly answered in blocks, which takes time in addition to the provision of the requested documents. On the other hand, it should be borne in mind that this process also leaves room for buyers and sellers to discuss a purchase agreement. This is done in parallel in order to complete the entire process within a reasonable period of time.

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Signing and Closing

Signing” refers to the signing of the contract with which the parties commit to a legal transaction, while “closing” refers to the fulfillment of the associated obligations. Of particular interest to the buyer is the payment of the purchase price or the first installment, if installment payment has been agreed.

In any case, these events are always milestones in a transaction, but as a rule do not signify the conclusion of the process begun between buyer and seller. As a rule, the agreement will be that both parties will continue to cooperate for a certain period of time in order to achieve contractually agreed objectives.

You are looking for an M&A advisor to accompany the transaction process from start to close?