Structured and planned processes bring calculable and planned success. The succentric process achieves the best possible result based on standard topic groups across all stages of the buying or selling process. Legal, Finance and Strategy form the backbone of the calculation and preparation of a transaction.
Value is not created overnight.
In times like these (2018 / 2019), when funds can utilize unprecedented liquidity and companies are being sold from fund to fund (secondary buy-outs, etc.), profitable, growing founder or holder owned firms are in search of rare commodities. The strategy of financial investors and strategists alike is to communicate as directly and as quickly as possible with the owners in order to build bonds, to find exclusivity and to prevent market pricing through bilateral processes. In such buyer-driven processes, sophisticated preparation, the recovering of transaction risks and the elimination of purchase price-reducing legacies become impossible. As a result, the seller loses a significant portion of the potential enterprise value.
But there are other important reasons to prepare for an exit from a longer-term perspective: Unprofessionally prepared or "ad-hoc" sales lead to transaction interruptions, significant impairments or serious warranty risks. Professionally managed companies prepare an exit with sufficient time and use this process to sharpen their strategic position and simultaneously to build M&A know-how. A successful company sale consists of the result not only of the best possible purchase price, but also of a sustainable legal framework and last but not least of the realization of "soft" seller conceptions like job security, name guarantees or similar.
Examine your own company from the buyer's point of view.
The requirements for careful preparation of corporate transactions increase with growing professionalism of the buyer group, legal regulations and comprehensive due diligence processes that are designed to avoid liability risks on the buyer side. Large scale and more professional sellers can make larger investments, but on the other hand, they also demand significantly more professional seller preparation. In particular, first time sellers in a process that has just been started are not able to catch up on prior time and content-related shortcomings.
The list of potential effects is long: from unrealized possible purchase prices, shifting of purchase price shares into a more uncertain variable purchase price ("earn-out"), stricter warranty conditions up to canceled deals.
Professionally managed companies prepare their companies for corporate finance events, such as sales or financing, before they could or should take place. The approach is regularly on at least three levels: legal, financial and procedural. Other issues can arise, for example from a tax or environmental point of view. Depending on the size and history, in practice, periods of six to 24 months are not uncommon for a preparatory process.
Working with law firms specializing in corporate law and transactions, the "Legal" pillar analyzes the foundations of the company from inception, to share transitions, board decisions, key contracts with clients and employees, and real estate acquisitions.
Some typical questions:
Are there preconditions of the seller that need to be met in order to be able to effectively enter into a transaction?
Is there a need for action by means of options or other forms of participation?
Can contracts with third parties (rental, customer, joint venture contracts) be restricted?
What regulatory needs do subsidiaries bring with them?
The "Finance" pillar focuses on the key value levers of business models and financial metrics, as well as their impact on possible purchase prices.
Some typical questions:
Are all business units adequately aligned with the main value lever "growth"?
Can risks from customer structures or product cycles be minimized?
Is it possible to achieve a reduction in tied up operational capital ("net working capital")?
Are non-operational essential asset components available?
The Strategy pillar is, if nothing else, an elementary component of the strategy. It deals with possible purchasers or "logical buyers" at an early stage and in many cases influences the further strategic orientation of business activities. Especially in the extremely dynamic developing field of technology/software, a comprehensive examination of the range of buyers reveals vertical or horizontal potentials in the business models of possible acquirers, which can hold significant values.
Some typical questions:
Which buyer focus does the business model centered on, i.e. on constant, rising cash flows for financial investors or, for example, innovation drivers for acquisition by a strategic investor?
What does future brand development look like?
Are industrial property rights ("IP") in the form of patents, trademarks and procedures sufficiently protected?
In summary, all of the pillars in the process aim to analyze the company from a buyer's point of view,
at the same time eliminating potential impediments to transactions ("red flags") at an early stage,
naming and actively developing key value drivers,
and making the company transparent to prospective buyers in the sense of a speedy transaction process.
A common view is that a company has no value if it is not salable. It takes focus and time to fix problems and add value. Targeted planning of an exit in the succentric process can significantly increase the value of a life's work.
© 2019 by northwise GmbH.