Many business owners call us because their companies have reached a size that complicates the management and they are not prepared for the next stage. As consequence, they feel ready to use an M&A strategy.
His business is not small and flexible anymore, nor is it big enough. It is stuck in the middle.
Business owners reasons for being ready for M&A strategy
Business owners prefers to sell the company to a larger organization with bigger resources, rather than continuing with the current difficult path. This is frequently followed by the need to internationalize the company or relocate in order to stay competitive. Business owners see how the relevant competitors are outsourcing manufacturing to other countries, which is a process that they don’t how to approach.
We had a client that was conscious of the fact that his company needed to become international. He could not speak other languages which prevented him from tackling this international project with the expected level of leadership. However, his management team pressured him and tried to convince him to go on with the international expansion. Frightened by the potential risk of the undertaking, he decided to look for private equity which could work with his management to handle the challenge. As sell side advisors, we located four private equity entities that bid on the company (two domestic and two international). We finally closed the deal with a foreign investor that incentivized the managers to undertake a powerful international expansion.
Sometimes the signal comes from human resources. Difficulties hiring or retaining a capable management team are at times a sign that the moment to sell has come.
In other occasions, the loss of important clients is a sign that the business is losing its competitive advantage and the company needs to make a strategic change.
Economies of scale that other companies reach through sector consolidations can make business owners realize their size isn’t enough to survive this change.
What do you need to do?
You need to ask yourself: Is there enough business for all the competitors? Are there companies disappearing? Is there a consolidation on the sector?
The growing interdependence of economies across the planet has accelerated cross-border M&A deals, forcing local companies to search sufficient critical mass to compete against global players, this commonly translates into mergers.
If you realize that you can’t play in the global arena by yourself, is better to sell or merger with another player before it is too late. Don’t hesitate to contact us to talk about your company’s future and how M&A strategy can help you!
The primary objective for most sellers in an M&A deal is to maximize price increasing the firm’s value. While many people assume that valuation in an M&A deal is driven either by the mechanical application of EBITDA multiple valuation techniques or simply by the party who has greater negotiating power, in fact the final sale price of a company often is highly dependent on the buyer’s perception of risk in connection with a company and the seller’s ability to demonstrate the degree to which that risk has been or could be mitigated.
The often significant space between price terms derived from valuation formulas and the deal preferences of the parties is the area where large amounts of potential transaction value can be won or lost. This space, often overlooked in deal preparations and negotiations, is worth a great amount of M&A transaction focus. For shareholders that want to sell companies at the highest price possible, objectively thinking through the risks a company faces and trying to mitigate them before deal negotiations begin is often an excellent way to accelerate deal completion times and improve sale terms and conditions.
The relationship between risk and value
When thinking about how much a firm is worth, many people focus on the current or past financial performance of a company and consider such factors as revenue, EBITDA and net income. However, the risks associated with a firm’s financial performance going forward are also an extremely important component of the firm’s worth.
The relationship between risk and value is expressly incorporated into one valuation approach, the Discounted Cash Flow method of valuation. With this valuation technique, a company’s current value is derived by discounting the company’s future free cash flows back to the present by a discount rate which is directly related to how risky those cash flows are. The higher the discount rate, the lower the present value of the company will be and the less a buyer will generally be willing to pay for it.
Key types of risk that affect firm valuation
Generally the types of risks that can affect a firm’s performance and value can be grouped into three broad categories.
The first category of risk is macroeconomic risk. These are risks that affect a country as a whole such as political stability, GDP growth, inflation rates and currency values.
The second category of risk is microeconomic risk. These are risks that define the specific market that a company operates in, impact the core relationships between market producers and consumers and influence competition.
The third type of risk is company risk. These are specific risks that are related to a company such as its business model, the nature of its revenue streams, the strength and commitment of its management team and its financial and physical resources and infrastructure.
When setting a price for a company, many buyers will begin with a baseline framework for valuation based on an industry and then adjust that baseline valuation based on how risky a company is compared with valuation peer groups.
There is no standard way for converting risk perspectives into company price adjustments. This is inevitably a subjective process based on the buyer’s outlook, experience with a country or sector and ability to mitigate risks after a company has been acquired.
IF YOU ARE INTERESTED IN LEARNING MORE ABOUT FIRM VALUATION, YOU CAN ALSO HAVE A LOOK AT “THE REAL VALUE OF YOUR BUSINESS“, WHERE WE ANALYZE THREE TYPES OF VALUE: INTRINSIC VALUE, MARKET VALUE AND EMOTIONAL VALUE
The relationship between investor return expectations and value
Another way that buyers approach valuation is based on their own transaction investment horizons and return expectations. If an investor expects to purchase a company and sell it in 7 years and receive a return of 15%, it will often set the price for the company at an amount which will make it highly likely that it will achieve that return, even if a fair analysis of the risks related to the company warrant a higher price.
While this method approaches valuation from a different perspective, it ultimately leads to the same risk-based result: the greater the risks to the ability of a buyer to sell a company at a price in the future, the greater the likelihood it will simply lower the price it will pay to ensure that the difference between the current purchase and subsequent company sale price will be enough to cause the buyer’s target investment return to be met.
Reducing downside to increase upside
Regardless of whether the issue of valuation is approached from an objective view of the risks related to a company or the investor’s return expectations, it is clear that the better risks can be forecast and mitigated, the better the valuation is going to be.
Many sellers make the mistake in price negotiations of trying to simply explain risks away with verbal statements rather than backing up risk discussion and mitigation strategies with substantive analysis and concrete corporate actions. Let’s provide a few concrete examples of how risks can be mitigated.
● Macroeconomic risk. While it may seem by definition that macroeconomic risks are beyond the control of a single firm, in fact several types of macroeconomic risks can be mitigated. To provide one example, let’s assume that a firm is highly exposed to currency risk and operates in a country whose currency is highly volatile. To mitigate this risk, a company might, for example, be able to denominate key contracts in dollars or another benchmark currency which would eliminate a significant amount of the impact of currency volatility on its business.
● Microeconomic risk. Given that at its heart microeconomics is concerned with the interplay of producer and consumer relationships, reducing microeconomic risk requires positioning a company to drive or take advantage of potential market shifts. To provide one example, let’s assume that a company operates in the petroleum fuel-based extraction market but is highly susceptible to the loss of market share given the fact that it has less financial resources than its competitors. To mitigate this risk, a company might seek to enter into the renewable energy sector to broaden and diversify its revenue model.
● Company risk. There are many types of company risks which can cause a company’s value to fall, such as a lack of diversified revenues, uncertainty regarding legal issues that may affect the company and uncertainty regarding a firm’s commercial arrangements. If a seller derives a significant amount of revenues from a client who is free to cancel the commercial relationship at any time, a seller might try to negotiate a longer term contract with the client. While this may not fundamentally alter the commercial relationship between the seller and the client, it will often give buyers significant additional confidence regarding the strength of a company’s financial projections. Moreover, even if a seller is required to provide discounted commercial terms to a client in exchange for the client’s execution of a long-term contract, the economic value of this discount may turn out to be less than the positive impact it causes on the firm’s valuation.
● Exit risk. While sellers may take the position that how a buyer will exit an investment 7 years down the road is of sole concern to the buyer, in fact it is also the seller’s concern. Why? Because if the investor does not have the confidence that it will be able to exit, it often will simply not invest and the deal will not go forward. This is particularly true with investors such as investment funds, which often must exit their investment positions within fixed periods of time.
While most business owners understandably dedicate the majority of their focus on how to build their businesses rather than looking for ways to get out of it, developing an understanding of who the potential buyers for a company are and how they are thinking about valuation issues is extremely useful, both while building a company and when it comes time to sell it.
This article written by Darin Bifani, has provided a brief overview of ways that can increase the value of your firm in an M&A transaction by focusing on mitigating key risks that impact firm valuation. Be aware of the the risks affecting your business and how they can be mitigated to help increase your firm’s value today. Learn more about our strategic advisory now!
Sometimes, when we indicate a company’s value range to the owner, he says to us: “for me it’s worth more”. But what is the real value of your business?
The above sentence holds a very valid point: for a business’ founder, who has dedicated his life to it, the company is like a child and he generally has inflated expectations about its value. Because of this, we recommend that if you are the seller, you need to put yourself in the shoes of the buyer. The buyer will see things in a different way and will think: “If I pay all of this for a company, how am I going to earn money?”
For many business owners their company´s value is the result of the addition of three types of value: Intrinsic value+market value+emotional value. Let´s analyze the three components:
Intrinsic value
External valuations serve to help understand a company’s intrinsic value range and often act as a negotiation tool to reach a higher range. Note that we say ‘value range’ because, although it is possible to estimate how much a company is worth, it is absurd to think that you can estimate the exact amount because it doesn’t exist. Valuation professionals always speak of value ranges.
The buyer will try to acquire the target company for its intrinsic value in that moment, according to how it is being managed, and it will be the buyer who increases its value by improving management.
Market value
Try to analyze, when negotiation with potential buyers, not only the value of the company you’re selling, but all the elements that cause an increase in value for the purchasing party.
If you find the right buyer, you might add the market value to the intrinsic value.
A buyer might reinforce his competitive strengths by creating synergies with the acquired company. Synergies let you obtain bigger margins when you are merged. Two plus two can be five.
Once you know the buyer, it is also very useful to calculate synergies, and through these calculations, know how much the company is worth for him. If we are able to negotiate well, it will let us capture a lot of the value of the synergies we find.
Here comes the emotional value: we once had a buy-side mandate and the seller told us that the price for his company was six million dollars. When asked why, he told us that he had six daughters. We explained to him that we would have looked for another seller with a similar company and less daughters. It didn’t seem right to us that he would have made our client pay for his fertility.
The true value
Companies are valued based on their “profitability” and their “risk”. All the other elements end up fitting into these two concepts. If the buyer has another alternative where he can get more profit with the same risk, he will take it.
Seek a buyer with considerable liquidity for whom your company offers these synergies, without regard to where they are located. If this potential buyer perceives real value, he will pay more money for your company.
In our experience, price is usually a result of the quality of the sales process. Good preparation, well presented, clear documents, access to a good selection of candidates, proper management of confidentiality during the process and a proper negotiation of offers will maximize the price and other terms of the transaction.
The more offers a company receives the greater is the probability to find the best buyer, because more offers means greater bargaining power. Experience has shown us that a well-managed well-worked sales process has a tremendous impact on the final price and conditions of a transaction.
By selling your company you are converting years of work and effort into value and, in a short space of time, you can potentially create or destroy a lot of its value. It is in your hands.
We will discuss the steps to buying a company and how the initial contact plays a key role. In this article we will find out why the initial contact is so important and we’ll analyse some techniques on how to buy a business obtaining the best price.
How to communicate with the seller
The best candidate when buying a company is the business owner who doesn’t know that he wants to sell his business yet. Why? Because nobody is interested in buying his company. Therefore competition doesn’t exist.
When calling a business owner, try something like “Good morning Mr. Smith, this is Enrique Quemada speaking. I am interested in buying a company in your sector and the Industry Association told me that you are very successful, that is why I thought you could give some interesting suggestions. Could I have the chance to meet you?” If he likes the idea, he is potentially intersted in selling his company. If not, he will tell you who you can try to reach out to.
PRO TIP: Don’t start the conversation asking “Are you interested in selling your business?”. It would sound intrusive and you will not get the information you want!
Verify if the business owner is interested in selling his business
The initial contact is one of the most important steps to buying a company and it requires the ability to understand as fast as possible if the business owner you are talking to is really interested in selling his company. We participated in many mandates investing time and money and eventually finding out that was no seller.
Many times the price you will be asked to pay for a company may be too excessive. That means the business owner doesn’t want to sell his business. In other cases he doesn’t want to accept the real value of his company. Moreover, he may not be sure about the idea of leaving his company behind yet. In this case, the key question is: “Do you need to sell your company?” If the answer is yes, you can eventually succeed and acquire it.
If the company is very interesting and the business owner wants to sell, don’t let the price scares you. There is a long negotiation process and the business owner will eventually accept the real value. Many evaluations are based on emotions, that is why you need to let business owners understand how to calculate a fair value.
When a business owner decides to spend some money, you may be certain he wants to sell his company. For example, contracting advisors is a really good sign.
Try a “ONEtoONE” negotiation
If you want to obtain the best price, you need the business owner to only negotiate with you. That could be a milestone for you to succeed in your goal.
One to one negotiation will be frequent when companies you are negotiating with are small or in crisis. For this reason, those companies are not attractive enough for private equity firms and many potential strategic buyers wouldn’t waste their time negotiating these transactions.
In the case you want to buy a leader company, a competitive process will start and there will be many interested buyers like you. As consequence, the price will raise due to treacherous bidding.
We are in a business world where every day there is more competition and more challenges for companies. It is in this complex environment that innovation transforms into the primary source for competitive advantages.
Recall that a competitive advantage is a characteristic that develops companies and allows them to differentiate themselves from the competition and gain success. Within these competitive advantages you will find examples of brands, cost efficiency, patents, FDA or other sanitary registrations, the control or access to distribution channels, as well as the know how and capacity to create innovative products.
In many cases, a source of innovation is the acquisition of start ups or medium-sized companies becomes the perfect accessory to R&D (research and development) departments of large companies. As Cisco’s president and CEO John Chambers says, “If you don’t have the resources to develop a component or product within six months, you must buy what you need or miss the opportunity.”
I continually find myself with entrepreneurs that are developing ground breaking products and disruptive technologies with the capacity to generate important changes in the world. A disruptive technology is one that has the capacity to change an industry, for example the scanner practically put an end to fax and the digital camera was the end for roll photography, at least in non-professional photography. Some leading companies in the world know this, and are continually acquiring companies as a source of innovation, for example Facebook acquired Instagram, Unilever acquired the razor blade company Dollar Shave Club which reinvented how to deliver their products to the consumer with a cost leadership strategy, Johnson & Johnson licensed the technology for stents from Dr. Julio Palmaz, and Apple acquired the headphones and music by subscription service, Beats by Dr. Dre. Others missed their opportunity, for example Blockbuster refused to associate with Netflix in 2000 and Yahoo had no interest in acquiring Google for US $1M in 1998.
In the same way, often times I encounter large companies that aren’t interested or aren’t analyzing the possibility of acquiring a small or medium-sized company because it does not have a significant EBITDA or income that can significantly impact the financial statements.
“It can be hard for big corporations to promote invention. You cannot prove in advance that any new idea will work….In other words, they’re willing to pay a pretty big markup for not having to take that risk on themselves.”
If you are an executive of an important company, I invite you to consider allocating part of your resources within your innovation strategy to the investment of start-ups that have the potential to be completely acquired when they are in a more mature phase and that can be integrated into your company by accessing your distribution channels and commercial strength.
“In essence, [such an open-innovation tactic is about letting] ‘the little people invent’ and then helping commercialize the innovation through the resources of a much bigger company.”
In emerging countries, in my case Colombia, we are behind in R&D and innovation for companies both large and small. According to World Bank3, our country invests only 0.20% of GDP (gross domestic product) in these areas, while Japan invests 3.58% and South Korea 4.3%. It is therefore necessary to pay attention to this issue which can have a transcendental impact on the future results of your company and on the ability to generate new competitive advantages.
Written by Simón Restrepo Barth, professor of Finances and Partner of ONEtoOE Corporate Finance with collaboration by Julie Steppan, Investment Banking Analyst.
Bibliography
1. Bower, Joseph. “Not All M&A’s Are Alike – and That Matters”, Harvard Business Review, March 2001. 2. Vella, Matt. “Innovation Through Acquisition”, Bloomberg, February 2008. 3. “Research and Development expenditure (% of GDP)”, United Nations Educational, Scientific, and Cultural Organization (UNESCO) Institute for Statistics. http://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS, 9 June 2017.
Due to the challenges of feeding a rapidly growing world with shrinking arable land and water sources, the agriculture and financial sectors will need to work hand in hand to create new, sustainable food solutions. The drive to meet food supply needs will have a large impact on agriculture sector capital requirements and investment.
We believe the following developments will significantly affect the agriculture sector investment landscape in the coming years.
Mid-Market Cross-Border Agriculture Sector Investment Activity will Sharply Rise
A large amount of food in the world is produced by small and mid-sized farmers. These farmers often face many operating difficulties, including inefficient farming practices, lack of capital and limited or no access to markets that can pay the best prices for they food that they produce.
Cross-border investment will allow smaller and mid-sized agricultural businesses to supplement traditional debt finance with more flexible equity capital that will permit them to better withstand financial and production downturns and more quickly reach their agriculture production potential. This will provide the financial sector with essentially a new class of investment opportunities.
The Agriculture Sector Investment Vertical Will Become More Stratified
The agriculture sector currently represents a collision of large agriculture sector and financial sector factors. On the agriculture side, the traditional up-stream, mid-stream and down-stream components of the agriculture value chain are being rapidly broken into smaller parts to create production, processing and transportation innovations, efficiencies and risk diversification.
On the financing side, traditional commercial bank debt financing is being rapidly supplemented by capital from new classes of investors who are relatively new to the agriculture sector, such as family offices, private equity funds and pension funds, and who have different investment horizons, objectives and risk thresholds. These investors are bringing not only additional funds but also non-agricultural short and long-term value creation investment strategies to the sector. This will provide new financial flexibility as well as discipline.
The result of this collision will be that investment strategies and products will become increasingly calibrated with agriculture sector value chain stratification, more efficiently matching capital with vertical-specific needed agriculture sector finance. This will lead to a broad range of investments that will accelerate agriculture sector value chain stratification further, from development of new types of food, to new processing robotics to the efficient delivery of food to consumers.
Tech/Land/Sales Tie-Ups Will Become More Common
The global agriculture value chain suffers from large input, throughput and output inefficiencies which cause a great loss of potential sector value. Examples of this are:
– Often developing countries with large agriculture land holdings lack technology and sales channels to maximize production potential;
– Companies with developed agriculture technology lack land or sales channels to maximize technological potential; and
– Sellers who have strong sales channels lack appropriate or sufficient product to maximize sales potential.
Because of increasing market transparency, it has become easier to identify and eliminate these inefficiencies, which should lead to new joint venture models which harness horizontal and vertical synergies. The realization of these synergies will create real financial gains that can be either passed through to consumers or recycled back down the agriculture value chain in the form of new investments.
The Agriculture Sector Value Chain Will Increasingly Resemble a Circle Rather Than a Line
While the global international trade network has allowed the agriculture sector value chain to be significantly extended, there is often a significant gap between production strategy and actual food consumption, resulting in significant agriculture production missteps and financial inefficiency.
Going forward the distance between the production and consumption ends of the agriculture sector value chain will increasingly form a circle rather than a highly elongated line, allowing producers to better understand consumer preferences and allowing consumers to better understand more about the food that they consume. This reformation of the agriculture sector value chain will create many investment opportunities, particularly in processes and entities that can shorten production and consumption gaps.
Combined Energy/Agriculture Projects Will Become More Common
The combination of renewable energy and agriculture is still in its infancy and there are many ways that renewable energy can be used to maximize the value of rather than replace agricultural land, such as through mini-renewable power and bio-mass projects that power specific agriculture activities or provide energy for whole farming operations.
For some agricultural projects, complimentary solar or hydro projects may be used to generate independent revenue streams which can provide additional property financial strength and smooth out production-related revenue volatility. This will not only open up agriculture projects to a wider investor base but will also increase confidence in yields which should attract further institutional investment capital.
Land Value Monetization Strategies Will Become More Widely Used
A significant obstacle to obtaining equity financing in the agriculture sector, particularly in the mid-market segment, is often that land values are very high but cash flows are low, resulting in the common M&A deal dynamic where investors want to value an agriculture business based on a multiple of cash flows but farmers do not want to sell their businesses at a fraction of what the fixed assets are worth.
There are several ways to overcome this impasse, but one way is to replace traditional buy-sell deal approaches with more flexible transaction structures which better share property operating risk and rewards going forward. One example of this is the sale-leaseback where a farmer sells land to an investor and subsequently operates the land and makes guaranteed lease payments. This allows cash-constrained farmers to monetize land values, remain incentivized to manage the property well over a long period of time and gives investors a long term attractive yield.
Agriculture Capital Markets Will Become More Diversified
Many agriculture companies, particularly in the mid-market segment, are not publicly listed, which limits their access to capital. However, individual consumers have increasingly shown an interest in a greater connection with the food that they buy, and this will likely naturally lead to small lot investments in agriculture projects. Building capital markets products from a food consumption demand rather than a strictly financial perspective would also create wider agriculture market capital channels.
Article written by Darin Bifani, Partner of ONEtoONE Corporate Finance.
Private equity firms are essentially financial investors. When pursuing a financial investor, you should consider that their investment criteria typically varies from a typical industrial investor.
Regarding investment objectives
A corporate looking to invest often seeks control over a company’s management, and in turn, are inclined to make long term investments. Their rationality behind investing is to strengthen their own company or business group’s strategic abilities.
Financial investors mostly look to make a profit on the money that they’ve invested, which resultantly leads to more medium term investments that maintain no responsibility or management capacities in the company.
Additionally, private equities look for acquisition opportunities at bargain prices (they know how to negotiate well), which they will ultimately help to create value within by introducing improvements in the target’s management profile or by growing it through further synergetic acquisitions. Before embarking on an operation, they make in depth studies about the probabilities for exit strategies that will offer them sizable returns.
Payment
When structuring payment methods, private equity firms are more creative than a corporate as they have more experience. Resultantly, they can give incentives to the directors, or agree on creative financing methods on the part of the seller according to their objectives (something that corporates cannot do as they buy companies to integrate them into their own, thus it’s very difficult to measure the fulfillment of these objectives).
As for the price variable, if a corporate is really interested, it usually wins the battle; it can pay more because it can generate synergies with the acquired company or the acquisition can improve its competitive position in the long run.
Their way of financially evaluating a company is usually different: while corporates looking to invest focus more on synergies, financial investors focus on a return on investment and, by way of looking for financial profitability, are focussing on debt capacities, which plays a central role in the transaction for them.
Timing
Industrial investors conduct slower studies and don’t pay as much attention to specific opportunities. They are willing to miss out on opportunities because they know the sector well, and that sooner or later, more opportunities will arise. Because of that, an industrial investor will very rarely overpay. Private equity firms feel more pressure on not missing out on opportunities, and in turn, can be more abrupt with their decision-making.
An industrial investor’s due diligence is easier as it has extensive experience within the relevant sectors, and can resultantly observe and understand the valuable variables. It looks at the industrial points and how they can fit into its own project.
Moreover, industrial investors try not to auction. Auctions are set up within restricted time slots and, sometimes, this lack of time doesn’t let them thoroughly analyze or determine strategic fits. Generally speaking, as a business owner you will probably feel more at comfortable speaking to an industrial investor as they will speak your language.
The biggest challenge that emerges with these opportunities is knowing how to approach them and to not be deceived. If you are looking for an investor and can’t figure out your best option, do not hesitate to contact us for strategic advisory!
Many business owners will sell to the first buyer without taking into account other potential options. As such, when selling your business it is important to ask specific questions. Is this really the right buyer? Will this entity pay more for the business than anyone else?
Business owners often rely on a lawyer or an auditor to look for potential buyers and investors without considering that 70% of the deal value lies in finding a suitable buyer. Hence, it is essential to find a buyer that is the best strategic fit and will pay the most for your business. To maximize the value of your company, you or the advisors must engage in a rigorous search process to find buyers or investors who can deliver the highest synergies for your business and those with the strongest financial profile.
Moreover, the best buyer is not always the closest or most obvious. The best counterpart for your company could be for example, from a different sector located on the other side of the world.
ONEtoONE insight – how we added value
Once, in ONEtoONE Corporate Finance, we advised a company that generated ten million euros each year. The company had two million euros in operating income (EBITDA) and six million in financial debt. We found a buyer in the same country (Spain) whose company earned double of what this other company earned, but had accumulated a lot of debt. This entity was interested in buying the company, offering to buy it for six times the operative income, which meant that discounting the company’s debt; the potential buyer was willing to pay six million euros for the selling company. As the potential buyer did not have enough capital up front to pay for the company, they offered to pay two million at the time of the sale and the rest of the four million over the upcoming years.
We also found a German buyer with a turnover double that of the sellings company’s, but contrary to the Spanish buyer, they did have financial capability. Given that it was an international operation and the German company did not have a presence in Spain, it offered to pay a higher price for the company. They offered to pay seven times the operating income, (that after subtracting debt, it valued the company at eight million euros) and also planned to pay for the company in deferred payments, paying six millionat the start and the rest of the two million over a two year period.
We then attracted a third buyer, a Canadian company with a turnover of more than a billion euros, from which they earned a total of 100 million with no debt. The company saw many synergies with our client and at the time, they did not have any presence in Europe. They had a lot of interest in the company and offered to pay ten times the operating income of the company after subtracting the debt, which left the buying price set at fourteen million.
If we were to have sold it to the Spanish firm, the firm could have come up with excuses not to repay the remaining four million euros and could have ended up paying just two million for the company. The Canadian company paid seven times more.
Identifying the right buyer
For your company, you should look for a buyer that gives you synergies and has a lot of cash in hand, without minding so much about its location. If the buyer can perceive the true added value of your company, they will be willing to pay more for your business.
So, how can you find the best buyer who will pay the most for your company?
Around the world there are more than 120 million companies, with more than 600 risk capitals and more than 50000 Family Offices.
To start you must follow a few steps:
1. You must know what you want: In order to find the best buyer you need to know what you are looking for. You should also know the buyer and how they operate their corporations. Start with a generic search and then narrow it down into a specific search to find more concrete information.
2. Analyze and filter the results. There are many companies that can buy your company but you need to narrow it down to a single one. This can take a very long time. Start by filtering and if needed, find a company to help you with this process of analysis.
3. Get in touch with the companies. You may have to contact 200 firms or more, and it unfortunately, it will take a long time. So how do you become more efficient? If there is a search for an appropriate mediator, then the target must be analyzed. When the target is contacted there is then more speed to the process. Lastly, analyze the information being monitored by the client.
Finding not just any buyer, but rather the buyer that will create the most value for your company; one that gives off the best image, adequately manages communication, classifies business by what will bring the most value and enjoys good alternatives with other possible buyers. It is crucial so that the operation has widespread and ongoing success.If you are ready to sell your business, don’t hesitate to contact us!
The first mistake is not managing confidentiality. The sale of a company has to be a confidential process in which the entrepreneur, accompanied by financial advisors, shows the company only to those who really have the interest and ability to buy the company. Therefore, you should not present your company to several intermediaries given it will be difficult to manage the confidentiality of the sale process.
What you must do is choose an advisor; only one that is to be used throughout the whole process. They will take care of confidentiality, so to ensure that the whole market will not know about the company that you are selling.
Additionally, in the event that the company not been sold, it would produce a negative perception about your client. The sales process of companies have to be fast and directed to investors that are really interested.
2. Move the Company to a Local Area
The second major error in the sale of a company is to focus the sales process to a local area. The best buyer is probably not in your country, let alone not in your area.
You have to make a broad approach. You have created a lot of value for many years and what does not make sense is to sell to the wrong person or sell the company quickly to the first buyer that shows interest.
Find the one that fits the best and has the greatest capacity within their reserve to pay for the value of your company.
3. Not Using Experienced Consultants
Do not face the process alone! The buyers will bring very experienced advisers, and you must too. Use experienced advisors: there are many pitfalls in a company’s sales process!
There was a case of a customer who was pressuring the buyer to sign the price on offer that they had already submitted, but the offer they had made was on the value of the company and not on the value of the shares. The value of the company had to be subtracted from the debt and, once the debt was subtracted, the value of the shares was very low.
If he had agreed to sign the transaction without understanding the difference between the value of the company and the value of the shares, he would have committed and placed himself in exclusivity with an inadequate buyer who had also given him a penalty clause in case he left the negotiations. As such, he would have been caught in a very complicated sale if it went ahead.
The advisors know how to help you get out of unwanted situations. Count on them, trust them and do not let the buyer fool you! On many occasions the buyer wants your advisors to not be there. He tells you that it is better not to talk to them because they make the process difficult. Ignore this suggestion, they are there to help you!
The advisors will create impediments during wrong processes, in order to help you achieve a proper process, and to ultimately protect your interests during the negotiation of the sale of the company. They know how to manage it because they are experienced and have been part of many operations.
Therefore, it is essential to use advisors who have real experience, who are not intermediaries, who are professionals in finance and corporate operations. Selling a company is a very complex aspect in which there are many elements to monitor and deal with. Do not ever put yourself in the hands of intermediaries, put yourself in the hands of advisers!
If you consider the sale of your company, and neglect the 3 main mistakes in the sales process, you will have to go through different stages to help you maximize the final price. Do you know which ones they are? Download the eBook “HOW TO MAXIMIZE THE PRICE OF YOUR COMPANY” where, in a simple way, we explain how to prepare the company for sale.
EVOCA S.p.A. (“EVOCA”), a world-leading manufacturer of professional coffee machines, announces the acquisition of the entire share capital of Quality Espresso S.A. (“QE”), which has been advised by ONEtoONE Corporate Finance.
Based in Barcelona, QE is one of the largest manufacturer of professional manual espresso machines and complementary accessories in Spain. The company sells espresso equipment under the brands Futurmat, Visacrem, Italcrem and Mairali worldwide and owns the Gaggia brand for the Iberian Peninsula and for most of the Spanish-speaking countries in Latin America.
The acquisition bolsters EVOCA’s position in the Ho.Re.Ca. market, expanding significantly its existing range of manual espresso machines, while leveraging QE’s expertise. It also supports the development of innovative technologies, such as telemetry, currently offered for QE ranges of manual machines.
EVOCA’s goal is to develop QE further, keeping its current structure and enhancing its manufacturing site in Barcelona. EVOCA also intends to support QE in developing its product range and in promoting sales abroad, by leveraging the Evoca commercial network worldwide.
