Every company has an optimal time to be sold, and it is vital to make an effort to know and be aware of it so as not to regret it later.

As advisors, we start working with a company one or two years in advance of a sale. We prepare it to improve its value, make it more attractive, attract more buyers, increase the probability of success, remove obstacles that would hinder the sale, and minimize the tax impact and equity consequences.

One of the main objectives of the preparation is to identify the critical areas for improvement, act on them, and reduce the potential risks that a possible investor currently perceives. The more attractive you make the company to the investor, the more you can ask for and the more you will receive for it.

Reasons for the sale

There can be many reasons why an entrepreneur would consider the opportunity to sell their business.  Here are some circumstances that may make a sale or investor search desirable:

1. For personal reasons: The businessowner is preparing themself for retirement, they want to do something different in their life, change of business or increase dedication to other more profitable companies that require more attention, due to health problems.
2. For familiar reasons: Disagreements between family members over management, lack of interest or preparedness of children to continue leadership.
3. For corporate reasons: Conflict of interest among shareholders, financial investors wanting to exit, different financial capabilities among partners.
4. For economic reasons: The company needs a new injection of resources, technological obsolescence, lack of access to growth capital, receipt of a good offer for the company, the value of the real estate assets on which the company operates is higher than the value of the business.
5. For competitive reasons: The entry of a powerful competitor, growth, relocation, loss of human capital, the company has maximized its potential in its market, the loss of essential costumers, a stage of peak value in the sector or the appearance of substitute products.
6. For legal reasons: There are changes in the sector’s regulatory environment or tax and fiscal policy.

10 Keys to attracting investors

Having listed the circumstances that may lead an entrepreneur to sell their business or to look for investors, it is now necessary to list the ten key points that will help you to attract investors.

1. Understand what you want and what you are aiming for. Our objectives give us direction, but our expectations give us the strength to negotiate.

2. Fail to prepare, prepare to fail. 99% of success is due to preparation. During the process, you must work out the opportunity it represents for the buyer: What are their economic motivations? How much do they expect to earn from your company? What do they want it for? What do they intend to do with

3. Reach an agreement with the “best” alternative investor you have. If you lack alternatives, you lack negotiating power, and the buyer will take advantage of it to get constant concessions. How do you know if that buyer is the right one? Is it the one for whom your company creates the most value or who can pay the most for it? Only a sound methodology for searching for alternatives will allow you to find out.

4. A good negotiator asks a lot, talks little and listens well. Share information, but above all, get relevant information. Ask twice as many questions as your counterpart, request clarification of answers and summarize what they have heard to check that they have understood correctly.

5. A good negotiator builds trust and never lies. They do not create expectations that they will not fulfil and they keep their promises. They earn the respect of the other party during the process because they are reliable.

6. Create the optimal conditions for a good “negotiating framework” before meeting the other side at the negotiating table. Having the right people at the table achieves the above. It would help if you did a mapping of the interests of all the parties involved in the negotiation. Is there anyone who might torpedo the operation because they have other interests? How can they be convinced to help?

7. Identify the actual decision-maker. In addition to the acquiring company’s interests, there are other interests to consider, including those of the people negotiating. You have to find out who is making the decision and their interests, their needs, and what they themselves are looking for. Do they have the authority to close a deal?

8. Show interest in the interests of the other parties. This will make them care more about your interests too, a win-win situation. Building empathy helps to create a favorable climate for negotiations. Be strict in your demands and understanding of the other parties. Negotiation is a game of information, and information gives you power. You should seek to understand their needs rather than their wants.

9. Power is a very relative concept. In negotiation, power will depend on your alternative investors and the alternative opportunities of the other party. Don’t forget that 50% of negotiation is emotion. You must understand and control your emotions towards the talks.

10. A good negotiator can make the pie grow, instead of fighting for the biggest piece. They maximize its value by helping both parties achieve their goal. The first step is to believe that it is possible. Negotiation is an information game, which is why the best negotiators focus more on receiving information than giving it. If you know how to dig deeper into the other party’s needs, you will discover things that are very important to them and do not entail a high cost for you; you can exchange them for things that are essential for you and that have little significance to them.

First contacts with investors

To embark on finding the best investor, the seller must have a team of specialist advisors who can advise and guide them throughout the process and help them make the best decisions. If a seller dares to sell their business without any help, they are likely to fail.

As a professional expert, the advisor makes the first contact with the potential buying company’s decision-maker. This person is usually, depending on the company’s size, the owner, the CEO, the Managing Director or, in larger companies, the Corporate Development Director of the relevant division.

Making a personal contact with an investor is not easy and requires a lot of effort:

1. Identify them.
2. Know how to overcome filters, be consistent in calls.
3. Interest them.

When we speak, we outline the type of transaction you are proposing and why you see it as a precise fit with your company’s competitive strategy without ever identifying the company. If the investor is interested, a blind teaser is sent across.

If there is interest, their reasons for investing are analyzed, and an explanation of their investment capacity is requested. If they are not interested, we also ask why, as this will give us clues as to whether we are approaching the search for investors correctly.

If their response is positive, a confidentiality agreement is sent to you, guaranteeing the proper use of the information to be provided by the recipient.

This stage is slow due to the professional nature and lack of time for discussions and the significant follow-up effort required to get a personal interview with them. One reason for having advisors is that they free up the seller’s workload by taking care of the sales process themselves.

Once the signed confidentiality letter has arrived, and we want to move forward, we arrange a meeting for the delivery and presentation of the sales booklet.

For potential, foreign buyers, we contact them directly. However, we will also provide a blind profile of the company that we are selling to investment banks. Furthermore, we also have relationships within other countries to identify other companies or investors in their areas that we have missed.

The advisory team’s mission is to research potential investors and what their track record has been in other acquisitions: prices, multiples, payment formulas, as well as understanding the strategic rationale for how this acquisition would fit their growth process. It is also essential to answer the following questions: How has their company developed this year? What has been their trajectory and history? In which geographical areas are they present? Who are their customers and suppliers?  What is their growth strategy? Knowing how to answer these questions will give us the advantage of being able to improve exposure.

Investors for each stage of a company

Suppose you, as an entrepreneur, are looking for investors. You will need to approach different types of investors depending on your company’s stage of development, as shown in the following image.

• Seed capital:

Seed capital consists of betting on a business idea when there is not yet a business structure. The idea of a new company is the result of an entrepreneur’s fascination, concern or obsession. The usual way to raise capital at this early stage of a new business project is to rely on family and friends. People who trust the founders, who believe in their ability to take their idea forward and are willing to support them and are aware that it is tough to find an investor.

• Start-up:

Start-ups are companies that are starting to function, taking shape and attracting their first customers. In many cases, the founders have put in everything they have, the company is growing, and everyone is demanding more investment. The founders do not have the resources to finance the company’s growth; they have no support from financial institutions as they have no way of providing guarantees and they need investors to put up the money. Otherwise, the company will not be able to continue to grow.

In this situation, when the project is robust and well-executed,  new types of investor may appear:

• • Business Angels: Figures with an increasing presence in our country, usually a former entrepreneur or a private investor committed to investing in start-up business projects, with contributions of between 200,000 and one million euros. The business angel has the scope to achieve a higher degree of diversification with their equity by participating in different projects. In turn, it helps entrepreneurs to have access to a larger pool of funds for growth.
  • Pledge funds: These consist of a group of professional investment experts that bring together a few entrepreneurs in an investors’ club. They pay a fee to the club, and the professionals identify and select exciting investment projects.

• Capital development

For a company to pass the start-up stage, at least three years must have passed since its foundation.

The company is now already a reality, as there is a growing business structure. Most commonly, at this stage companies generate less cash than they need to finance their growth. This is a natural phenomenon because companies first have to pay money to source products. To recoup the investment, they will have to sell them and wait to cash out, so the more they grow, the more they have to spend first.

If you do not find investors, your success will be the death of you.

This is particularly serious for companies with a low profit-to-sales ratio, as profits do not cover the funds needed to finance growth, and the more the company grows, the more the cash flow is depleted. If they want to continue to grow, they need investors.

• Family office

It is an office created for the comprehensive management of a family’s wealth: this office takes care of its financial, real estate and business investments, its taxation, its succession, and its general financial planning.

Family groups that have sold companies will be looking to invest in other companies to benefit from reinvestment deductions. If a company has made capital gains on divestment, it will tax at 30% (general corporate tax rate). However, it can reduce this taxation to only 18% (saving tax on 12% of the capital gain) if it reinvests during the following three years in a company, purchasing a stake of more than 5%. This tax opportunity is a clear incentive for family offices to invest in other companies.

• Leveraged transactions on mature companies

During this stage of the company’s life, growth is less pronounced. It is entering a phase of maturity, where it can even comfortably pay out dividends, with stable earnings generation.

At this stage, private equity funds specializing in debt buyouts appear as potential buyers or investors. These are funds that take advantage of the ability to leverage (also called leveraging) the company to offer a higher price to the seller.

Companies that generate stable profits and have little debt are of interest to these funds, as they will use debt as leverage to buy.

They try to put little capital and a lot of debt into the operation by offering as collateral for the banks the future cash flows that the acquired company will bring in. Predictable and recurrent flows are necessary for the bank to lend more money.

NEWCOs (New Company) facilitate purchasing operations.

The importance of having a business structure

The company does not necessarily have to have a closure stage. Once we reach the maturity phase, we must structure it for continuity over time.  To sell a company, it needs to have a business structure that allows it to be independent of its owner.

The company must have a life of its own. The founder or owner should be, albeit important, a passenger in the company. Only then does a sale to another group of companies or a management team accompanied by a private equity firm make sense.

This is relevant because, in many cases, the entrepreneur is the company. When they want to sell it, they do not realize that the company is worthless without them, because the entrepreneur themself plays such an important role that they take away the value by leaving.

When this occurs, there are two alternatives if the owner wants to leave the business and give it continuity. Either prepare the company for sale by providing it with a corporate structure or break it up by selling it in parts (machines, warehouses, stock, etc.) and terminating or indemnifying the contracts you have, whether they are labour or business contracts.

About ONEtoONE

At ONEtoONE, we are experts in finding national and international investors, and we know how to locate your best partner. Our investor search team, supported by the best and most comprehensive international databases and analytical capabilities, can identify and contact more than 300 investors worldwide on each transaction. We focus on your company by understanding the aspects that will help you maximize the deal’s price, once we locate those investors with whom you are most comfortable and who best value your company’s potential.

After the arrival of Covid-19, global energy demand in the first quarter of 2020 decreased by 3.8% relative to that of 2019, and global energy demand was set to drop by 5% in total for 2020.

As countries entered into lockdowns and global economic activity slowed, it was coal and oil demand that took the biggest hits, falling nearly 7% and 8.5% respectively from their 2019 levels.

In this scenario, renewable energies were the only energy source to not experience a decrease in global demand in 2020, as the rest of the energy industry struggled with the consequences of Covid-19.

Solar energy generation is by far the fastest-growing energy source, with just under 100,000MW capacity added last year alone, yet it currently only contributes 2% of global energy.

The Levelized Cost of Energy (LCOE), the average cost of generating electricity in a plant over its lifetime, for solar energy has plummeted 82% since 2010 and is one of the lowest generation source (together with onshore wind) far below natural gas, wind offshore, geothermal and nuclear.

The high reliability of photovoltaic (PV) technology and the expected long-term increase in the use of solar resources points to a bright future for solar energy and raises expectations for a return on investment in this booming industry.

Solar Energy Technological Developments

The main reason for the explosion in popularity of solar energy is that the associated costs have fallen drastically over the past few years. Between 2010 and 2019, the global weighted average LCOE of a utility-scale solar plant declined by 82%. As a result, the global average cost of solar energy generation has fallen from $0.378/kWh to $0.068/kWh.

The development of a new technology has undoubtedly contributed to this: Bifacial Module Technology.

Bifacial Module Technology

Bifacial module technology has actually been around since the 1960s, however it has only recently become a viable technology thanks to other, new technological advancements. Bifacial solar modules, unlike most mainstream modules currently, can generate power on both the front and the back sides of a solar panel, improving the energy yield by 10-30% depending on other factors such as location.

Although this technology is still fairly uncommon in the industry at the moment, its market share was less than 5% in 2017, it is widely expected to be an industry-disrupting technology over the next decade or so. An estimate from the International Technology Roadmap for Photovoltaic (ITRVP) predicts that bifacial modules will represent just under 40% of the market by 2028.

Bifacial module technology, the technology which enables a solar panel to use both sides of its face for energy generation, is expected to become mainstream over the next decade and can boost energy yield by 10-30%.

Hybridization of solar energy with other sources of green energy promises great potential in the coming years. Green hydrogen energy will improve energy storage, as battery performance will improve while costs will trend downwards. This will allow the adoption of energy into the grid according to demand.

Electricity storage will play a crucial role in enabling the next phase of the energy transition. Along with boosting solar and wind power generation, it will allow fast decarbonization in key segments of the energy market.

Reasons for optimism and high profitability of investments in Solar Energy

Solar generation is the most rapid power generation source worldwide and is where the largest investments in the industry will be concentrated in the next 10-20 years, due to the low barriers and cost-efficiency.

This is because investment assets in this area, such as a solar generation plant financed through a PPA (Power Purchase Agreement), can become fixed-income assets with very low risk.

Market sentiment expects the solar energy industry to continue growing strongly over the next few years, as there is a new wave of companies looking for high growth opportunities backed by venture capitalists. Therefore from 2022 to 2027, we can expect another rise in M&A deals.

The expected increase of renewable energies

Looking towards the future, global energy consumption is expected to have increased by a total of 23% by 2040 to around 17,500Mtoe. There is a stark regional contrast here; the energy consumption of Africa, Asia & Latin America is predicted to increase by 74%, 39%, and 44% respectively, while Europe and North America’s consumption is expected to decrease by 11% and 8%. A decline in population and improved energy efficiency are the reasons behind the drops in the US and Europe.

It is widely accepted that it will be predominantly renewable energy sources that will support increased global energy consumption in the future. Some reports (such as one from the International Energy Agency) state that 90% of all new electricity generation will be renewable. It is estimated that renewable energy sources will generate over 50% of global energy by 2035. This renewable energy charge will be led by solar energy, which is predicted to contribute almost 50% of total renewable energy generation growth within the next 4 years.

Whether all of these predictions will be met depends significantly on global environmental policy, but with the US set to rejoin the Paris climate agreement and environmental awareness at the top of the agenda across the globe, these predictions are certainly feasible.

Japan and South Korea have both recently announced their target for reaching net zero emissions by 2050, and China by 2060, while other countries such as the UK, France, and Sweden have also set legally binding targets for zero net emissions. The EU has established several climate-related goals to be met by 2030. They include a minimum 32% share for renewable energy, at least a 40% reduction in greenhouse gas emissions, and at least a 32.5% improvement in energy efficiency.

These targets are expected to boost the renewable energy surge over the next few decades.

With this in mind, renewal energies in general, and the solar energy industry in particular, are expected to continue growing strongly over the next few years, leading to a rise in M&A deals.

If you own a company and you are thinking of selling it, you may have wondered whether you can face the process on your own. Who can you trust? Where can you seek advice? Who can you rely on? Is it worth investing in giving exclusivity to an advisor for the sale of your company?

Below, we are going to explain why it is necessary to have a professional advisor for sell-side and buy-side advisory, and how the exclusivity you grant them will drastically influence the sale time of your company and, above all, the price you will obtain for it.

Difference between advisors and brokers

Exclusivity is giving a single advisor – or a single advisory firm – exclusive control over the negotiation, the search for potential buyers, and the overall process of selling a company.

Within the world of commercial sell-side and buy-side advisory, there are different types of advisors. You can find either brokers or professional advisors.

Brokers

A broker is a person you hire to sell your business in exchange for a percentage of your business. In this case, you will not give any exclusivity and the process will not be confidential. The broker will spread the word that your company is being sold because that is what you have commissioned them to do, and very quickly the whole market will know about it.

You may even think that by having more than one broker you will get more and better offers, but this is a serious mistake. Two brokers may claim that they have found the buyer, creating an unresolvable conflict.

The broker is in charge of indiscriminately launching the sale offer to the market. They are dedicated to the search for a buyer, and they will find one, but not necessarily the best one or the one who can pay the most for your company. It is in the broker’s interest that the transaction proceeds as quickly as possible so they can collect their percentage.

Remember that a broker will look after their profit more than yours.

Professional advisors in sell-side and buy-side advisory of companies

Professional advisors bring enormous added value that directly benefits you in the sale of your company. They carry out a properly planned, organized, and structured operation from start to finish, with confidentiality assured.

Granting them exclusivity means that they contact not the first buyer that comes along, but those who are interested in buying your company and can pay the best price, while assuring you that they can afford to pay. A professional advisor has the necessary knowledge to recommend to you not to sell at a certain moment if they believe that the offer is insufficient and that they can obtain a higher price.

Their mission is to protect the business owner and prevent the possible loss of value of the company during the sale process, which can happen if the sale process is disclosed indiscriminately. A professional Advisor will ensure complete confidentiality, as this can have a positive impact on the final sale price.

Likewise, an Advisor will not contact anyone you do not want them to. A broker cannot guarantee that, as their offer is indiscriminate.

A professional advisor will always try to get the best price for the sale of your company, even if that means waiting for the right offer.

Confidentiality. This is perhaps one of the first words spoken in a conversation between an entrepreneur who has decided to sell their company and those to whom the decision is revealed, including the advisors in the transaction process. You are not wrong to demand confidentiality, as this is key to the success of the operation.

Throughout this article, we will explain why confidentiality is essential, the role it plays at each stage of the process, and how to enforce it.

Why is confidentiality necessary? Should I tell my workers that I am selling?

Confidentiality is undoubtedly the cornerstone of any company purchase or sale transaction. Therefore, in any corporate operation, the confidentiality agreement (NDA) must start from the first moment, even when the entrepreneur has the idea in their head but has not yet decided to carry it out. If you follow this recommendation now, you will save yourself more of an upset in the future.

It is appropriate to inform the key people who will participate in the process that the company is for sale, by supplying them with information (usually the CFO) and asking them to keep it secret through a confidentiality agreement. With this transparency and gesture of trust, you avoid suspicions arising when asking them for information, reducing the likelihood they mention it to their colleagues. Normally, they will repay the trust you have shown them. It would be best if you did not discuss it with anyone else.

Confidentiality allows the parties involved (advisors, buyers, sellers, etc.) to share information in the transaction without any external agent discovering it. The mechanism that guarantees confidentiality in this type of operation is known as a Non-Disclosure Agreement (NDA). Previously, potential buyers who have been qualified to carry out the transaction, having a strategic fit and sufficient resources, have been provided with a blind profile and have shown interest in moving forward with the potential purchase.

At ONEtoONE Corporate Finance, when we deal with potential buyers, we only do so with large international groups with professional teams specialized in corporate transactions that are very clear on the importance of confidentiality.

Compliance with the NDA implies the non-disclosure of the information received (transmitted and perceived by observation). You should bear in mind that maintaining confidentiality is an essential tool, especially nowadays, due to the role played by new technologies making information much more accessible and immediate.

The signing of an NDA obliges the parties to monitor compliance with a series of obligations concerning the information transmitted, not only at present but also in the future. Non-compliance by any one of the parties can negatively affect the operation’s development and closure.

But what happens if the information is leaked?

Transaction price variation: How many times have we seen how a rumour in the market can change the price of a share, in one sense or another, brushing aside the initial, defined strategy and sometimes even forcing the parties to abandon the closing of the deal.

The exit of key professionals from the organization: The management team and key people in an organizational structure may feel threatened by the proposed transaction long before the new partners arrive and explain their new intentions. Losing these professionals can be disastrous for the operation, as the buyer may back out or lower the price due to the loss of value implied by the loss of key people for the company.

It would be best if you put in place means to prevent managers from leaving during the negotiation phases.

One measure we have applied on occasion with the business owner has been to inform critical managers of the idea of a sale in two years and reward them with a percentage of the transaction’s value, encouraging them to work together to improve financial ratios during this period.

Other times, we define a price that we consider reasonable with the employer and indicate to the managers that they will receive a percentage of the increase on that price. Therefore, they see a clear benefit in making a significant effort for the company, since they become businessowners, to a certain extent, and we guarantee that they do not leave you by surprise before the deal is finalized.

Confusion in the workforce: From the beginning, rumours of a new shareholder can generate nervousness among employees, directly affecting their work performance and, therefore, the company’s financial results.

Concerns of customers, suppliers: News of a new shareholder situation may cause uncertainty for customers, as they do not know whether they will be able to continue to count on the company’s products and services under the same conditions, or for suppliers, as they do not know whether they will be able to rely on the approval of the new owners.

Without M&A advisors, it is tough to maintain confidentiality and to carry out a rigorous search process for the best buyer. If you do not give exclusivity as advisors to a firm specializing in companies’ sales, do not expect confidentiality either, because you cannot expect two advisers to compete to find a buyer and at the same time do it confidentially.

Managing confidentiality during a purchase and sale transaction

Managing confidentiality is a crucial aspect of a transaction of this type. The first people to be required to maintain confidentiality are the advisors themselves, even before signing a mandate with them to sell your company. In our work as advisors in corporate transactions, we usually send potential clients a confidentiality agreement in which we undertake not to disclose any of the information provided to us regardless of the subsequent signing or not of a mandate (advisory contract).

If you are considering the sale of your company and are contacting different advisers, do not hesitate to request this confidentiality agreement to safeguard your sensitive information and the future operation.

Focusing on the buying and selling process, sellers usually look for higher confidentiality levels, but this depends on many factors and can vary.

For example, if the seller wants a high level of confidentiality, they must reduce the number of potential buyers they reach, which will slow down the sales process. On the other hand, if the seller is looking for faster results, they must broaden the potential buyers’ selection, making it more difficult to control the confidentiality factor. This may seem like a conflicting contradiction to any seller.

It is possible to utilise different techniques during the buying and selling process to increase confidentiality, but many business owners are not even aware of them. Here are some of these techniques:

• The creation of a Blind Teaser: This document is designed to protect the company’s identity from being revealed when presented to potential investors. The teaser reveals the company’s status, but not its name. If buyers show interest, a confidentiality agreement is signed to protect their identity.
• The signing of an NDA: Confidentiality is crucial from the first day. There will be many agents involved in the process. Everyone exposed to this information must sign an NDA so that the idea and intent are protected and secure.
• Letter of Intent (LoI): This is a document in which the buyer and seller put in writing the main points of the agreement they have reached. This text must include all relevant details: whether the transaction involves a capital increase, purchase of assets and liabilities (and which assets and liabilities, if any). This text should also include information about shares, the price, the percentage to buy, the methods of payment that you will use, the payment deadlines, price adjustment formulas and other types of remuneration. The confidentiality of the agreement and a period of exclusivity (in which the seller cannot negotiate with other buyers) are also agreed upon while the Due diligence and the purchase and sale contract are being developed.
• Data Room: If a deal has reached the point where a Data Room needs to be created, it means that we are close to closing the deal. In other words, we are at a sensitive point where confidentiality is vital. That is why the Data Room is designed to protect the information. They create a virtual space where the seller will hand over all the necessary documentation to the potential buyer, to proceed with the transaction. Information delivery is done through online software that prevents printing the contained documentation, avoiding uncontrolled data leaks.

What is the Virtual Data Room?

A Virtual Data Room (VDR) is a virtual space where the seller uploads all the necessary company documentation so that the buyer can have access to it and move forward with the process. This information transaction is extremely sensitive and should only be done when there is a reliable and trusting relationship between both parties, which means that there is already a willingness to invest and close a transaction.

This information transaction is carried out through a software designed to avoid any revelation of documents and to keep all the uploaded documents safe. The software must be a high-quality product that provides confidence, security and safety to both parties involved in the operation.

Imagine how difficult it could be for a business owner to expose the essence of his company. Aside from the emotional factors that make this operation difficult, this part of the process must meet all the requirements to guarantee security and peace of mind between the parties.

At ONEtoONE, we are known for transparency, confidentiality, and professionalism with how we handle our clients’ transactions. One of our best allies is the trust we generate through our work.  Therefore, we encourage you to contact us if you are looking for advice on your company’s sale/purchase. And remember, confidentiality is the key to success.

The first thing to understand is how many professionals you need to sell a company: a financial advisor, a lawyer, a tax advisor and a notary are the crucial figures. As you can see, many individuals are needed, and each one charges for their services in some form. When you decide to sell your company professionally, you will have to ask them about their fees.

[If you want to read more about the different figures involved in the process of buying and selling a company, read the following article: Whether Buying or Selling a Company: Pick the Right Advisor  Or this one: Why is it important to have an advisor?]

We are going to focus on the financial advisor, our role in the process, the first link in the chain and the one that will accompany you in understanding how much it will cost to sell your company.

Generally, when you contact financial advisors to discuss your company’s sale, you will find there are two types of fees: fixed fees and success fees.

Fixed fees or Retainers

Fixed fees or retainers are charged regardless of the outcome of the process. They are commonly associated with documentation delivery or with the achievement of specific landmarks during the sale process [Read more about the operation of a company’s transaction in the article The selling process of a company]. It is not uncommon for the advisor to offer to deduct these fixed fees from the success fees. The truth is that they usually only represent a tiny part of the total costs in the event of a deal closure. However, they are still a cost that the business owner must “advance”.

The controversy around fixed fees is their relevance, that is, should I pay them or not? This doubt arises because some advisors work only on a success basis. There is a proverb that says: “What does not cost is not valued”, and another: “If you pay peanuts, you get monkeys” or “You get what you pay for”.

When a business owner starts the process without spending a penny, they have not embraced the sale of the company and they will always be tempted to pull out at any time. Also, a business owner who does not trust their advisor will think that if they have not made the right choice of advisor, at least they have not spent any money. Perhaps the business owner has repeatedly heard cases of friends saying “they charged me and did nothing”, or perhaps they have already experienced it themselves. While we cannot guarantee that this will not happen, most of the time this lack of professionalism occurs when the transaction has been put into the hands of people who do not work exclusively in this profession. There are some excellent professionals who will dedicate many hours to the sale of your company:

• Ask your lawyer, your tax advisor, a competitor who has already sold, or search on the internet for reference.
• Even if you believe that you have found an advisor in your first meeting, try to obtain a few different proposals and compare them.
• Remember that you are only going to sell your company once.

[Read more about the importance of advisors in this article: Why it is essential to have an advisor?]

Let us go back to the option of not paying fixed fees, but now let’s look from the advisor’s side. Not having an initial fee in the process will also affect the advisor and could generate a conflict of interest in the long run, as they may want to close a deal at any cost and without considering whether the chosen buyer is the best option for their client. This would, in part, be due to the advisor’s fear of not closing the transaction and thus not obtaining any fee (if everything is dependent on success), despite having given away time and work.

Negotiate hard, defend your money, and make sure they will protect your interests, but always seek a fair agreement for both of you.

But what is fair? This is a question that has no easy answer, especially when, as in our case, we sit down with companies that go from 5 million in revenues to 500 million. Each of them has different peculiarities and complexities. But what we can say is that at ONEtoONE, each project no matter how small, will have at least two people working on it and could have up to ten.  Think about the cost of a senior employee in your company and the hours that they will dedicate each month to a project, and you will have a very rough idea of the price range for fixed fees.

[If you want to know more about how long it takes to sell a company, read our article How long does it take to sell a business?]

Success Fees

These fees are understood and accepted by all clients. Their name says it all; they are obtained upon the completion of a project, whether that is selling or buying a company that you have been looking for.

However, they can also be complex to calculate. In the sale of a company, the norm is to pay a percentage of the company’s agreed value, since the higher the price achieved, the greater the reward for both the client and the advisor. And what is the percentage rate applied? Again, this is difficult to answer, but there is at least a commonly accepted rule: the rate will be inversely proportional to the transaction size; that is, higher percentages will be incurred in smaller transactions, and lower rates will be incurred in larger transactions.

Do not get carried away by what a friend who has read in a newspaper about a large transaction tells you, because that is another league. The purchase/sale of a family company is not governed by the figures of Nasdaq-listed companies. The risk of selling, or rather not selling, a small or medium-sized family business is much greater than in large multinationals. For greater risk, there is a higher cost. The range of rates is very wide for family companies, and usually goes from 1% for large transactions to 6% for small transactions, based on the transaction value.

Make sure you demand that the rate applied to your transaction is justified. To avoid surprises about how much it will cost to sell your company, grab a calculator and with an estimated value of your company, do the calculations to avoid scares or misunderstandings in the future.

If you have got this far, the ‘it depends’ answer that we used at the beginning of the article to respond to how much it costs to sell your company should already be clear. Now all that remains is for you to put pen to paper. Contact us and tell us about your case with complete confidence, in a confidential process and without any obligation from you:

The information in this form goes only to our team of advisors and is treated confidentially. We will contact you at the phone or email that you have left us confidentially, so make sure that it is yours. If you prefer, we will send you a confidentiality letter. Then we will ask you about your company’s activity, financial numbers from the last few years, the reason for the sale, who the shareholders are, and what your price target is, among other questions. Keep this information handy and in electronic format because we may ask you to do a convenience analysis and establish a proposal. All of this may take a couple of weeks and will be at no cost to you.

During your company’s sale, you risk the materialization of all the value accrued through many years of hard work. Considerable wealth can be created or destroyed in this precious time. That’s why you must know the techniques that will help you maximize the sale price.

Many business owners wait for a buyer to appear someday without stopping to think about the flawed logic in selling the company to whoever comes first.

Will he be the best buyer?

Will he be who can pay the most?

It would be a massive coincidence if it were. It’s much more likely that it’s not. Also, by being the only buyers, they have substantial leverage.

But how can you be sure that there aren’t other companies who can make better offers if you don’t do deep research?

Business owners often rely on a lawyer or a CPA to search for potential buyers and investors without considering that 70% of the deal value lies in finding the best possible buyer. Hence, it is essential to find a buyer who is the best strategic fit and, consequently, will pay the most.
To maximize your company’s value, your advisors must engage in a rigorous search process to find buyers with the highest synergies with your business and those with the most substantial financial capabilities.
The best buyer is not always the most apparent or the closest one. The best counterparty for your company could be, for example, from an adjacent sector located on the other side of the world.

A supplier

Sometimes, one of your suppliers might be your ideal buyer; if he buys your company, he will be able to vertically integrate into the sector and have direct access to relevant clients. As such, a company of automobile components selling only to second manufacturers might be interested in vertically integrating upwards by buying a client’s company that sells directly to brands.

A client

If they are interested in guaranteeing a secure supply and the ability to control prices, one of your current clients could also be a potential buyer. We have seen this with citrus product distributors who, if they don’t have their own production, are at the mercy of the farmer’s product auction.

A foreign company

The ideal buyer might be found abroad. Many multinational companies are looking to grow via entering new geographical markets. Instead of starting the activity from scratch, they prefer to save time and quickly get market share by buying local companies with local teams.

Private equity

Naturally, we must also look at private equity firms eager to enter into growing sectors or industries with windows of opportunity.

Often, one of these firms buys a company so that it can be a platform to consolidate an industry through acquisitions. As such, it’s interesting to contact private equity entities that have already invested in a competitor either in the same country or abroad.

In some countries, almost 25% of company acquisitions rely on private equity participation, so if you plan on selling your company, it is a good idea to consider private equity as a possibility.

A competitor

And what about your competitors? Having to compete with more competitive foreign companies forces many businesses to find ways to reduce costs via productive synergies or gain enough market share to generate economies of scale by buying similar companies.

A company from another sector

The range of possible buyers doesn’t end here. Market dynamism is also provoking the entry of new competitors coming in from other sectors.

So, what’s the ideal buyer for your company?

Methods to find the best buyer for a company.

First, it should be understood who and why a company can be of interest to a buyer. Once these concepts are addressed, it is time to get to know the best buyers and their motivations for buying the company.

Twelve concepts can help you identify companies that can be looking to acquire a business.

Synergies: A buyer wants to increase its strengths by acquiring a company, resulting in a merged entity that is stronger than the two separate businesses.

Diversifications: Buying to diversify has the objective of acquiring companies outside the buyer’s main business line to enter growing markets with high potential.

Access to relevant clients: Some buyers acquire companies to help them reach a specific client they could not get before.

Strategic Realignment: Many times, sectors change, and the companies try to adapt through acquisitions.

Fiscal Reasons: Some buyers search for companies with a high level of accumulated fiscal credit. The acquisition of this kind of companies can avoid some tax payments due to benefits during a specific period for the buyer.

Overvaluation of the buyer’s stock market:  Some companies are of high interest to the buyer because this allows the exchange of overvalued shares for shares with an average value.

Technological Change: Technology changes alter competitive factors and make acquisitions an option for companies to adapt to new disruptive tendencies.

Regulatory Change: When governmental regulations change, the game also changes. In these cases, a quick solution can be acquiring a company that complies with the new law.

Competitor Pride: Increasing presence, size, and remuneration might be the objectives of directors of big groups. Therefore, an acquisition strategy can be desirable for them.

Purchase of undervalued assets: Some sectors are in a downward cycle, making companies lose value. This is why it is essential to keep an eye on the sector’s tendencies, as it can be a clear sign that selling your business is the best option before the company loses its value.

Purchase of unique resources and capabilities: A company can present high levels of attractiveness for a buyer thanks to its resources and capabilities that the buyer misses.

Gain power in the market: For a buyer, increasing their market share will always be of great interest in strengthening their competitive advantage.

Keys to maximizing your price

The first method is to take advantage of the wave. There are periods in history where the interest rates are low, and the shares are listed in high multiples. They are the moments when people pay the highest prices for whichever company. An intelligent entrepreneur knows how to exploit this window of opportunity. He profits from the ‘wave of high prices‘ when the market is hot and sells at the best time.

These days, low-interest rates, high stock valuations, as well as an abundance of liquidity in the market are causing many international companies to take up positions in other countries.

Don’t get caught up in the paperwork. Some advisors can create encyclopaedic Sales Books for your convenience, explaining the sector and the history of the company. They can spend months preparing documentation for the company’s sale without beginning the search for investors – in many cases because they don’t know how or where to look.

The Information Memorandum is essential, but much more relevant is showing the interested buyer the company’s potential. It does not mean focusing on what you have done or earned in the past but showing them the company’s value in the future.

Never go out to sell, showing a valuation. If you present a valuation to the buyer without having had the opportunity to demonstrate the synergies and all of the added value that they would be receiving with the acquisition of your company, the buyer will be dissuaded before you have been given a chance to start the conversation.

It is much better to present the company and its capabilities, understand why they want to buy it, calculate synergies, request offers, discuss the possibilities by supporting the value that you will bring to them, and make them compete with the other offers you have received.

Be pro-active. Many entrepreneurs wait for a buyer to surface without realizing that selling the company to the first buyer that appears lacks logic. What is the likelihood that this would be the best buyer or the one who would pay the most?

If you want to sell a company, don’t be passive. The best buyers do not usually spend time actively searching for companies to purchase.

The best buyer is not the one who seems the most obvious or the closest; it could be, for example, a company in a different sector but still related and located on the other side of the world.

Search for such a buyer, for your company, who has a lot of liquidity and with whom your company brings synergies, irrelevant of where it might be. If this potential buyer perceives true value, he will pay more for the company.

Use experienced advisors. When an interested buyer appears for the company, the entrepreneur, in many cases, will decide to confront the buyer and his advisors alone, without supporting himself with expert professionals. This translates into prolonged processes, complicated, stalled or collapsed negotiations, unnecessary advances and setbacks, and ultimately wasted time for both parties.

Have you bought, or sold, a business lately?  If you did, how do you know if you received optimal value on the deal? Did you ask an M&A advisor? It can take years before the value gained can be objectively measured, or even whether the result was a business success. Recent McKinsey and Harvard research shows that nearly 90% of all M&A deals fail to deliver the value expected or achieve their M&A goals.  How can this be? Several factors lead to poor M&A results.

In the next article, we will discuss the importance of having an M&A advisor in your company’s transactions. We will also discuss the most critical aspects of doing their job well from the advisor’s perspective.

Pick the Right advisor in your company’s sale

Paul Hager, Partner at ONEtoONE Corporate Finance, speaks from experience. As someone who has bought companies as a member of the Fortune 500 investment committee and as a valuation and investment advisor to M&A clients, he has found that the team you select to be your investment advisor plays a significant role in the amount of value created in the deal. He has listed characteristics that exist in all exceptional advisors. You can find them below.

An exceptional advisor:

Asks “Why?”: The “5 Why” method states that clear insight leads to the best decision and that insight is likely to come after you’ve assessed answers to five iterations of “Why?”. An exceptional advisor asks “Why” to continuously validate assumptions, eliminate wasted effort, explore new deal options, and sustain deal focus.

Understands your business: The M&A advisor must have an empirical view of current and future industry trends, enabling technologies and interdependent industries that significantly increases the value ceiling.  As a result, they will develop an optimal set of investment candidates for each client.

Spearfishes: An exceptional investment advisor will find those investors and companies that most value a specific client’s offering. Using the “5 Whys” and other analytic methods (e.g., Porter’s 5 Forces) to build a well-defined target profile, the advisor will quickly identify ideal matches for each client.

Leverages global reach and local insight: A good advisor will leverage an expansive global investor network that connects multiple industries. An effective N&A advisor will leverage access to trusted M&A colleagues with a deep understanding of financial markets, industries, and companies in each region of the world. This allows them to open discussions with new investors and corporate networks that promise to hold a most significant interest in the deal.

Takes business, personally: A good investment advisor is continuously mindful that M&A success depends on people to embrace and support implementation – before and after the deal. Applying the previous four facets helps create and expand deal value.  An exceptional investment advisor knows that business is personal and that its most significant value asset must be supported, nurtured, and challenged. The only suggestion of Paul Hager is that you chose an investment advisor who also possesses the five qualities mentioned above.  If you do, you will capture exceptional value in your deal.

If you want to continue reading about the opinions and experiences of our partners, please click on the following photos and access their interviews:

Why many M&A advisors are not sufficient?

Being an M&A advisor is not an easy task. We have just talked about the characteristics that a good advisor must have to be hired for your company’s transactions. But it is normal for a business owner who thinks about selling his company to be afraid of hiring advisors.

It is a crucial decision, there is a lot on the line, and many things are going through his head: “Are they going to fight for my best interest? Do they have a large enough contact base to sell this? What if the charge me a lot of money, make us work, play around and then nothing happens?”.

It is true, a lot of “advisors” do not do practical work. They are good at documentation, valuations, analysis, etc. But they do not know how to locate the right buyer; they do not have the technical and human resources needed, so they cannot spend the necessary time to find the right buyer. That is why, regardless of their efforts and excellent skills, they fail to sell your company and let you down.

According to our Chairman of ONEtoONE Corporate Finance, Enrique Quemada: “Our experience in dealing with more than 1500 mandates has shown that 70% of the outcome of a business sale is based on an extraordinary amount of work on the buyer search and contacting of the key decision-makers. That is an intensive and heavy workload that cannot be done by a small team or a single advisor; the reality is that without a strong support system, they will not be able to do it”.

If this is your company and is the most critical transaction of its history, you deserve an elite team working to maximize the transaction sale value.

If you want to sell your company, make sure that the advisor you choose can provide you with this level of search capabilities to find your buyer and beware of the buyer who attacks your advisor.

If you sell a business, I warn you that buyers know that advisors play a very relevant role for the seller, and some will try to bypass them and speak directly to the company owner. We had the following experience: “Once the conditions for the contract and a deadline to sign the SPA had been set, the buyer asked to have a personal meeting along with our client. The buyer asked for a 30% payment deferral in the meeting, and our client agreed. The next time we met with him, he told us what had happened. When we asked him what guarantees they had given him for this payment, he did not answer. He had not gone into detail with the buyer, and he soon realized what a mistake he had made not having his advisors with him when making concessions”.

In some cases, a buyer tries to gain the client’s trust and encourages him to forget about his advisors, insisting that things will be smoother if they speak one-on-one. I recommend that you never fall into that trap. A trap set up without a doubt to negotiate with a less experienced person to get a better price.

How can the advisor help his client?

For an excellent professional dedicated to clients’ advice, such as a lawyer or a financial advisor, it is vitally essential to advise and guide him towards the best possible decision. When a business owner asks for advice on his company’s future, the advisor faces two types of clients: those who want to sell their business but do not know-how, and the ones who should sell their company but do not know it yet. What both business owners have in common are significant reasons to sell their businesses. These reasons tend to be:

• The proximity of retirement.
• It is unable to keep up with competitors.
• Lack of sufficient resources to implement the latest developments in his sector.
• Personal reasons such as health issues, being tired after years of hard work or the desire of spending more time with family and loved ones.

As a professional, the lawyer or a financial advisor’s responsibility is to recommend his client a great expert in M&A. Here is where in ONEtoONE, we want to help these consultants and give them the reasons we are the best companion for their client during his M&A process.

ONEtoONE: the best choice of advisor for your M&A transaction

At ONEtoONE, we are a firm specialized in M&A that supports our clients throughout the entire sales process. We offer a 100% specialized service to maximize its value and thus create interest and competition for it. We achieve this thanks to our international team of financial and sectorial experts. Our cutting-edge technology has allowed us to develop a proprietary methodology and developed our proprietary methods.

We guarantee the clients that we will always comply with our three pillars during the sales process: methodology, competence, and transparency. ONEtoONE applies its values and methods in all its services: sale and purchase of companies; mergers, business valuations, investor search, strategic financial advice, and financial advice.

If you are interested in any of our services, do not hesitate to Contact us.

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