The big question is how to manage change? Well, it is not a matter of time; it’s a matter of commitment.
If you want to provoke change, create a proper culture. Instead of taking control, give it away. For you to create an appropriate culture, you must reduce control systems. Control is achieved when people control themselves.
Don’t give orders, but ask questions like: What would you do? What do you suggest? It’s not an easy task, but you must control your tendency towards giving orders or transmitting messages that undermine the dignity and responsibility of your subordinates.
Don’t just preach and hope a proper culture will develop itself; you must cultivate it and implement schemes that bestow authority and allow each employee to feel entitled. You must be very clear on whose responsible for avoiding the employee’s tendency towards delegating decisions to upper levels. Give the authority to decide to those who receive information, instead of moving data towards the authority, move the authority towards the information.
How to manage change formula
There’s a natural resistance to change that makes many strategies fail. To create change in your organization, you must apply the following formula:
Amount of change = Dissatisfaction + Vision + Process – Cost of change
Dissatisfaction: to create the change, you must produce an atmosphere of dissatisfaction with the current situation and generate feelings of need for change. On occasion, setting a sense of urgency works.
Vision: a compelling vision is an excellent ally for change. An ambitious challenge bonds the team together and stimulates it to reach the goal.
Don’t try to convince others on the need for change with numbers and statistics; do it with visual evidence as visuals are compelling. Make the team personally experience the pain that the current way of operating makes the client feel.
Process: Involve your employees in the decision. The change will be seen as the enemy when you suggest it to your team but will be embraced as an opportunity if your team proposes it. They’re the ones who must set their own goals, so they’ll commit themselves, and you can demand their completion on the dates set for each challenge.
Don’t try to change everything all at once. Break down your ultimate goal into smaller, specific, and achievable objectives. You can’t eat an elephant all at once, but you can do it piece by piece. Start with a leg. Use metrics and short-term milestones to gauge progress.
Cost of change: to create the change, you must first understand the points of resistance: What do people lose with this change? It’s natural for there to be resistance because you’re taking them out of their comfort zone. People are comfortable with what’s familiar, and anything new makes them anxious.
When you have everybody on board, you must create small victories, point them out, and celebrate them. Small goals lead to small victories, which in turn trigger a virtuous circle of behavior. Above all, you must over-communicate.
One piece of the puzzle
Managing your work crew and employees is one of the essential pillars of the strategy of your company. Nevertheless, it is necessary to acknowledge that it doesn’t end here. As the world is continuously changing, managers have to know how to manage change.
There are many other aspects to take into consideration when building up your strategy for a valuable company. We invite you to download for free the bestseller book written by our Chairman, Enrique Quemada, which will guide you through the most critical points of a solid strategy.
How to build a more profitable company through the FIT strategy and may other elements.
Discover the eight elements of the business puzzle, and all they contain, to build a valuable company.
Learn how to execute your strategy and maximize the price of your company as never before.
Download for free the bestselling book: "FIT: STRATEGY, VALUE, AND PRICE"
Please fill out the form and enjoy the book written by our Chairman, Enrique Quemada.
Having a clear profitability model is very important. It explains how a company makes money while creating value for the client at the same time. The business model should not only help you to serve your client distinctively, but it must also pursue that the company gains a high return for shareholders.
The DuPont formula helps you to make decisions on strategy and the business model because it combines the three components for creating value: margin, efficiency (asset rotation), and indebtedness (balance structure).
You must understand which of these three elements is your true engine for creating value, and know-how you must compete. You must identify your profitability model and be coherent with it. Some companies compete through their high sales margins (Google). Others, through asset rotation (Walmart) or leverage, by using little capital and substantial debt (Banks).
Margin(Profit / Sales): tells how much money I make as profit for each dollar I earn. It’s the result of income minus expenses. Anything that lowers costs and increases income improves the margin.
Efficiency (Asset rotation): allows you to know how much money you make for each dollar in your balance. Some companies make money by rotating merchandise several times a year. If you have a low margin for each product unit you sell but sell it many times, you end up making a lot of money. This is what happens in supermarkets.
Balance structure (Assets/Equity): allows you to make money with a smaller investment since the cost of debt is lower to the cost of capital.
Return on equity (ROE) is the result of the income model (how much it charges and how it charges it), the cost structure, the margin per customer, and the speed of use of resources.
Does it end with having a clear model?
Having a solid business model is just one of the eight blocks of the success puzzle, according to the book FIT: Strategy, Value, and Prize written by our Chairman, Enrique Quemada.
If you want to know how to build an excellent strategy for successfully managing your company, be sure to get into the following topics:
Having a solid mission, vision, and set of values.
How to design a leadership strategy for your company.
Create the right working culture in your business.
How to execute your strategy.
These topics and more are all available in the downloadable e-book below.
Download for free the bestselling book: "FIT: STRATEGY, VALUE, AND PRICE"
Please fill out the form and enjoy the book written by our Chairman, Enrique Quemada
How to build a more profitable company through the FIT strategy and may other elements.
Discover the eight elements of the business puzzle, and all they contain, to build a valuable company.
Learn how to execute your strategy and maximize the price of your company as never before.
Catella Real Estate AG, a leading specialist in property investments and fund management, has acquired the multi-storey car park Park 25, the Milan-based car park for its open real estate special-AIF “Catella Parken Europa”. The acquisition process was facilitated by ONEtoONE Corporate Finance. The fund is a cooperation product of the Munich investment manager Catella and Orange Investment Managers from Amsterdam. The fund invests exclusively in central parking areas with stable cash flows in major European cities.
“After acquisitions in Denmark, Ireland, Great Britain and the Netherlands, the property in Milan is now the fifth multi-storey car park to be included in the fund. With a balanced risk/return profile, our investors benefit from attractive dividend yields of up to 5%.”
– Henrik Fillibeck, CEO of Catella Real Estate AG
About the companies
Park 25 is a multi-storey car park with six underground levels is located at Piazza 25 Aprile in the historic center of the northern Italian metropolis of Milan. The car park has a total rental area of around 10,000 m² with 333 parking spaces. The anchor tenant of the fully let property is APCOA Parking Italia S.p.A.
Catella is a leading specialist in property investments and fund management based in Munich, with operations in 15 countries. Its main functions are to provide for real estate solutions in the field of open-end special funds, open-end public funds, closed-end-real estate funds, and single accounts.
The leading partner
For this transaction, Catella has been advised by Federico Forchielli, Partner of ONEtoONE Corporate Finance in Italy. Federico holds a degree in Economics and Business Administration from the University of Bologna and an MBA in Business Administration from the IESE. He began his career in London at Gemini Consulting, an international management consulting company, now part of Ernst and Young. Federico is particularly active in project finance, corporate finance and family business and he is very familiar with the “Made in Italy”, Hotel and Tourism, Mechanics and Mobility Industry.
Generally, we find the articles about private equity funds in which it is discussed what these companies are looking for or what type of company they invest in. In this article we wanted to change the direction and perform the analysis from the entrepreneur’s point of view, as our main goal is to understand how a private equity firm can contribute to your company.
Furthermore, we usually have the perception that private equity funds or their societies only invest in big companies. This is due to the amount of news about it, however, this conception is far from reality, since most venture capital operations are carried out in family businesses. These are operations that go unnoticed in the press, but that play a very important role to boost our business network.
Private equity entities are investment vehicles. Its mission is to invest in companies, create value over a period of approximately four or five years and sell its stake with the greatest possible surplus value. Private equity funds are the type of investment that generally invest in non-listed companies that find themselves consolidated, therefore, they have a history, growth and cash flows. Private equity invests money in companies in the medium term, usually with entry into the capital of private companies to help them grow and succeed. The counterpart for the risk assumed usually occurs, in case of success, in the form of capital gains.
In growing companies, private equity investors specialize in development capital and family offices, which are offices created for the integral management of a family’s assets. When the company enters a stage of maturity in which the growth stops being so accused and the profits become stable, the potential buyers or capital funds that come into play are the so-called buy-outs, which are capital funds, specialized risk in purchase with debt.
The following table reflects the types of investment according to the stage of the company:
“ If your company is growing and looking to expand, if you want to sell it or pass it on to managers, private equity can help you.
If you already know what private equity is, you might be asking who actually forms it. Or even, who invests in private equity? Within the world of investors in private equity we can distinguish different classes, among which we could highlight the following:
Individuals: normally wealthy families.
Big organisations: in private equity they mostly look for the possibility to have access to new technology to make the product line better or to carry out an adequate diversification policy.
Financial institutions: along with the pursuit of profitability, they also seek to have a quarry of companies linked to the bank or cashier, but without facing the risks of a direct and permanent participation.
Institutional investments: insurance companies and pension funds, taking advantage of long-term investment horizons.
Organizations and institutions of the public sector: The objective is to promote a financial activity with undoubted positive effects on the business fabric of a country, with the consequent impact on employment, investment, exports and collections for various taxes.
Foreign investors: some seek to develop an international network of private equity entities by providing their name and experience. Others look for investment opportunities that the country can offer.
In the area of financial investors, there is a lot of public information about private equity entities and their investment preferences. The family offices, however, will find it more difficult to locate and contact.
Private equity contributions
If your company is growing and looking to expand, if you want to sell it or pass it on to managers, private equity can help you. Apart from being a source of additional or alternative financing, private equity offers a series of “collateral” contributions that in many cases become the true elements of value for the entrepreneur. Below, we indicated a series of private equity benefits that can support your compan
Inject capital into the company to face the future with greater warranties.
Support the definition of the company’s medium and long-term strategy.
Advise managers on a wide range of business areas.
Can introduce you to many contacts from various sectors and businesses.
Can provide you with cross-business from other investments.
Optimize your company’s financial structure, as they are able to offer additional support to projects financed by subordinated debt, etc.
Help your company’s professional image improve in the eyes of other financial investors, suppliers, clients, employees, etc.
Manage relationships between partners in a professional manner.
Demand high levels of professionalization in management.
Require a level of professional and sufficient reporting to adequately monitor the activity.
Allow professionalizing the dialogue of the Boards of Directors and focus the decisions towards the creation of value for the shareholder.
Support the selection and hiring processes of the executive managers.
Bring some experience in business internationalization projects.
Allow preparing the company for a sale at approximately 4-7 years with greater guarantees for maximizing the sale price at the exit.
Design attractive compensation packages for managers, motivating and retaining the main managers to remain aligned with the project
Leave the entrepreneur or the manager autonomy in the daily management of the business.
They can contribute simultaneously in mixed operations resources for the shareholder (cash out) and resources for the company (cash in).
They can substitute any shareholders who are not aligned with the business project.
Allow professionalizing the management of the company with an eye on the employer’s retirement when he does not have a clear succession project.
How to get the financing
Obtaining the financing of private equity funds for your company is difficult, but at the same time it can represent a turnaround during the life of your company. Private equity entities receive a large number of projects, but select one in a hundred. Therefore, when considering the search for private equity for your company, to provide resources and with whom you can stay a few years growing your company, it is essential to prepare the proper documentation so that your company exceeds the filters of private equity entities.
“ Private equity funds will be your partners and you should trust them when they entered the company, but until then, they are your adversaries in the negotiation and you must be careful to protect your own interests.
This documentation must demonstrate the following elements:
An ambitious business plan. This plan must be realistic as well as ambitious to obtain financing for private equity. It seeks significant returns and therefore must demonstrate that its market has the capacity to grow, especially through acquisitions. In fact, private equity wishes to carry out consolidation processes in the sector and, therefore, growth via acquisitions is a fundamental requirement for them.
Design the exit plan. Private equity, before deciding to enter a company, wants to understand and plan how it will leave that company. Entrepreneurs can also stay in another round of financing with a private equity fund of the next level or, alternatively, they can go out with private equity obtaining a much higher price through the sale to a strategic group.
Keys to negotiating with private equity firms
Another crucial aspect to obtain private equity funds is a good negotiation with investors. If you negotiate with private equity, they will take your free cash flow forecasts and apply a 20% or 25% discount rate. The price that comes out (and if they have found reasonable forecasts), is what they will be willing to pay.
Another way they can lower the discount rate with is debt: the less money they can put and the more they lend them the banks, the greater the profitability that will come out for the money they put in and therefore, the more they can pay for the company. That is why, when negotiating with private equity, it is so important to help your indebtedness with banks. If the banks see that the numbers are solid, clear and well explained and documented, they will be more confident in the future flows presented to them and as a result they will lend more money for investment in the company. The more you help in this, the higher the price the company can sell.
Although there is no magic recipe for negotiating with investors, there are a number of factors that certainly contribute to making the negotiation a success. If you are considering entering a private equity firm and wish to prepare a good negotiation plan, the ONEtoONE advisory team is at your disposal.
The coveted concept of synergy is thrown around continuously when discussing M&A, and yet it is so often left unprioritized during the heated process of executing a deal. As such, a company owner might be inclined to confirm a seemingly lucrative transaction or opportunity, without truly investing enough time in analysing the target’s corporate culture. Invariably, this is an almost natural response for a business owner, who in all practicality, just wants the best for their company. However, to truly do the firm justice, the owner must comprehensively evaluate whether the acquisition target is a genuinely viable fit at a cultural level for the firm.
Keep the Wheels Turning
The benefit of acquiring a firm that fits into the corporate culture of your company speaks for itself. Like a well-oiled machine, a business that is functioning well will have each and every member playing their part, executing their role well, and in turn promoting the overall success of the company. Such a scenario becomes increasingly challenging to achieve when there are elements of disharmony, disagreement or varying visions within a business; a situation that many companies that have recently expanded via acquisitions unfortunately find themselves in. Resultantly, a lack of unity at an internal level can lead to a range of detrimental outcomes such as reduced efficiency or output, arguments between employees and management, or even workers leaving their posts as a direct result of their disillusionment with the company’s new formation. In turn, there must be an appreciation for the fact that an integrated, synergetic corporate culture post-acquisition should not be considered as a nice-to-have, but as a must.
After all, one can focus on the financials all they want in the pursuit of that bargain deal, but if a transaction ultimately fails due to a lack of cultural integration, then what first appears to be a money well spent situation will become an avoidable instance of hard-earned profit gone to waste. Once again, it comes down to pure human temptation, and being able to turn down the option of executing a deal quickly, for the sake of truly thinking things through. What one might forego in the short-run, in the form of being able to report the merger, enjoy the spoils of the positive press and lap up the praise, one will truly advantage from in the long-run by ensuring that either their deal will in fact benefit the firm overall, or that a disaster waiting to happen is avoided.
It is Worth it in the End
It is then at this point that the hard work really pays off. After having established that your target acquisition will integrate well into your company’s corporate culture, then you have the opportunity to truly take your firm to the next level. Much like any solid partnership, it advocates for the notion that 1+1≠2, but rather 3 or 4 or 5, whereby together in collaboration, two new partners are able to bring out the best in one another such that the firm can achieve exponential results beyond their usual output. In turn, the well-oiled machine won’t just function, it will fire on all cylinders, at a level that had not been previously achieved before.
The morale of the story can be traced back to one of the more famous children’s fables by Aesop, The Tortoise and the Hare. If a business owner who closes a lucrative deal without checking for cultural synergy is the speedy Hare of the story, then the owner that takes their time to assess their target’s ethos and philosophy will play the part of the Tortoise. As such, this owner will take the time to evaluate their potential acquisitions holistically at a corporate culture level, in comparison to the Hare who takes the process for granted and rushes right through it or skips it altogether. And just as Aesop so wisely alluded to, it will be the “slow and steady” that ultimately “wins the race!”
While taking your business global holds the promise of new markets, a larger client base, and bigger profits, no company should rush headfirst without adequate preparation. In a previous article on One to One Corporate Finance we discussed ways for investors to evaluate the best business to buy. In this instalment, we would like to provide you with four ways you can evaluate whether your business is ready to move from the local to the international market.
Have You Chosen the Right Market to take your business global?
Before plunging your business into a foreign market, ask yourself which market is the right one for your operation? Is it established enough locally to support your expansion, and have you done the necessary market research and chosen the right country and segment to penetrate? Entry into foreign markets can be costly and consume vast management time and resources, doubly so if the country’s economy is stagnating. Expanding into a country like the UK for example, which is going through economic uncertainty due to the fallout from Brexit, might not be propitious to your new foreign operation. Nadex documeted that there has been underlying weakness in the Pound due to the flagging UK economy. The Financial Times also reported that one in seven European companies with UK suppliers had moved their business out of Britain as a result of this uncertainty. Once you’ve weighed these factors and chosen wisely, only then can you set your sights internationally.
Is Your Product Ready to take your business global?
Once you’ve determined how to set a proper foothold locally, you must now look at your product and determine whether it is ready for international exposure, or are there issues that might hold you back? Based on the product gap analysis, it is essential you take the necessary steps to make your product market-ready. Fast Company recommend being prepared re-think your product strategy, as it may not be a sure hit the first time. Determine whether product localisation is required in your target market, and initiate a patent and trademark review to protect your intellectual property and ensure you’re complying with local standards. If you fail the first time it could be an indication that you didn’t take the right approach to fully localise the product. Go back to the drawing board and rethink your strategy.
Organisational Readiness & Operations
You’ve now determined your product is ready for international exposure, the next step is to take into consideration the cultural differences, regulations, and customs of your target market. Business journalist Michael Evans suggests that a company must be flexible in the policies and procedures it implements in international operations. This will ensure that the company’s vision is being executed effectively. Policies and procedures must be in place to comply with local labour and employment standards. You must also decide on the appropriate level of direct presence in the region to manage your operation; will you need local partners to handle specific aspects, or will you be self-sufficient and dependent on your own staff? Some companies need their sales and support teams on the ground for example. Depending on the nature of your operation, your needs will vary.
You Have Suppliers & Customers
Having taken into consideration the company requirements, it’s time to consider your supply chain as well as marketing and customer base. Entrepreneur reveals that it’s essential to be able to find trustworthy suppliers who will deliver and adhere to agreed payment terms, as it will be vital to your international success and your ability to deliver to your customers. Having a reliable supply chain in place will guarantee that your product will reach your customers. As such, by providing a reliable middleman to facilitate secure transaction, your customers will feel comfortable sending money to a foreign company with which they have never worked with before, and you’ll rest easy knowing that you will receive those payments in exchange for your products. Once you’ve determined the necessary platforms and supply chain possibilities, you’re ready to consider the next steps in your global expansion.
Successful entrepreneurs are bold and audacious in their goal setting. If you want to create a winning mentality in business, start thinking big. The larger the audience you can connect with, the more relevant your organization will become.
It seems obvious to suggest that in order to achieve goals, you must set them first. Goals are only dreams until you set deadlines and plans for yourself.
Sir Edmund Hillary, the first person to ever reach the top of Everest, once said, what we conquer is not the mountain but ourselves. If you want to change reality, you need to dream.
Many people live in a world of “what is possible” instead of “what could be possible.” The thought of someone running a mile under four minutes was impossible, until one man proved it to be false.
Roger Bannister believed in himself and achieved the impossible. Three years later, nine additional athletes achieved the same feat, with each of them adopting the mindset that the task was no longer impossible. Things are only seen as impossible until someone decides to change that mentality.
Destiny is not a matter of chance; it is a matter of choice. It is not a thing to be waited for, it is a thing to pursue.
As such, nothing spectacular has ever truly been achieved without passion; it is only with genuine passion that one can unlock and surpass their goals.
An essential part of creativity is not to be afraid of failure. Success is not built on success, it’s built on failure. Failure is the key to success because every failure teaches us something. Winston Churchill pointed out that success is the consequence of going from failure to failure without losing enthusiasm.
Andy Grove, chairman of Intel, said that success feeds complacency and complacency feeds failure. And so it is, when arrogance appears decadence begins.
If you do not have big dreams for your company, if you do not have maintain bold goals, if you do not create a winning mentality, then maybe it is time to think about selling your company. Do not hesitate to contact our team for advice!
Recently an important businessman asked me: “Why sell other businessmen your company? Should I be selling mine?”
The most common reasons for doing so:
1. Succession: Many businessmen do not have children interested in carrying on the family business; some study aviation, medicine or art and are not interested in business activities. As the saying goes “the eye of the master fattens the cattle”. Most businesses do not function optimally without the presence and supervision of the owners, for this reason it is common for business employees that they prefer to sell their business before delegating it completely to the employees.
2. The only constant is change: The world of business is constantly changing and it is not always easy to adapt to it. Globalisation and economic openness makes competition more and more difficult, as a result of this some businesses prefer to sell their companies to competitors or foreign companies that want to use it as an internationalisation strategy to enter the local market before taking the risk of losing market share and affect business performance. Changes in regulation, for example the form of hiring construction companies or the changing standards of The National Institute of Food and Drug Monitoring for pharmaceutical companies. They both require many investments and increased working capital. This means many businesses look for strategic partners to invest significant resources or to acquire them to survive.
3. Profit making: Selling a business with good financial indicators today is the equivalent to many years of profits. In order, for a business to grow they are required to reinvest a large proportion of net income. In spite of a business’s ability to generate income, many of the owners usually are not able to fully enjoy it because they must reinvest profits to take advantage of market opportunities, maintain their competitive position and renew assets that guarantee the longevity of the business. It is common to see millionaire owners who are living in a prudent manner sell their business to have liquidity and the free time to complete main life dreams such as; buying a yacht, playing golf everyday, traveling the world and having a comfortable lifestyle.
4. Life is short: The Germans live to work, the French work to live.What good is it to die and be the richest in the cemetery? Many people spend their whole life increasing their income and they die without enjoying it, their wealth is passed on to their heirs. I think that life is full of life experiences, servings other and leaving a legacy to society. Its important to find a balance between your work, family life, relaxation, spirituality, fun and wealth.
Why have unlimited money to travel when you no longer have the health to do so?
Enjoy the early years of your children or grandchildren it is something that can only be done at certain points in life. For me, the ideal situation would be to sell the business at the time that these resources will allow you to have financial freedom and do all those things you always dreamed of.
5. The Business Cycle: Businesses are like living organisms when born, they reproduce and they die. Who could imagine a few years ago that Nokia, Blackberry and Palm would be the ugly ducklings of the cell phone industry? or that changes in consumer taste have affect the sales of McDonalds?
A good friend says “sell the bread whilst hot”. It is better to sell the business during the phase of life when it is valuable and attractive to others. Once the business is in the decline stage of the life cycle it becomes less attractive and therefore more difficult to sell.
6. Country Risk: In Latin America there are high risk countries in terms of politics, the economy, currency etc.) When would Venezuelan and Argentinian companies have thought they would have sold their businesses a decade ago? The country risk has a high impact on the value of the businesses. In Argentina one can acquire a company and recover the capital invested over 3 or 4 years, in Colombia the same process takes normally 5 to 8 years, therefore the sale prices of traded companies reflect normally not only the state of the business (idiosyncratic risk) but also the general risk of the economy and of the country (systematic risk). Colombia remains one of the 3 most attractive countries in South America in which to invest in alongside Peru and Chile. This makes many foreign investors interested in acquiring companies in our country; however, we do not know when we will enjoy a good reputation internationally especially now with tax instability, a slowing economy and increased insecurity. This may be the best time to sell your company, tomorrow may not be.
7. Financial and Economic Crisis: The financial and economic crises repeat themselves periodically. A major setback in the stock market of China, a default on Greek debt and a decline in the value of real-estate in some cities and markets in Colombia is expected. Also the FED is expected to raise the benchmark interest rates which will affect the Riester free rate (Rf) and the value of all the companies in general. When crises come it is more difficult to sell a company at a good price so it is imperative to take advantage of good economic times to take good profits.
8. Unexpected Opportunities Some business do not think to sell their companies when a buyer unexpectedly knocks on their door. In these cases, its best to listen to the offers and despite the good performance the business has. To sell at a good price can be very attractive. “Nobody has ever gone bankrupt taking profits”
In conclusion, the response that I gave to the entrepreneur who was exploring the opportunity to sell his company to an interested strategic investor in buying it was simply, evaluate the price the investor is willing to pay. If the price is attractive it is an excellent opportunity, if there are no other personal motivations to sell; If it is not then it is best to continue growing the company and sell it later.
Finally, remember that any person can sell a business directly without the use of an investment bank, the key is to sell it to the highest bidder and in the best conditions and in order to do that, it is essential to have great advisors to help you maximise the sale price. Just as you would not go to your GP to have plastic surgery, do not expect to sell your company in the best manner without the help of an investment bank.
Mergers and acquisitions come in waves. We are in one of those waves.
Trying to sell at the point where buyers are paying over the odds is a good strategy.
Today there is an excess of liquidity in the USA, Asia and Europe and easy access to cheap debt for anyone asking for loans or credits. This has resulted in an increase in the price of assets and stocks, which has created a general feeling of M&A possibilities.
Having money and access to cheap credit means that companies are willing to get into debt in order to buy other businesses, reaching record highs of acquisitions.
Access to credit plays an important role as a catalyst for corporate transactions.
The possibility to get debt cheaply due to low interest rates results in more corporate transactions.
Stock markets are at their highest. When companies are worth more they can also buy companies at higher prices by paying in shares. Overvalued stocks are then exchanged for undervalued securities or assets. This happens mainly when companies trade at higher multiples in the stock market.
We are witnessing and increate in M&A activity and reported valuations are trending above anyone´s expectations.
If you are ponder the possibility of selling your company in the near future, consider ramping up your exit schedule to fast-track your plans.
To sell a company takes time. Don’t be too late.
Don´t forget that today negative interest rates everywhere sings a global economic malaise on the forecast and that malaise is likely to affect us all for the decade to come.
Imagine that you are going to buy a flat but you have only been able to view it in photos. You liked what you have seen up to this point but ¿would you really buy it based on a couple a photos? I’m sure the answer in no. Something similar happens during the process of buying/selling a company. The potential buyer only sees the “photos” that the seller wants to show him. The due diligence process is the way the buyer gets to know about the actual state of the company and whether or not these photos are “photoshopped”.
Every buyer of a company specifies knowing the company’s real situation by means of an assessment, due diligence, which encompasses not only the financial side of the business, but also the legal, work, environmental aspects etc.
Traditionally due diligence is carried by the buyer once their offer (subject to due diligence) has been accepted. Normally realised between four and eight weeks, in which period the buy/sell contract is, in a parallel fashion, negotiated.
It is worth highlighting that the buyer usually requests exclusivity during this period if he/she is going to have to spend money on due diligence and it is normal to concede it. However, you should bear in mind that seller, while the due diligence process is ongoing, will maintain negotiations with a single buyer and running the risk that he/she may, by being in exclusivity, demand a final discount on the price.
Once due diligence has been finalised, the results can be an essential tool to verify whether the price offered is adequate. Consequently, the buyer has the ability to use them as a tool for negotiating the price and contract terms. This, combined with the fact that usually the seller is not conscious of his/her shortcomings until the buyer discovers them in due diligence, which can put the seller in a weak negotiatory position.
As well as this, it can happen that the seller may need to formalise the purchase urgently, thus he/she proceeds quickly to the contract signing, but will establish as a condition that the buyer was satisfied with the results of the due diligence, which we would be carried out in a more restrictive timeframe.
Without a doubt, the due diligence process is crucial in a buy/sell operation, it is the way to come across (or not) the potential “tweaks” needed relating to the company for sale.
The cookie settings on this website should be set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.