… to prevent a company crisis
A steady cash-flow situation is key for any company developing and implementing growth strategies. The financial stability can quickly begin to falter, if market situations change, contacts change and, as a result, the banks’ assessments change, or if managers have to take responsibility for poor decisions. In such situation as these, speed and a consistent, professional approach is advisable to avoid the looming downward spiral.
… to develop new markets
Growth is expensive; this is an old adage which every entrepreneur quickly internalises. It either costs you a lot of time or a lot of money. For entrepreneurs, who want to step up a gear, to reach the ambitious milestones they have set themselves within a reasonable period, relevant sources of funding have to be found, which are available on a long term basis and can be depended upon.
… to implement innovative product ideas
Without innovations, companies in certain industries as alike as peas in a pod. A uniqueness or a USP is the magic word for grabbing the attention of target groups and setting yourself apart from the plethora of products, services or information already on the market. Both technology start-ups, whose very existence is justified by innovation, and SMEs which are continually driven by developmental edge, constantly have to think and act in an innovative way. For major, ground-breaking innovations long-term investment is required, which can only seldom be financed from the cash reserves.
As experienced management consultants, we first analyse the relevant reasons for the financing need, scrutinise the management team’s plans and develop strategies and financing models with our clients. In the subsequent period – up to the point where we have successfully achieved business financing – we are available to the banks, investment companies and other investors as their contact, while our client can primarily look after the day-to-day business.
The sale of a company can arise for various reasons. For instance, major companies outsource business areas, into separate companies with a view to selling them later if they have lost their strategic importance or, in the case of succession planning, entrepreneurs may wish to retire and are therefore wanting to sell. Ultimately, a company on a growth course could also look for an interesting option for company acquisition; the trigger may be different but the transaction process is always the same and is characterised by even greater complexity.
The seller’s goals are mostly multi-layered. Of course, the purchase price is the focus of selling any company because groups of companies are only unhappy about divesting their businesses units ‘below book value’ and for those who are retiring, the proceeds from the sale constitute the most crucial source of their pension provision. Therefore, secondary considerations such as, for instance, the safeguarding of jobs, the company name and the location constitute important factors in the negotiation process.
As M&A consultants, it is our job to provide sound preparation and implementation of the transaction process which includes a duty to achieve our clients’ objectives, while they continue to look after their day-to-day business.
With the partners who specialise in corporate law and corporate tax in our network, we carry out company analyses, identify and eliminate potential weak spots prior to approaching investors. Lastly, we have to present the company in the best light possible and draft the documentation. In order to search for actual buyers (MBI candidates, strategists or private equity investors), we use databases, networks and personal contacts.
During the process which may be completed after four months or even in two years, we are available to our clients as well as interested parties as the contact, we coordinate appointments and exchange documents etc.
When we are selling a company, we aim to provide sound project management resulting in a completed transaction, which is considered to be a win-win situation in the long term.
Public statistics in Bonn (Institut für Mittelstandsforschung – IfM Bonn) indicate that, in the next five years, around 135,000 family-run companies are to be transferred of which around 16,500 are in Central Germany – the nerve centre of our activities. In the course of this, 54% remain in family-ownership. The economic significance of a smooth-run transfer is colossal and for each individual scenario, whether it has to do with someone retiring or a successor/entrepreneur, it constitutes an important milestone in their professional and personal life.
Company succession can essentially be effected against or without a payment. Where company succession is paid for it has as a rule to do with a share deal or an asset deal and in exceptional circumstances a business leasing agreement. Transfers at no cost primarily take place in the shape of a transfer of shares to family members. In all cases, taxation plays a major part in company succession planning; at the same time, however, it also offers a range of tax planning opportunities.
Systematic company succession planning should be started with a schedule of up to three years. This forward planning is often required to effect a transfer of a well-ordered and robust company to a purchaser. Moreover, it allows tax measures to be implemented well in advance of the transaction date.
As with the transaction consultancy process, we coordinate this process from preparation through to transfer.
In Germany, there are funding programmes for almost every stage in the business life cycle. Some apply across all of the Federal Republic of Germany while others are administered at regional level; some are for specific industries and others are investment-related. For many companies the funding jungle is too complex so it therefore remains untapped. Other companies are too daunted by the burocratic effort associated with the application process and the follow-up report on how the money is used. It is only worth major companies’ while to create a position dealing with grant applications.
Thanks to our work which comes from all over Germany where specific funding also plays a major role, we have a good overview of on-going programmes and are familiar with the application procedure. Here, we can remove a significant amount of the burden from companies and ensure that errors are avoided in the application.
As part of handling the business financing as well as the sale of a company, various measures have to be taken in order to bring the company and also the documentation to be drafted up to the level required. This particularly includes the company analysis (due diligence), the developing of financial plans, the distilling of corporate values or researching market data.
We offer our clients these options subject to their requirements and as a separate service:
Due diligence
In the case of an investment in a company, the investors (investment companies, banks, private investors or strategists) are obliged to take a close look at the opportunity/risk profile of the respective target.
In so-called legal, tax, financial and commercial due diligence auditing, we thoroughly check the presence of these threats and make an assessment of them. Such analyses serve potential buyers however they can also be commissioned by the management itself if they intend to uncover or eliminate a problem at their company. Ultimately, the result of the due diligence also forms the basis of a company valuation.
Financial planning
Planning profit and loss and cash flow on a monthly basis helps give the management team a constant overview of the variations between budget and actual figures and – even more crucially – not to lose sight of the company’s liquidity position. While a balance sheet illustrates the most recent past, sound and credible planning is the company’s advertisement, as it displays strategies, drivers for growth, opportunities and threats. It constitutes the core theme for further development.
Financial planning is consequently an important basis for a decision by lenders of capital, who want to see their money safely and profitably invested. Our planning tools are tried and tested, transferable to any sector and could be utilised in many meetings with banks with impact.
Company valuation
A cornerstone in the negotiations of any sale of a shareholding or of a company is the value of the company and therefore the purchase price sought. In order not to sell something which was many years in the making below fair value on the one hand and, on the other hand not to ask prices which are over the top, practical methods for company valuation have emerged; the discounted cash flow method and the use of multiples is key here.
How we work out the company valuation has already been covered in the other sections – the framework is formed using a reliable planning process based on robust historical data and current market knowledge. The relevant market environment, the profitability, the degree of debt and various ‘soft’ factors go hand in hand with the planning, which is ultimately compacted into a company valuation through applying the valuation method.
