"The dramatic dozen" - 12 mistakes when selling a company

“Once the NDA is signed, we need less than four weeks to complete the due diligence and submit a binding offer, whereby the final purchase price is determined cash/debt free on the basis of an adjusted DCF valuation and we offer a 20 percent earn-out over three years.”

You understood everything? This is a typical phrase of M&A English and is used in this or a similar wording in countless transactions. If you do not really know the ropes, it will be difficult to negotiate properly. Together with the legalese typically used in purchase contracts, you will soon no longer be able to follow the plot. So never be afraid to ask if something is unclear This is the only way allowing you to make the right decisions and sign the purchase contract with confidence.

Learning: You need to know what you are talking about so that you can negotiate well and, above all, understand exactly what you are being asked to sign.
 

From A for Acquisition to W for Warranties – once you enter into a transaction process, you are confronted with a multitude of questions and expectations: from the compilation of information for the proper due diligence of the company, advisors’ follow-up questions, your comments on the purchase agreement, communication with customers, suppliers and employees, to the question of where you see your private future after your company succession has been settled. Even with the support of good advisors, it is hardly possible to answer all these questions about a company sale on your own without the process and outcome suffering.

Learning: You need reliable support from within your company so you can focus on the essentials.

Is your company ready for a successor? Or are there still a few things you need to “clean up” first?

Is there a “back-up team” that can take over in the event of your departure? Are there still contracts with relatives with unclear consideration? Do important contracts need to be extended promptly? Is the IT up to date, the GDPR taken into account, and the “paperwork” (including for due diligence) complete and settled?

Learning: There is no perfect time for a sale. But a lack of preparation costs nerves, unavailable time and ultimately - via the purchase price - money.
 

In contrast to the non-existent perfect time, there are some moments that are considerably disadvantageous for a company sale. These include an emergency sale, for example, due to financial requirements, a company crisis or a sale without an existing “backup team”. Who will take over customer care and employee management or what would the loss of important orders mean?

Learning: Plan your company sale at an early stage and engage professional support to point out “open flanks” in good time – before a buyer does.
 

Selling a company is not rocket science. With the appropriate M&A expertise, a transaction can be reliably implemented successfully. Your team – including any M&A advisors, lawyers or tax consultants – must have the relevant experience. Otherwise, you run the risk of missing out on opportunities, overlooking risks or even jeopardizing the entire sales process.

Learning: Work with professionals. You sell your life’s work only once.
 

Your major supplier approaching you about your plans to sell or employees resigning due to such plans are just as difficult to deal with as your main customer, to whom you only reveal the takeover of your company by its biggest competitor after the transaction has been completed. Strict confidentiality is a matter of course, but proper communication – in close coordination with the buyer – is just as important.

Learning: Keep sensitive information secret. Plan exactly which target groups you will inform when and how about the company sale.
 

From the “long list” to the “short list” to the selection of interested parties to be approached – the preference for some parties and the aversion to others is usually understandable and should always be taken into account. However, once the sale of the company has been made public, it is often advantageous to approach potential buyers quickly, usually in parallel – up to and including the auction process. Otherwise, with successive approaches, you run the risk of the process taking too long and buyers misjudging your company as unsaleable or a “lame duck”.

Learning: When you start - do it right.
 

When you are asked to assess the value of your life’s work, who could blame you if your asking price is higher than what a potential buyer is prepared to pay? Especially when it comes to this crucial question, you should seek expert advice and rely on a professional company valuation.

Learning: Listen to your advisors. At least a little...
 

Make the first move. Even if the buyer offers to submit the first draft of the contract: You will always have to argue “uphill” and are per se in a worse starting position if you let the buyer make the first move. It's like chess: whoever makes the first move always has the advantage.

Learning: Have your consultants prepare the first drafts. It is better to negotiate “downhill”.
 

This advice summarizes a large part of the above points. If you have deficits in your preparation, set-up or advice, the buyer will gratefully take the reins, push you forward and shape the process in his favor – and thus to your disadvantage.

Learning: Be prepared and get the right support in good time to keep the reins firmly in your hands – from the start until the closing.
 

Your company is only sold when the money has been credited to your account. Until then, a lot can still happen – within or outside your sphere of influence. Continue to run your day-to-day business in such a way that a termination of the sale does not throw the company off course.

Learning: Full steam ahead with the company sale - but not without a plan B.
 

Selling a company is a marathon, not a sprint. Plan at least six to twelve months for its preparation and implementation. And be aware of this beforehand – it will be challenging, but the result will be worth it. This is especially true if the (share) sale is linked to a succession plan or a generational change and you want to ensure that your company is in good hands, either in whole or in part, as a result of the transfer.

Learning: It's not for nothing that they say: Good things come to those who wait.