M&A – Recommendations for a successful company sale in the current environment
For selling a company it is crucial to reduce the current crisis-related uncertainties in order to conclude a successful transaction. For this purpose, we have formulated specific recommendations for sellers based on our long-standing experience.
Sell-side transactions can be successfully concluded, even in the current environment
Especially companies with a solid and promising business model can successfully conclude M&A transactions, even in the current challenging environment. It is to be expected, however, that the previous sellers’ market, at least in some sectors, will turn into a buyers’ market. A buyers’ market, together with the current uncertainty regarding future economic development, makes it more difficult from the seller’s perspective to successfully conclude a company sale.
Recommendations for sellers in the COVID-19 environment
We present some specific recommendations below for achieving a successful sale of a company, an equity interest or a business unit. Consideration of these insights, which are based on our long-standing M&A experience, will increase transaction security as well as the likelihood of transaction success for sellers.1
- Analysis of the current company situation:
Gain a comprehensive understanding of the current situation of the company including analyses of future demand, the relevant distribution channels and production capabilities (including the supply chain).
- Enhancing resilience through specific measures:
A potential buyer should not be required to solve the problems of the target company in connection with the COVID-19 pandemic, but should support the implementation of pre-defined measures and provide additional security.
- Create a dynamic view regarding the future:
Various future growth and recovery paths should be analysed and modelled according to different scenarios. This will make it possible to establish a basis for decision-making and to actively mitigate possible risks.
- Control and lead communication:
The business model should be presented in an attractive, transparent and comprehensive way. Temporary effects resulting from the COVID-19 situation should be shown separately. In addition, perceived weaknesses should be addressed and, if possible, put into perspective.
- Place greater importance on fundamental valuations:
In the current environment, multiples are less meaningful due to (presumably) temporarily and abruptly reduced earnings as well as uncertainties and the time lag between events and the observability of their effects in the financial figures. Fundamental valuations with the possibility of taking into account various company-specific scenarios are even more important in times of crisis.
- Launch a bidding contest:
During times when the circle of potential buyers is limited, implementing a professional sales process by contacting several possible interested parties is crucial in order to be able to negotiate from a position of strength. A competitive sales process can not only improve the sales price, but also increase the chances of finding the best owner for the company.
- Think outside the box:
Extraordinary situations demand a greater degree of flexibility and require a willingness to accept tailored solutions. For example, the importance of a reasonably well-defined earn-out mechanism will increase.
- Exercise caution in relation to dynamic contracts:
Contracts with earn-out clauses or call and put options must take account of potential scenarios for economic recovery.