Selling companies is a complex transaction. Bellow, the most common doubts are cleared up:
How to value the company
There are a lot of methods to value a company, but three are the most frequently used:
Discounted Cash Flow (DCF). Using the WACC (weighted average cost of capital) reduction rate, method that deducts at the current date the expected future cash flows. This is the main method, very reliable, and also the most technical and difficult to obtain.
Multiples. This method uses the company quotations in the same industry and extrapolates the equivalent multiples quoted (PER, Ebitda and Sales) to the referred company. This is probably the easiest method.
Comparable Transactions. It identifies the done deals by companies in the same industry or activity and extrapolates the calculated ratios to our company. This is a complicated method because of little information published but it’s quite reliable and realistic.
Who could buy my company?
Not always our competitor is the best buyer. Frequently the buyer is a company that wants to enter into our industry or country to growth, diversify or other strategic reasons. Additionally, the Chief Executive Officer (CEO) o external executive could also acquire the company, financed by investment funds specialized on this kind of transactions. Is the case of MBO (Management By Out) or MBI (Management By In).
Which are the key points to maximize the value of my company
There are a series of factors which increase the interest of a buyer or investor in my company: income statements easy to understand and verify, realistic forecast, proper account balance, transparency in the information, continuity of the second line of management, high commitment of the CEO, prestige in the market, own technology and know how, growing sector.
How is the negotiation process?
The company sale is a long and complicated process. There are many people involved from both sides. During the selling process only a few people make decisions but a huge amount of business and legal information is managed, about the recent history, the present and the future of the company.
This is the phase where a lot of deals fail because of the tiredness of parties, loss of trust and sometimes due to luck of objectivity or few experience managing the process.
The role played by the management team while the company is being sold
The management should be focused on the daily business issues because in this period is when the consistency of results are more relevant as it can build trust to the buyer or not. The chief executive should participate during the sale in the explanation of the accounts and projects of the company in the most objective way possible but only when his presence is required.
Only if the manager participates in the operation as an investor or seller should be involved in the process but with different roles.
How to preserve the confidentiality of the sale process
This is a real challenge even within the same company, with the employees. The question is at what point this can harm the company and what is the reaction of the responsible people to the fact that the situation is known.
In any event, unforeseen and leakage are reduced or minimized if the sales process is handled professionally and managed with the required experience to tackle these projects.
How to assure the confidentiality with the buyers
In addition to confidentiality agreements duly edited and signed by the buyer, it is important to make contacts at highest level and with the appropriate protocol.
Sometimes can be convenient to agree indemnity clauses for the potential buyer in case of breach.
What information should we provide to the buyer who wants to invest in the company
First it depends if the buyer is a competitor or not. Second one depends on the reliability and trust we have in the potential buyer, as well as its experience in this type of process.
If it is a competitor, at first it must to give him anything that would endanger our products and customers. The first information delivered is very important since it will mark the rest of the talks and negotiations. That is why it must be coherent, thoughtful, tidy and very clear. If the buyer is not a competitor is convenient, if we are trusted, to be as open and transparent as possible and thus generate greater credibility and interest.
What criteria have I consider choosing a good adviser
The M&A firm have to be: specialized, experienced, independent and good references. The cost, which is also important, should be secondary to the first criteria, taking into account the outcome of process normally overcome the possible difference in the cost.
How much does it cost the adviser
The professional companies specialized in this services it is usual a fixed monthly retainer during the first six months of the contract plus a variable rate based on the total amount of the final sales transaction. This percentage can range between 2% and 5% in middle market transaction (5 to 100 MM Euros).
How is the selling process of the company
The sale of a business is a long process in which buyers and sellers want to obtain the best conditions from the other party. The seller the highest price and the buyer the lowest price. Due to there is a lot of information to be analyzed and several teams involved from each side, it is important to be prepared and advised to do the best and avoid that whatever happens in much cases, it fails.
Most of the processes of buying and selling companies are not successful closed. It is for this reason, among others, you must evaluate and think carefully what you do and with who.
In these processes it is invested, because of their relevance and significance, much time and energy. If you are successful the reward is high. If not, the disappointment and loss are high too.
How much value my company
My company value what a buyer is ready to pay for it. That is the only real value of the company. In addition there are methods that allow me as indicated above, establish a rational approach to what may be a market value.
How is valued the majority of the company
The share that gives the majority of the company has an extra price. This premium is normally calculated based in OPAS that have been made in the stock market during the last year. This one fluctuates depending on the company, sector, country and economic times. A normal reference range of the premium may be between 25% and 35%.
How to raise capital from a financial investor
First developing a good business plan, which fulfil as much as possible to the reality of the company. Second, setting basic parameters on what kind of operation I am looking for: minority, majority, capital requirements, approximate value, type of investor, time horizon, etc.. Third, unless in my company there is someone with the ability, time and expertise in this subject, retain an external consultant to lead the project. The investment in this resource is usually profitable and increases the probability of success.
What things shoudn't be done to sell the company making a good job?
The owner should never manage the transaction directly or give the order to the company’s chief executive. In the previous points it has been given proper explanations about it.
Give insufficient information, complex or unclear.
Pretending a price too high or too low that is out of the market. Not ask for advice.
Giving so many voices and not organized or in a professional manner. The information is misinterpreted by the market, which quickly speaks badly about the firm.
Contact a buyer company to someone who has no decision-making power.