22.07.2022
If you disagree with the potential buyer of your company about the purchase price, this is not necessarily a big problem. But in any case, it is a strong warning signal: it may mean that the transaction was poorly prepared. Now you need to act prudently to eliminate the initial mistakes.
Why do transaction processes fail?
There are many reasons why transaction processes get out of hand or even fail.
Superficially, failure often manifests itself in a dispute over valuation, due diligence results or transaction structure. On closer inspection, however, it often becomes clear that the parties have prepared the transaction process poorly.
Specifically, this means that key questions were not answered in advance:
All of this must be carefully worked out in advance if the transaction is to succeed.
Important for a transaction that succeeds
Good preparation is the be-all and end-all of any successful transaction. This includes a clear strategic vision. The parties are well advised to develop a common view of how the transaction will be conducted and structured. And this should be clarified before starting to negotiate the price.
Expert preparation of the figures is helpful in this regard. This is the only way to ensure that the valuation at the end is compatible with the due diligence documents and other accounting documents. This is important in order to be able to negotiate on the basis of detailed facts.
Valuations in the transaction process
It is a good idea for each party to carry out its own „internal valuation“. This is used for their own decision-making and is preferably prepared using the DCF method. The „internal valuation“ on the buyer side should also take planned synergies into account. The DCF valuation is supplemented with a comparative market valuation, provided sufficient data is available.
On this basis, the parties can make and rank their offers.
Defusing the dissent
If the parties prepare their valuations independently of each other, there is a high probability that they will arrive at different assessments. What helps here: an analysis of the differently used premises and value drivers. The goal here is to create a reconciliation of different valuations. In this way, value differences can be presented and explained transparently – this is a good basis for goal-oriented discussions.
Avoiding dissent
In order to reduce the risk of disputes regarding the evaluation, it can also be helpful to commission a neutral evaluator to prepare an objective evaluation in advance.
This person will listen to the arguments of both sides in the evaluation process and process them in a suitable form in the evaluation. It is important to have a coordinated evaluation process in which the parties are systematically met and informed. Thus, a common understanding about the evaluation methodology should be developed first. Then, a common view on the planning calculation and the essential valuation premises is needed.
It is also helpful to present value scenarios that express the effects of differently selected premises. It is often possible to show that they are less serious than initially thought.
With this approach, the parties take a close look at the potential conflict factors in advance and develop a common view of the matter.
Good preparation is the be-all and end-all
Good preparation is essential for a successful transaction. Particular care is needed for issues involving valuation and pricing.
It is advisable for each party to conduct an internal valuation. Where different valuations are disclosed, a comparative analysis can serve well in the clean-up process. It may also be helpful to engage a neutral appraiser to prepare an objectified business valuation.
Analyzing the effects of different premises creates transparency and explains value differences. As a result, value differences can be classified and constructively considered in the transaction process.
Still questions? We find individual paths to a successful transaction. We would be happy to help you, too – just write to us.
