Factors that have an influence
Studies from the field of behavioral economics have shown that people are far from rational when making economic decisions, including mergers and acquisitions. The negotiation process is influenced by economic, tactical and psychological factors.
Value vs Price
The value of the company is not the price, but it is a basis for pricing. The price results from supply and demand and the negotiations.
The seller wants to get the maximum price for his business, the buyer wants to pay as little as possible. The purchase price should be fair for both sides. The purchase price should be able to be paid off after 5-8 years.
A rushed transaction rarely leads to a good result. Time is an important factor. Plan and prepare for the process ahead of time.
The buyer pays a higher price, …..
- if there are a number of bidders
- if the strategic benefit is high or the synergy effects are great
- the more positive the future development is assessed and the more probable the earnings potential is
- the better the image of the company and its external appearance is
- if the company name and brand can be continued
- the larger the customer base and the better the customer structure is
- the higher the quality and experience of the management and the better the staff leadership is
- the more (scarce) skilled workers the company has at its disposal
- if a perfect office organisation, logistics, etc. is in place
- if the location offers advantages
- if special know-how or a high degree of specialization with corresponding patents or concessions are available
- if the company has performed remarkably well during the downturns of an economic cycle
- in the case of an advantageous sales structure (e.g. high proportion of sales secured over the long term, low customer concentration)
- with a company whose products have a high price level for the industry
The seller is more likely to lower the price, …..
- in case he is in need of a quick sale
- if the number of potential buyers is small
- if more liability risks can be excluded as a result
- if the buyer pays the entire amount in cash and waives earn-out conditions and deposit amounts
- if all liabilities for the seller are repaid after the transaction
- if the continued employment of the employees is guaranteed
- if the transaction does not have a negative impact on the location and the surrounding area
- if company growth can be expected as a result of the sale, or the continued existence of the company is secured
- when appreciation for the work done is noticeable
Switzerland: internal succession, what should be considered and what are usual price discounts?
75% of all Swiss SMEs are family businesses. However, according to one study, only about 40% of owners can hope to pass on their life’s work to a family member.
A family-internal succession plan should be in the interest of both the family and the company. The greater the number of family members, the greater the likelihood that there will be differing views on what is an equitable division. In the worst case, the resulting conflicts permanently destroy the family peace.
It is highly recommended to think about this in time, to talk to all parties involved and to introduce governance instruments early enough, such as a shareholders’ agreement, a prenuptial agreement, an inheritance agreement, etc., which avoid ambiguities and prevent conflicts. The more one deviates from the principle of equal treatment when considering descendants, the more governance instruments are necessary.
In any succession plan, a price must be set for the business. A 2016 Credit Suisse survey found that the price for family members or friends is lower than for an external succession. Both groups receive an average discount of 41% of the market price. 18% of the family-internal transferees even got the company “for free”. Only about one-third of all acquirers pay the full market price or more. Business partners receive the smallest discount with 22%.