German M&A Company Sale through bidding process and trade sale

Mergers & Acquisitions in Germany | Share Purchase | Asset Purchase | Private Equity

In view of the complexity of personal and entrepreneurial (life) situations, there is no such thing as "the" typical company sale. Nevertheless, a structured approach is recommended, which not only helps to optimize the success of the "company sale project", but also makes the sale itself possible in part.

If you as an entrepreneur are in the fortunate situation of finding several prospective buyers for your company or your shareholding in it, it is advisable to sell by way of a bidding process. In this case, there is a good chance of achieving the best possible price due to the competition on the buyer side. However, in many cases - especially in smaller medium-sized companies - there will be at most one interested buyer due to the lack of profitability of the company to be sold, so that in this case there will only be one buyer and one seller (so-called "trade sale"). 

3Q offers you the complete range of consulting services at the highest level, from the preparation of a company sale, the valuation of your company, the organization of a bidding process, the necessary due diligence to the final notarization. This includes highly professional legal advicetax advice, corporate finance advice with business planning and business valuation as well as the services of auditors.

For both the seller and the acquirer, it makes a considerable difference what exactly is the object of the purchase and how the sale of the company takes place. Various factors determine the transaction structure to be selected and the procedure for the sale or purchase, primarily (but not exclusively) from the areas of tax burdens for the buyer and seller, effectiveness under civil law and clarity regarding the transfer of legal positions belonging to the company, including the transfer of employment relationships and pension obligations, as well as financing issues, transaction costs and the allocation of (residual) risks.

Even with good planning and coordination of the transaction process, several months regularly pass between the entrepreneur's decision to sell his company or an interest in it and the legally binding conclusion of the purchase agreement. Transaction durations of between six and nine months are quite "normal". Poor planning (in particular: no or inadequate determination of personal circumstances and/or financial circumstances) or unforeseen twists and turns (e.g. a prospective buyer drops out) can also lead to the transaction process being delayed or to the transaction as a whole no longer being able to take place.

The sales process is usually divided into three phases, both in the bidding process and in the sale to only one interested party, with the fourth phase usually being the integration of a) the purchaser and usually also the new managing director into the purchased company or b) the purchased company into the purchaser's company or group of companies. Particularly if there is no prospective buyer, the sales process may well start as a bidding process, in which ultimately only one prospective buyer remains with whom the final negotiations are conducted.

When deciding whether a bidding process or a trade sale is more favorable for the seller, the following parameters in particular should also be taken into account:

  • If - as in the case of a trade sale - there is only one prospective buyer, the latter has a stronger negotiating position than in a competitive bidding process with several prospective buyers;
  • A due diligence review will be requested by the buyer(s) in the further process, so that the task of preparing and compiling information falls to the seller anyway with a not inconsiderable effort. Certainly, the preparation of an information memorandum and a thorough seller due diligence mean additional effort. However, this is generally compensated for by the chance of a higher purchase price in the bidding process and the reduction of the risk of unlimited liability due to fraudulent misrepresentation.

The question of whether it makes sense to still carry out the more complex bidding procedure when an attractive "indicative purchase price" is offered should not be judged solely on the basis of the purchase price amount. Rather, the seller should also take into account whether the potential buyer will demand comprehensive guarantees. In individual cases, for example, it may well be interesting from an economic point of view to approach one or more managing directors who have not previously been interested in a purchase for an acquisition within the framework of an MBO, because in this case the seller would have to provide virtually no guarantees. This is because the managing directors of the company to be sold know it best themselves. In addition, a sale to one or more managing directors or other persons at the management level of the company is most likely to ensure continuity at the level of the company, which is of great importance for the success of the company succession.