The current economic uncertainty is causing the Mergers & Acquisition market to slow down. But as in recent years, there is still plenty of money available to invest in the takeover of companies. Acquirers are still looking for companies that meet certain criteria.
In a first article, we referred to the importance of having a business with a future, presenting transparent numbers and having stability and continuity in the company. These key factors are important to convince potential acquirers.
To what extent is cash and a competent team important? How do I best present my business? How do I act as actual owner during the acquisition process?
"Cash is King", is an often heard saying but is certainly true in the context of an acquisition. The excess cash generated by the company annually is the parameter that will convince the acquirer to jump, or not. Will the excess cash be able to repay the financing within five to seven years, taking into account an own contribution of 20 to 30%? If not, the financing will probably fail, or the own contribution will have to be increased. "So, make sure you have a stable cash flow", Marc Van Damme argues.
If you have accumulated surplus cash in your business over the years, think about how you can reduce it. Rarely are buyers interested in taking over a "mountain of cash" that is not directly needed for running the operations.
Also check the state of your working capital. Make sure you have the optimal working capital and avoid serious fluctuations here as well. Remember, the fewer fickleness or uncertainties, the more comfort you give to your candidate acquirer.
"Make yourself as much as possible superfluous," Marc Van Damme states. "The less your company is operationally dependent of the shareholders, the better it often is for acquirers." Unless, of course, the acquirer has a strategy to keep the actual owner on board operationally for quite some time, but then the initial shareholder usually retains a minority or majority stake.
"Also surround yourself with competent employees and give them the opportunity to develop and take responsibility. Delegate. Make yourself superfluous...and put your key people first", is, according to Daniel Kroes, an important key to success.
Do not present your company as the ideal company
Point out your company's weaknesses. A weakness according to your perception, can be an opportunity for the acquirer. Also give your opinion on what could be done to eliminate the drawback.
It is also best to come up with realistic growth figures. "All too often, we see growth figures towards the future that have never been realised in the past. This really comes across as completely implausible to a potential acquirer. We do not support such stories when confronted with them, unless there are really very convincing arguments. But otherwise, it doesn't work and comes across as window dressing and you lose credibility with the potential acquirers," confirms Daniel.
Also avoid surprises during the due diligence. Even if there is something that is not so nice about the company, make it known as early as possible in the acquisition process. In most cases, it will not become a breaking point. However, if it comes to light during the due diligence, it can be a breaking point because usually trust is severely broken, and buyers then usually back out or seriously renegotiate the acquisition price. And rightly so.
Also make sure you have a realistic price expectation. Here it is crucial to take proper advice and to engage advisers who will not promise you "the sky is the limit". "Nothing is worse to put your company on the takeover market and it is quickly catalogued as too expensive. Your opportunity is then considered as burned and it's not easy to change that image with potential investors," Marc says.
Finally, if the buyer does not have confidence in you, he will not buy your company. It is usually as simple as that. Therefore, make sure that you are trustworthy and that the information you provide is correct. You should also hire an adviser who also inspires confidence and who considers ethical conduct important.
Meet frequently with your acquirer and build a relationship during the acquisition process. It can only benefit the trusting relationship between both parties.
"Also make sure that you are mentally ready to leave your company," says Daniel. "Nothing is more annoying than withdrawing from the market during the takeover process. During every takeover there are exciting and stressful moments. If you are not fully mentally ready to leave the company, these stressful situations will be the reason to pull the plug. Therefore, it is important to give yourself the time as a shareholder to be effectively ready."
"Timing is therefore an important factor. As a shareholder, you have to be ready. Your company has to be ready and finally the timing when you put your company on the market has to be right too," Marc concludes.