M&A as an option for medium-sized companies

Diversification as a motivation for financial investors

For financial investors, it is not only the regularly pursued buy and build approach that currently plays an important role. In the current market environment, it is also a matter of portfolio diversification.

On the one hand, the focus can be on smaller companies, so-called small (up to 50 million euros in sales) and mid-cap transactions (from 50 to 250 million euros in sales). In these categories, M&A projects continue to take place - sometimes in highly competitive bidding processes. Valuations for profitable, asset-light and cash-flow strong business models are attractive for sellers. For the potential investor, however, this means that the due diligence process must include a detailed financial analyses as well as all valuation-relevant influencing factors (in particular adjustments to earnings, net financial debt and the determination of sustainable working capital). In addition, it may be useful to include own growth assumptions in the adjusted business plan. In exclusive, non-competitive transactions, this is often done with the involvement of the current management and a joint plan is agreed upon.

On the other hand, diversification may be directed towards a new industry. In this case, financial investors increasingly participate in initial anchor investments. These in turn form the nucleus for the forthcoming implementation of the classic buy and build strategy.

Current interest rate environment counterproductive for large-cap deals

In the current interest rate environment, fewer large-cap deals are taking place. Instead, financial investors are using the opportunity to set up new funds and thus raise new investment capital. Last but not least, returns on equity transactions continue to be regularly higher than in traditional investments - and the financiers are aware of this. With the available capital, all-equity transactions can then also be represented initially. In addition to transaction security, this also accelerates the closing of the transaction, shortening the time between signing (purchase agreement signing) and closing (economic transfer and purchase price payment) - an advantage for the seller. It also gives the new owners and the financial service providers time to find the best solution for financing the acquisition.

Corporate Transaction: The Decision-Making Process must mature

What does this mean for you as a corporate decision-maker? Are you thinking strategically about disposing of a company, parts of a company, or individual locations, or about growing inorganically through an acquisition, or expanding your value chain? Or could structuring a company succession be a possible reason to initiate an M&A sales process?

All this can also be a longer-term process and does not have to mean an immediate and complete separation from the company. After all, you want to hand it over into good hands.

Experience shows that in many cases, potential investors can be found who would like to continue the entrepreneur’s life's work and are enthusiastic about the entrepreneurial values that have been built up - often over generations. Initial discussions - often before the actual M&A process has even begun - focus exclusively on getting to know each other personally and on a confidential exchange between decision-makers.

Capacity and experience as bottleneck factors

In our close and trustful discussions with shareholders or the managing directors, we often hear that the company does not have the capacity or knowledge to handle a complex and perhaps also protracted M&A project. This is where we come in! With our integrated, focused and mid-market oriented consulting approach, we examine each transaction process from different perspectives. With our new RSM network, cross-border transactions are even easier to implement.

Comprehensive transaction consulting from all perspectives

The transaction teams at RSM Ebner Stolz support you throughout the entire M&A process -on both the buyer and the seller side - and, as usual, offer you advice from a single source. For example, our management consultants will manage the entire M&A transaction for you in the course of a sale process and will work with you to find the best possible investor for your company. In addition, our Transaction Advisory Services (TAS) team will prepare the necessary financial information of the company or part of the company to be sold, analyze it and provide the data in a Financial Fact Book (FFB) suitable for investors. In addition, our tax and legal teams can advise on the tax optimization or legal structuring of the transaction. This helps to avoid so-called deal breakers later in the process that can significantly prolong the transaction. This integrated view from all disciplines maximizes the speed and certainty of the transaction and, ultimately, also the sales proceeds for your company.

Whether sell-side or buy-side - we provide comprehensive advice!

In addition to sell-side projects, we also advise you on potential acquisitions (buy-side). Here, too, our experienced M&A, financial, tax and legal teams are at your disposal. Please do not hesitate to contact us. There is always a suitable and flexible solution - also for your company.

Note: Ebner Stolz will host a webinar on current trends and developments in M&A and TAS on 07.11.2023. More information soon at www.ebnerstolz.de