Despite the full commitment of entrepreneurs and their investment of time, power and money, there comes a time when the sale of their own company should be considered. For many company owners this decision is not easy, nor should it be taken lightly. Good timing and M&A know-how are of utmost importance to prepare the company for a sale and to ensure that it gets into the best hands.
So how does one recognize that it is time to think about selling a company?
Typical reasons to sell a company
Personal, strategic or financial reasons, unfavourable conditions, influencing factors from the inside or outside: Reasons for selling a business are as individual as entrepreneurs and their companies themselves. The following circumstances should make you think more intensely about the sale of company shares:
1. Market and competitive changes
- Market trends: If a business model is based on a trend that is shortly before or at its peak, it is an excellent time to think about a divestment.
- New regulations: new regulations such as environmental laws or consumer protection regulations can lead to large-scale investments that can sometimes overburden the profitability of individual companies. When these regulations intervene in the core business, a sale of the company is often more rewarding than an adjustment.
- Market entry of strong competitors / Competition intensification: A company has shaped a significant market and has become more attractive with it, resulting in the entry of new (larger) competitors and / or a consolidation of the market. Often small and medium-sized businesses then realize that they can no longer keep up with the competition. Before being exposed to this development for too long, a strategic partner search and associated growth is advisable.
- Change of location / Internationalisation: Sales markets can shift away more and more from the geographic home market. Hence, many companies are facing a major organisational, intercultural and financial challenge that cannot be fixed by their own efforts.
2. Internal company reasons
- Declining profitability: This is a common symptom of loss of competitiveness, sophisticated products and services, or an inappropriate business strategy. Consequently, this often leads to the loss of important sales channels. The competitive strength is dwindling, and a “fresh breeze” by the means of new owners is required.
- Capital requirements: In order to remain competitive, a capital increase is indispensable. The sale of company shares creates new financial scope for required investments.
- Internal conflicts of interest: The consensus of existing shareholders diverges rapidly and paralyzes the development of the company and its goodwill. One possible solution is the acceptance of new shareholders.
- Concentration on the core business: Business units that are a hindrance to a lean company structure should be split off. As a result of the separation, the freed-up resources can be used to strengthen the core business.
3. Personal circumstances
- Lack of succession of owner-managed companies: Unless one can agree on a suitable successor, the option of a corporate sale should be considered in good time.
- Lack of interest / New beginnings: Over time, the own interests of shareholders in business models or industries can change and new opportunities arise. A sale of the company represents new start-up or development capital for realizing newly discovered interests or side projects that gain more potential and require more time.
The right time for company sales
Once the decision to sell has been made, then any delay to start this process should be avoided. The sales process can take up to twelve months or even more and the preparation for an attractive sale is crucial. During this period, the emerging risks outlined above should not fully affect the current business.
However, entrepreneurs often hesitate (too) long, as they lack M&A knowledge and time capacity, or they are simply still too uncertain about their next stage of life. However long delays can cost money and harm the company’s future competitiveness. Such a development inevitably leads to a reduction of the company’s value.
The right time and professional M&A expertise are crucial
Whether it is the mentioned or other circumstances that lead to ideas of selling a company, the correct timing, professional preparation and monitoring of the process are among the key success factors of a corporate sale. After all, choosing the most suitable investor secures the future of the company and achieves the highest selling price.