Intransparency in corporate transactions
SBCF & Cie.
15. October 2014
1. What uncertainties exist on the part of the seller?
Sales processes primarily have the task of enabling a transaction by sufficiently reducing uncertainties. Such processes place a considerable time and financial burden on medium-sized entrepreneurs, especially since a significant proportion of “rigid” costs are incurred, regardless of the transaction size. There is a dilemma: On the one hand, information deficits are particularly virulent in the case of medium-sized properties for sale and marketing efforts are therefore all the more important. On the other hand, the value of medium-sized companies is also lower than that of large companies, which is why marketing efforts and process costs are significantly higher in relation to the transaction value. For the seller, there are uncertainties especially regarding the behavior of potential buyers. Are they genuinely interested or just looking to gather information (about a competitor)? Quality uncertainties exist because the seller does not know whether the acquirer is financially and culturally capable of acquiring and integrating its business. This also raises the question of whether sufficient synergies can be realized for both sides to benefit from the transaction.
2. What uncertainties exist on the part of the prospective buyer?
For prospective buyers it is unclear what the quality of the object for sale is. Typical uncertainties relate to the dependence on the previous owner, the know-how and motivation of the workforce, and ultimately the future cash flows. In addition, prospective buyers feel uncertainty about whether the seller will prove fair and reliable over the duration of the sales process. Does the latter really want to sell his company? Does he intend to withhold facts that reduce value? Does he want to negotiate covertly with other prospective buyers?
3. What methodical solutions exist within the framework of a process design that is in line with the interests of the company?
Both the monetary and non-monetary results of the negotiations are decisive for the assessment of a transaction success. An essential prerequisite for maximum satisfaction of interests with regard to transaction results is an optimally aligned process design. Only a process that is consistently oriented to actual interests can ensure a satisfactory result: Buyers can get a clear picture of the object of purchase at an early stage and procure the information necessary for a purchase decision. For sellers, a structured process design is important, among other things, in order not to lose potential investors, but also in order not to weaken their negotiating power at an early stage (e.g. serial negotiation management instead of controlled bidding competition). The latter is fundamentally reflected in the outcome of negotiations and is evident right up to the phase of transferring the company to the investor after a successful closing. A professional, structured process design requires a high level of competence and experience and is associated with a considerable use of resources (personnel, time and financial) for both buyers and sellers. Even though more and more medium-sized companies have M&A experience, the consistent alignment of the process with their own actual interests in particular presents companies with major challenges. Interest-oriented process management requires analyzing one’s own interests without getting stuck on one’s own and others’ positions. A successful process systematically incorporates the interests of both transaction partners. The use of external and specialized service providers and consultants on both sides can prevent both transaction partners from deviating too quickly from a structured process, adopting rigid positions at an early stage and becoming entangled in sham conflicts.