Your first port of call when it comes to corporate finance advice on buying companies:

Any project involving the purchase of a company requires extensive and detailed preparation for the M&A process. We advise clients planning to buy a company throughout the M&A process, from identifying and approaching potential sellers to drafting a letter of intent and negotiating the contract. When you’re preparing for an M&A process, it’s important that buyers agree on their internal decision-making processes, that they have decision-making templates in place and that they’ve agreed who will be responsible for what. The role of KP Tech in helping buyers is not only to provide detailed advice during the preparation phases of an M&A transaction, but also to ensure we’re available to act as a facilitator or someone to contact for the seller.

Providing professional M&A advice during the preparation phase accelerates the M&A process overall. There’s also a higher probability that the project will result in closing. Another important aspect for buyers when preparing to purchase a company is M&A insurance to cover the risk associated with acquiring a company.

Horizontal or vertical extension of the business model in order to gain competitive advantage, or acquire/secure a unique selling proposition

Consolidation of competition, or gaining or building market leadership

Entry or access to new markets (e.g. internationalisation)

Acquisition of products, patents, licences, know-how or a customer base following a make-or-buy decision

Once an acquisition strategy has been defined in detail, the next step is to determine the criteria for target companies

KP Tech provides advice on defining acquisition targets and the acquisition strategy

A crucial aspect of any company acquisition is determining the right purchase price and safeguarding the value of an investment. According to the theory, there are number of ways to calculate the value of a company. The methods of business valuation mentioned in scientific theory include looking at net asset value, earnings value, discounted cash flows or transaction multiples, plus a slew of other approaches. These days, M&A experts tend to use discounted cash flow methods and transaction multiples to value a company. In addition to calculating the value of an enterprise, it’s important to understand any influencing factors that could account for the often significant differences between the value of a company and the actual price paid.

As well as advising buyers on the process of valuing a company, in keeping with standard procedures KP Tech also provides advice on financial modelling. German: Unternehmensbewertung

As far as someone selling a company is concerned, it’s important that prospective buyers are aware of the following aspects, especially if they don’t want to end up closing on the transaction as the only buyer willing to pay the highest price

• How will the company continue operating after the takeover (e.g. as a subsidiary, or as a fully integrated company)?
• Why should a seller be interested in me as a buyer (e.g. in case of company succession). For example, we get on well together, for strategic reasons, or for further development of the company?
• In addition to commercial considerations, the personal chemistry between the buyer and seller plays a crucial role during a company acquisition, something buyers often underestimate during the M&A process.

KP Tech advises buyers on the entire M&A process. >20 years of M&A consulting in Germany, Austria and Switzerland.

A considerable amount of capital is required to finance a company acquisition. This usually comes from a mixture of company equity and borrowed capital. In addition to going through normal banks, these days consideration is often given to private equity companies or providers specialised in debt financing.

As a rule, you should ask your regular banking partner whether there are financing options, subsidies or grants available through development banks (or the KfW in Germany).

In the case of corporate succession, sellers can also grant buyers a so-called vendor loan to cover part of the purchase price, or sell a certain proportion of company shares successively over an extended period of time.

Acquiring company shares over a longer period of time balances risk between the buyer and the seller of shares. If the party purchasing shares is a start-up or has low levels of equity capital, this approach may offer a way to make a company acquisition possible in the first place.

KP Tech advises buyers on debt and private equity financing.

Contractual arrangements for sales and purchase agreements (SPAs) come in many forms. German contracts tend to be kept more simple and shorter than the sales contracts used in English-speaking countries. As a result, it’s crucial when buying a business that the buyer knows what type of purchase agreement they want to enter into. The more complex the SPA, the higher the risk for the buyer.

The essential elements of a company acquisition agreement are:

• The object of purchase. What exactly is being purchased? For example, a 75% share in a business or, in the case of an asset deal, individually named business assets and capital items? Unlike share deals, with asset deals further legal aspects have to be defined within the transfer of business (under the German Civil Code: Section 613a governing the transfer of existing employment contracts). With a company acquisition, tax laws have a major influence on company valuations, both for the seller and for the buyer of the company.
• The form of company transaction. For example, will company shares be paid for immediately or will part of the purchase price be paid at a later date – e.g. when sales and/or EBITDA targets are met?
  
• Agreement of a non-competition clause. As a rule, non-competition clauses affecting the seller are regulated by the company purchase agreement and agreements governing managing director employment. Questions such as “what constitutes competition?” or “how long is the competition clause valid for” often become points of contention during contract negotiations.
  
• Liability for existing debts and tax debt liabilities. To what extent and for how long are the sellers liable?
  
• Warranty rights. The sales and purchase agreement (SPA) should detail relevant ‘reps and warranties’ and adapt them to the M&A transaction. Statutory regulations governing company acquisitions are often not suitable in individual cases, particularly when it comes to the actual nature of the acquisition object, which must be defined precisely, covering all relevant aspects, to avoid legal disputes in the event of subsequent claims. Another important aspect regarding representations and warranties is the obligation on the seller to provide extensive information (duty of disclosure). In addition to detailed due diligence on the part of the buyer, the seller must, without being asked, point out to the buyer all factors relevant to the purchase price and these must be disclosed in full.
  
• Statutes of limitations. At what point do warranties and liabilities expire? What options are there to reduce liability for the seller of a shareholding?
  
• Who pays the notary fees for signing the company acquisition agreement? It’s generally agreed that the party buying a share of the company will bear notary costs.
  
• Conditions precedent. As a rule, antitrust questions and approval from the antitrust authorities, as well as payment of the purchase price, are defined as ‘conditions precedent’ (conditions that may delay completion) before it comes to closing, i.e. shares in the company are transferred.
  

KP Tech offers corporate finance advice on the negotiation of the company acquisition agreements (not legal advice/tax advice), particularly on M&A deal structuring and any aspects pertinent to the purchase price of a company acquisition. German: Unternehmenskauf