Company transfers that are not fully financed by equity generate finance requirements. Here is an overview of the most common scenarios.
As a general rule, a distinction is made between the following scenarios:
| Settling succession of a company | Finance requirements |
|---|---|
For a consideration: Company transfers for a consideration to successors inside or outside the family are not, as a general rule, financed by company funds. |
Financing takeover of a company Return within 5–6 years. |
Without consideration: Companies taken over by means of donation or inheritance. |
Financing the company Long-term relationship being constantly adapted. |
Currently, what is known as a “consolidated” assessment method is often applied. To evaluate the financing, the company to be handed over and the buyer company or individual successor are analyzed jointly.
Financing takeover of a company
The most common financing methods are shown below (as a % of the purchase price):
| Method of financing | Share |
|---|---|
| Contractual foreign capital loan | 40% - 50% |
| Mezzanine financing (combination of equity and foreign funds) | 20% - 30% |
| Equity | 20% - 40% |
Succession outside family circle
For company takeovers in the form of succession outside the family circle (MBO, MBI, IBO), financing represents a particular challenge for the following reasons:
- Increased risks for the company. In addition to financing the company, financing of the takeover also needs to be ensured. The successor is therefore exposed to increased pressure in terms of financing. Within five to six years, they must use the funds generated by operation first, to pay off the financing of the takeover, so that the company often has only limited resources for investments. The company is more vulnerable in relation to competitors.
- Increased risk for financial partners. The successor must invest themselves fully in their new role as entrepreneur, redefine and establish the vision and strategy, adapt the organization and potentially make staff changes, a particularly difficult task in the absence of experience acquired within the company (which is why an MBO is often more successful than an MBI). To succeed, a solid, highly motivated management team is essential.
When financing a company takeover, these specific circumstances need to be taken into account. This refers in particular to ensuring the capacity to support the financing, both of the takeover as well as of the operational functioning of the company on a consolidated basis. Hence the importance of detailed, rigorous financial planning, with enough financial reserves for the next five to six years. The same applies for negotiation of the “right” contract of sale (price, payment terms, guarantees, accessory provisions, etc.). It is also necessary to think about potential traps and eliminate them from the outset.
Last modification 21.02.2020
