A company’s realizable value is determined long before negotiations begin. Owners who can demonstrate the quality of earnings, cash conversion, growth potential, and risk profile early on lay the foundation for a robust valuation, an attractive pool of buyers, and a controlled sales process. Those who have to wait until they approach the market to make a case for the company’s value find themselves on the defensive during negotiations.
The market has regained its momentum—but remains selective nonetheless
In 2025, 2,586 transactions involving German participation were reported—six percent fewer than in the previous year, but still well above the long-term average. Financial investors have noticeably expanded their market share. In 2026, the momentum shifts: According to the KPMG M&A Outlook 2026, 42 percent of the decision-makers surveyed expect an increase in transaction activity, and as early as the first half of 2026, the transaction volume involving German entities exceeded 140 billion U.S. dollars [HC1.1]—driven primarily by large-scale transactions that had been in the works for years. At the same time, valuation differences, geopolitical uncertainty, and challenging financing conditions remain the key hurdles, particularly in the mid-cap segment.
For sellers, this means that market activity alone does not generate price momentum. The volume in 2026 stems primarily from processes whose foundations were laid long before the market was approached. Buyers are distinguishing more clearly than ever between companies whose future potential is supported by robust data and those whose valuations are based primarily on expectations.
Rising asking prices are meeting a market characterized by rigorous scrutiny
The pressure to act is mounting among small and medium-sized enterprises (SMEs). According to KfW, approximately 109,000 SMEs aim to establish a succession plan each year through the end of 2029—and for the first time, the number of planned closures, at around 114,000 per year, actually exceeds the number of companies seeking succession. At the same time, owners’ asking prices have risen by about 34 percent in nominal terms since 2019. These are expectations—not actual sale prices.
This creates a tension that is critical to many transactions: Owners want to realize the value they have built up over the years; buyers are taking a closer look at which returns are sustainable, what investments will be necessary, and how robust the growth scenario is.
The central thesis is therefore: Maximizing the sale price is not solely the result of a well-organized sales process. It is significantly influenced by value readiness established early on.
For property owners, this results in three priorities:
- The company’s operational and financial performance must be consistent with the target valuation.
- Risks and dependencies should be mitigated or, at the very least, transparently managed prior to due diligence
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The equity story, business plan, and pitch to buyers must be based on the same robust set of data.
Enterprise value is not the same as sales proceeds
Enterprise value, purchase price, and net proceeds are often treated as synonymous. For owners, however, the distinction is crucial.
Enterprise value refers to the value of the operating business, generally independent of its financing structure. Equity value is the value of the shares being transferred. In simple terms, it is derived from the enterprise value, adjusted for cash and cash equivalents, financial liabilities, other cash or debt-like items, and, if applicable, a working capital adjustment (depending on the agreed-upon purchase price mechanism). Finally, net proceeds refer to the amount that actually flows to the seller after transaction costs and taxes, and taking into account deferred or performance-based purchase price components.
A high enterprise value therefore does not automatically lead to equally high sales proceeds. The definition of financial liabilities, working capital, provisions, pension obligations, or shareholder positions can significantly alter the economic outcome.
Essentially, seven key factors determine whether buyers will ultimately accept the targeted value.
1. The quality of earnings matters more than a maximized adjusted EBITDA
EBITDA is an important valuation benchmark in many mid-market transactions—but it is not the sole decisive metric for every business model. Depending on the industry, buyers also consider EBIT or EBITA, free cash flow, recurring revenue, growth rates, capital expenditure requirements, or specific operating metrics.
The quality of the earnings is what matters most:
- Which sources of revenue are sustainable and repeatable?
- How reliably do results translate into cash flow?
- What investments are needed to ensure profitability?
- How volatile have revenue and margins been in the past?
- How resilient is current business compared to the budget?
One-time effects and non-operating costs can be normalized. These include, for example, clearly definable transaction costs, extraordinary restructuring expenses, or shareholder-related compensation that is not in line with market standards.
However, buyers will only accept such adjustments if they are transparently documented and are genuinely non-recurring going forward. Aggressive normalizations do not increase value but rather the perceived risk. A robust quality-of-earnings analysis is therefore often more valuable than a maximally adjusted EBITDA figure.
2. Cash Conversion Makes Earnings Resilient
A company may appear profitable yet still generate too little cash. Long accounts receivable cycles, high inventory levels, unfavorable payment terms, or a significant backlog of capital expenditures will become apparent during due diligence, if not sooner.
Owners should therefore not only optimize the income statement, but also:
- Improve management of accounts receivable, inventory, and accounts payable,
- Present seasonal working capital effects transparently,
- Distinguish between assets necessary for operations and excess assets,
- Realistically reflect investment needs and maintenance backlogs,
- Consistently link cash flow, the balance sheet, and the business plan.
A sustainable improvement in cash conversion strengthens the economic fundamentals of the valuation. At the same time, it can reduce risks identified during due diligence as well as negative effects on the net debt or working capital bridge—provided that the improvement is sustainable and not merely a one-time occurrence as of a specific reporting date.
3. Growth Requires Evidence—Not New Labeling
A compelling equity story explains why the company can grow in the future and why a specific group of investors can realize that potential. However, it should not be confused with a marketing repositioning.
Solid growth arguments are based, for example, on:
- demonstrable customer loyalty and recurring revenue,
- Pricing power and implemented price increases,
- Order backlog and qualified sales pipeline,
- Concrete market share or internationalization potential,
- Scalable processes and available capacity,
- Technological differentiation and protected IP,
- Product or market expansions that can be realistically financed.
Simply highlighting an attractive customer segment in your communications is not enough. Buyers will scrutinize whether the revenue mix, track record, capabilities, and investment plans actually support the strategic positioning.
The equity story, therefore, does not need to be as ambitious as possible, but rather as consistent as possible—with the company’s history, business plan, operational capabilities, and the supporting documentation available in the data room.
4. Dependencies result in valuation discounts
Many discounts are not due to insufficient earnings, but rather to risks that could jeopardize future cash flow.
Typical examples include:
- Heavy reliance on the owner or individual executives,
- Lack of a second level of management,
- High concentration of customers or suppliers,
- Insufficiently documented know-how,
- Unresolved intellectual property and usage rights,
- Outdated IT systems and cyber risks,
- Incomplete contracts or permits,
- Tax, legal, or compliance risks.
Not every risk can be eliminated in the short term. However, risks should be identified early on, prioritized based on their economic significance, and addressed with a robust action plan.
For buyers, it makes a significant difference whether a risk is already being transparently addressed or only unexpectedly comes to light during due diligence. In the latter case, there is a risk not only of valuation discounts but also of additional guarantees, indemnities, or the termination of the process.
5. A robust business plan combines ambition with evidence
A business plan suitable for a transaction should generally cover a period of three to five years and be structured around the relevant operational drivers. Depending on the business model, these may include customers, prices, volumes, capacity utilization, personnel, investments, and working capital.
Internal consistency is crucial:
- Does the revenue plan align with the order backlog and the sales pipeline?
- Are capacity, staffing, and investments sufficient?
- Do the profit, balance sheet, liquidity, and cash flow plans align?
- Can the assumptions be derived from historical trends?
- What are the implications of variances in price, volume, or costs?
In addition to an ambitious base-case scenario, key sensitivities should be clearly presented. A business plan derives its value not from the steepest growth trajectory, but from transparent assumptions and high-quality forecasts.
Current trading performance is particularly relevant. If the company repeatedly fails to meet its stated targets during the sales process, it is not only the business plan that loses credibility; the purchase price and the likelihood of closing the deal also come under pressure.
6. Deal Readiness Protects Valuation and Negotiating Position
Professional sales materials alone do not create added value. They must be based on a consistent, complete, and verifiable data set.
Deal readiness includes, among other things:
- a clearly structured information memorandum,
- a financial fact book or—depending on the complexity and process—a vendor due diligence,
- a complete and logically organized data room,
- a transparent EBITDA, cash flow, and working capital bridge,
- documented contracts, ownership rights, and permits,
- a coordinated management presentation,
- a realistic timeline, resource, and communication plan.
Data quality is becoming even more important because buyers and advisors are increasingly using analytical and AI-driven methods in due diligence. In the KPMG M&A Outlook 2026, 76 percent of respondents say they already use AI in due diligence; 74 percent cite poor data quality as the biggest obstacle.
Inconsistent figures, long response times, and repeated corrections are interpreted as warning signs. A reliable data foundation therefore not only improves the efficiency of the process but also strengthens one’s negotiating position.
7. Buyer psychology and the structure of the offer determine the realizable value
Not every buyer evaluates a company using the same logic. Strategic investors, for example, consider market access, technologies, customer relationships, or synergies. Financial investors focus more on sustainable profitability, scalability, financing, and future exit options.
However, synergies do not automatically increase the purchase price. The seller can only benefit from this added value if the pool of buyers is strategically selected, the potential is clearly demonstrated, and sufficient competition is generated during the process.
A broad bidding process is not always the best solution. Depending on confidentiality requirements, market size, and buyer structure, a targeted approach may be more appropriate. In the case of international buyers, investment controls, antitrust law, and—for larger transactions—the potential relevance of the EU Regulation on third-country subsidies should be assessed at an early stage.
The overall economic package is also important. In particular, the following should be compared:
- Enterprise and equity value,
- Definitions of cash, debt, and working capital,
- Financing covenants and approval conditions,
- Earn-out or reinvestment provisions,
- Seller loans and payment schedules,
- Warranties, indemnities, and liability limits,
- Conditions between signing and closing.
An earn-out can bridge differing expectations regarding future performance. However, it does not automatically increase the guaranteed purchase price; rather, it shifts a portion of the proceeds and the risk into the future.
The highest nominal offer is therefore not necessarily the best one from an economic standpoint.
Value Readiness Takes Years, Deal Readiness Takes Months
Six to twelve months may be sufficient for the actual process preparation. However, those who wish to reduce operational dependencies, professionalize the management structure, improve cash conversion, or demonstrably develop new growth areas should start significantly earlier.
Value Readiness encompasses operational, financial, and strategic value enhancement. Depending on the starting point and the measures taken, it takes twelve to 24 months or longer.
Deal Readiness encompasses sales documentation, the data room, the buyer pool, process architecture, and internal resources. It focuses on the months leading up to the market approach.
The sooner both perspectives are brought together, the greater the strategic options—and the less pressure there is to have to explain weaknesses only once the process is underway.
Conclusion: Value Is Created Through Demonstrable Results
An attractive purchase price is not achieved through a particularly comprehensive information memorandum or through the most optimistic forecast possible. Buyers value demonstrable profitability, reliable cash flows, a manageable risk profile, credible growth, and a professionally managed process.
The crucial question before selling a company is therefore not: How can we present the highest possible value? Rather: What conditions must be established today so that buyers will actually recognize this value later on?
