For business owners to deem the sale of their company a success, a series of critical conditions must often be met: ensuring the company’s long-term continuity, preserving key locations, and safeguarding jobs as comprehensively as possible. However, in nearly all cases, achieving the highest possible price remains of paramount importance. M&A experts Henryk Ciesielski and Andrej Kirschke outline the strategic levers business owners can utilize to assess and optimize their company’s value, and explain how to maximize the transaction proceeds effectively.
The value of a company generally depends on various factors: those that must be accepted as given at the time of sale (so-called exogenous factors) and those that sellers—particularly with the support of an experienced M&A advisor and a well-structured sales process—can significantly influence.
These factors affect the company’s value but are difficult to actively control.
The value of a company is determined based on the estimated operating cash flows after investments and taxes that the firm can generate in the future. Here, the industry and its prevailing growth prospects play a central role. Accordingly, industry valuation multiples vary significantly: while double-digit EBITDA valuation multiples (EBITDA: earnings before interest, taxes, depreciation, and amortization) are more the rule than the exception in sectors like innovative software technologies or medical technology, valuation multiples in the automotive supplier sector often fall in the mid-single-digit range.
The size of the target company also has a major impact, as it limits the number of potential investors or buyers. Financial investors, in particular, have minimum size requirements for so-called platform companies—those that form the nucleus in a specific industry or sector to be expanded through further acquisitions. In practice, these thresholds often require an EBITDA of around EUR 3 million. Larger companies are often considered less risky and are therefore valued higher.
A particularly relevant influencing factor at present is the prevailing financing environment. Financial investors, as well as strategic buyers, typically finance a significant portion of the purchase price through acquisition financing. The costs (interest rates) and terms of this financing directly impact the price a buyer is willing to pay. Additionally, there is an indirect effect: rising interest costs generally lead to falling stock prices and, thus, lower (comparable) valuation multiples across most industries.
How to Increase the Value of Your Company
The good news: potential sellers are not powerless in the face of the factors influencing a company sale. On the contrary: a professionally prepared and executed M&A process gives them significant leverage over the company’s value.
A competitive bidding process plays a key role in this. Such a process is characterized by:
- A professionally prepared, comprehensive, and multilingual (German and English) information memorandum;
- A process letter detailing deadlines for submitting indicative and binding offers, conducting due diligence, and negotiating contracts;
- A well-populated and structured data room.
Experience shows that potential buyers in such a structured sales process quickly recognize the competitive nature of bidding against a large and international pool of competitors for the target company. As a result, these bidding processes tend to achieve significantly higher purchase prices compared to less organized bilateral negotiations with just one or a few buyers.
Business Plan and Strategic Positioning
A second important lever for increasing company value is the business plan. This plan should cover a period of three to four years into the future and adopt a “bottom-up” approach. This means it should include revenue planning on a per-customer basis, ideally within a price/volume framework, as well as specifically planned cost items. Business plans based on generalized assumptions, such as revenue margins or cost ratios, are typically less credible.
Moreover, a business plan must strike a delicate balance: it should present an optimistic forecast while avoiding unrealistic growth scenarios (so-called "hockey sticks"). To create a solid and purposeful business plan, it is advisable to rely on the expertise of an experienced M&A advisor. They will also help you credibly substantiate the assumptions included in the plan.
The strategic positioning of the company, as presented in the information memorandum and the business plan, is another significant factor influencing company value. For example, a metal-processing company with a current and future focus on the automotive sector will typically be valued lower than a metal processor with a future focus on the medical technology industry. The weighting of sectors in the presentation of a future growth scenario is therefore crucial.
In summary: if you intend to sell your company, you should present a highly detailed business plan that covers at least the next three to four years. Companies operating in promising growth segments will generally achieve higher valuations.
EBITDA: The Foundation for a Transparent Business Valuation
The centerpiece of any ongoing M&A process is the so-called current trading or the earnings forecast for the current fiscal year. This projection should be as accurate as possible. Naturally, a forecast that is too conservative does not help drive up the purchase price. However, it is not uncommon for deals to fall apart shortly before closing because buyers revise their bids downward due to current earnings falling short of the communicated forecasts.
EBITDA serves as the key metric for valuation. It provides a comparable operational measure that is independent of individual financing structures, tax strategies, and depreciation methods. As such, it forms the basis for fair and transparent company valuation and enables investors to make precise cross-sector comparisons of operational performance.
However, EBITDA often includes one-off costs and expenses that are not essential for future operations. Examples include salaries for redundant executives or other staff (often family members), legal, advisory, or restructuring costs, one-time employee bonus payments, and excessive, non-market rent payments for business properties. These items can be eliminated in the EBITDA presentation for investors. As a result, the adjusted EBITDA becomes more reflective of the company’s true value. In professional terms, these adjustments are referred to as normalizations.
Maximizing Synergies, Minimizing Price Reductions through Guarantees
If it is effectively demonstrated during contract negotiations that the acquisition will generate significant synergies, this can considerably increase the sale price. Buyer guarantees, such as commitments to maintain locations or jobs, tend to have the opposite effect and reduce the purchase price. If differences arise between seller and buyer regarding the valuation of synergies or guarantees, these can often be bridged through mechanisms such as earn-out or option models. A detailed discussion of these approaches will be the subject of a subsequent article.
The most significant types of synergies in a company sale, aside from classic cost reductions or tax advantages, include revenue increases and access to new markets, as these enhance the overall transaction value, improve efficiency, and strengthen the competitive position of the combined entity. Structured preparation and an indicative description of potential synergies can substantiate the business plan and lead to a higher company valuation by convincingly demonstrating the feasibility and potential of the transaction.
Finally, the golden rule applies: Well prepared is half won. The company’s valuation can vary significantly depending on the type of investor: while strategic investors focus primarily on synergies and long-term integration effects, financial investors are primarily concerned with return potential and optimizing the financial structure.
The more intensive the preparation and the more tailored the presentation is to the specific interests of the investors, the more realistic it is to achieve an attractive sale price.
Rely on the support of advisors with proven expertise and experience from numerous company sales who can guide you professionally and systematically through the entire process to achieve your goals.
