Company for sale – Don’t make mistakes before you’ve even received a first offer

Divestitures are no longer a matter of large corporations; we are increasingly handling this issue with the owners of successful regional businesses. Some want to leave the business and acquire assets for further investment or a new business. Others sell the business to resolve the issue of succession as they have no one in the family to whom they can pass it on. What should be considered before selling – and, ideally, well before that? And what determines the success of the entire transaction?

Before a transaction, we examine everything that might affect its value. We deal with legal and tax arrangements, the ownership structure, the protection of key assets, and the incorporator’s future role.

We are often approached by business owners in the Czech and Moravian regions only once they have already received a specific offer to buy their company. During tough negotiations, however, there is no longer time to put right things that could have been thought through years in advance. Before you even start thinking about selling your business, it is a good idea to answer a few questions that will determine the success of the entire transaction.

Are you selling the business in your head before you’ve put it down on paper?

Be careful not to start selling the business in your own mind whilst you’re still looking for a buyer. Ideally, you should continue to run and develop the business as if you had no intention of selling it for a long time to come. Because slacking off in day-to-day management, postponing investments or ceasing to develop the business simply because you are already planning to exit can be a costly mistake.

The buyer wants to know how the company operates and will continue to operate following the exit of the original owner. Whether you’re retaining customers, whether you’re growing, whether the business is dependent on a single person, or whether it has started to lose momentum in recent months.

We therefore examine, prior to the transaction, everything that could affect its value; we address legal and tax arrangements, the ownership structure, the protection of key assets, and the founder’s future role. And it is precisely these points that often determine the value of the whole transaction. As a rule, the buyer does not view a decline in performance or unfinished investments as a one-off problem, but rather as a risk that will be reflected in a price reduction.

Is the highest bid the best bid?

Bear in mind that the highest bid does not necessarily mean it is the best offer for you. As well as the price, you should also look at who exactly is buying the company, how they are financing the transaction, what warranties they are seeking, and what their vision is for the company’s future operations.

If you care about what happens to your employees who have helped you build the business over the years, or about the future of the company’s brand or legacy, and you share the same view on this with the buyer, that too may ultimately determine which offer is the right one for you.

Over the course of nearly twenty years of our law firm’s work in the regions and in Moravia, we have built up an extensive network of contacts and strong ties there, and we understand the needs of local businesses. In the regions, therefore, thanks to our experience and our presence in Brno, Ostrava, Olomouc and Plzeň, we help to find suitable business partners who can meet expectations regarding the future direction of the company being sold.

What is the aim of the transaction?

The sale of a business involves several consecutive stages – preparation, negotiation of the key commercial terms, an in-depth review of the company (due diligence), the signing of the transaction documentation, and the completion of the transaction, or closing.

However, before you start negotiating the specific terms of the sale, make sure you are clear about what you actually expect to achieve through the transaction. After decades in business, are you thinking of selling your company completely and stepping away from the business? Are you considering selling the business to sort out the succession, as there is no one in the family to take it over? Are you looking for a strong partner who will inject capital into the company and help it to grow further? Or do you want to convert some of the value you have built up in the company over the years into personal assets, thus reducing your dependence on a single business?

It is precisely on the basis of these priorities that the terms of the entire transaction are then determined – from the price and the method of payment, to the continued role of the original owner, to warranties, liability and other contractual terms.

Hence, a transaction is certainly not just about agreeing on a price. It is a process in which the expectations of both parties need to be aligned and the risks properly allocated. As a seller, you will typically want to get the highest possible price and, ideally, bear as little liability as possible. It’s different for the buyer – they want a reasonable price and assurances that they aren’t buying a “pig in a poke”. And it is precisely the resulting compromise between these ideas that will ultimately be reflected in the contractual documentation.

Are you prepared to sell?

How your business is actually prepared for sale usually becomes apparent during the due diligence process. Many entrepreneurs perceive due diligence as a search for flaws. We, however, see it rather as a test of trust between the seller and the buyer. Every company has its strengths and weaknesses, and an experienced investor takes this into account. The key thing is whether you can talk about them openly. Trust is, in fact, one of the most valuable assets in any sale, and it is very quickly reflected in the purchase price, the scope of the warranties, and other terms and conditions.

Successful sale therefore ideally begins with systematic and strategic preparation of the company. Not just a few months before the transaction itself, but much earlier – by how you run the business, how your processes are configured, how you diversify risks, and whether the company is prepared to operate without you. A company’s value is built up over many years, and it is when you sell it that you can reap the full benefits.

How can you protect your property?

Once the sale has gone through, another crucial question arises – what to do with the money? This is an equally important part – the effective management and growth of wealth, its protection, the configuration of family relationships, and the separation of business from personal matters.

The aim is for the value created within the company through the incorporator’s tremendous efforts to continue to provide for the family just as successfully as the company and its incorporator have done to date. The family office ONE FAMILY OFFICE, where the diversified portfolios of its individual members are structured to achieve an average gross annual return of between 12 and 18 per cent, can serve as a good example. The most skilled investors are then able to consistently achieve a gross annual return of over 20 per cent with a riskier investment profile.

For some families, we manage holding structures; for others, we handle generational succession, the management of family endowment funds, etc. It always depends on individual needs and circumstances. We have already set up over 550 family endowment funds and trust funds or trusts, which manage approximately CZK 230 billion.

We have 25 years’ experience in mergers and acquisitions; we also have experience in managing companies worth billions and boast the largest team of experts in the market specialising in the sale or purchase of companies, succession planning and expansion. We help to establish effective structures for the separation and management of business and family assets, and we bring in a professional fiduciary manager whose team comprises seasoned and highly experienced specialists – managers (particularly CFOs), lawyers and other experts. Thanks to our know-how, we are able to strengthen the management of a family holding company or businesses as required, or to supplement the team of trustees in a family foundation, and to prepare a company for sale or a generational handover.

Do you think on an international scale?

Although the assets, the whole story and the success of Czech and Moravian entrepreneurs are often directly linked to the local region, when it comes to protecting those assets, it is best to think on an international scale. A consistent and strategic global diversification is advisable, as it will help to spread risks, manage liquidity and, at the same time, support further asset growth.

One example is the approach taken by members of ONE FAMILY OFFICE, a family office which brings together successful entrepreneurs and high-net-worth families, allocates more than half of its assets abroad, and focuses on high-yield, balanced and maximally secure, globally diversified portfolio of assets in all major world currencies, including the option of a regular annuity. It invests across all asset classes and, thanks to its international reach, is able to access unique opportunities in private markets, whilst maintaining a high degree of prudence and applying strict risk management rules.