Perhaps you are considering expanding your business in the Netherlands. Or you might have a business in The Netherlands that you’re considering selling. Or you want to restructure your group. One of the first questions that might pop into your mind is, what is the value of this business? And what does the process of acquiring or selling a business look like? That is the moment you need a business valuator and corporate finance adviser.
First of all, there is no such thing as a uniform value of a business. The value fully depends on the viewer and his or her possibilities with the business. The value differs depending on the chosen view. For example stand-alone, or taking into account any synergy advantages; going concern or on a liquidation basis; as is, or after the envisaged enhancement. The value of a company differs depending on the chosen view. But after the correct view has been chosen by you and your business valuator, the outcome of the valuation is of a high added value to you. It is starting point for negotiations between you and the counterpart. Because remember value is not the same as price. The difference? Price is what you pay, value is what you get.
A business valuation can also be very useful in a case where there is no such thing as an active market. Hence there are no independent negotiations. This situation occurs, for example, when a business is sold within a group or when a business is transferred within the family. Such a transaction might have a tax impact if conducted against an incorrect value. A valuation report is indispensable in such a situation.
After the business valuator has made the calculations and you are satisfied with the results, it is time for the next phase. You want to buy or sell the business. But do you get in touch with the counterpart? This might be easier if you are in the market for buying a business, but more difficult if you want to sell your business. Where do you find any potential buyers? That is where the network and experience of a corporate finance adviser become relevant. Such an adviser knows the market, but also who is in the market for buying or selling a business. Together with your adviser, you can decide to approach potential counterparts directly or by using a marketplace for business. However, if you are in the market for selling your business, an information memorandum is indispensable. Your adviser can draft such a document, which is basically a brochure with the highlights of your business.
“There is no such thing as a uniform value of a business.”
The next step is the negotiations between buyer and seller. Negotiations can be done in a meeting, but more often they are done in writing. A potential buyer shall possibly demand a period of exclusivity to perform due diligence. Exclusivity is agreed in a letter of intent. Such a letter sets out the main terms of the agreed transaction, but often under the condition of a positive outcome of a due diligence process and drawing sufficient finances to acquire a business. This approach is recommended if you are on the buyer’s side. However, this approach is less profitable for the seller. The seller has less advantage of a period of exclusivity since the seller is not allowed to negotiate with any other parties allowing the potential buyer to renegotiate the price. An alternative to a process of exclusivity is the controlled auction. During such an auction, multiple potential buyers are allowed to perform a due diligence process after which they must file a final bid.
The last step in the process of acquiring or selling a business contains all the legal documentation. That would include the share purchase agreement, a shareholder agreement in case of a transaction with less than 100% of the shares, a vendor loan agreement and all the necessary documents to finalise the sale of a business, for example minutes of the shareholder meeting.
“A business valuation can also be very useful in a case where there is no such thing as an active market.”
A major part of the share purchase agreement contains the guarantees. The buyer often demands several guarantees from the seller regarding how he ran the business in the past. You can think of guarantees regarding the legal status of the business. Does the business for example exist from a legal perspective, and does it have all the permits? Is the company the legal owner of tangible and intangible fixed assets? Most buyers probably also demand guarantees regarding the financial status of the business. Were all taxes for example calculated correctly and paid on time? Does the business have obsolete stock? Were all provisions correct and completely accounted for? Should any of the guarantees be incorrect and should the buyer suffer any costs due to an incorrect guarantee, then the buyer has the right to claim this damage from the previous owner.
As you understand, it is very important that you use the expertise of a specialised M&A lawyer or M&A legal adviser who understands all special aspects of such a contract. But such an adviser is also aware of any permits that you need from governmental authorities, for example authorities who oversee competition, or permits that you need from labour unions.
The last and final step of a transaction is often at the premises of a notary and contains the transfer of the shares. Depending on how you decide to shape your transaction, this is also the moment when you officially sign all legal documents. And the transfer officially ends with a popping bottle of Champagne!
