BUYING AN SME IN CZ BCC Breakfast Briefing 19.1.2006, Prague © Business Brokerage Partners BusinessMarket / Trh firem.
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BUYING AN SME IN CZ BCC Breakfast Briefing 19.1.2006, Prague © Business Brokerage Partners BusinessMarket / Trh firem Buying an SME in CZ – help yourself area not properly surveyed yet main information sources experiences of local M&A agents and individual brokers individually published cases PWC market research SME definition and characteristics CZ acquisition market and approaching it SME sellers and buyers Main considerations when investing in SME Running an SME acquisition SME - Something More Eerie? definition size - annual turnover < CZK 500 mln., number of employees < 250 legal form - sole entrepreneur, limited liability company, private unlimited company, public limited company characteristics increased volatility of sales and profits / vulnerability to the economic cycle less than 15 years of history less transparent accounting SME - Something More Eerie? characteristics owners engaged in management main business relationships and decision making linked to a limited number of key people owners/management focused only on their business less expertise in other areas owners often exclusively in charge of M&A negotiations family/friends involved more shareholders – potential dispute can paralyze the business lack of strategic planning or planning at all reduced access to some “higher level“ services (e.g. in banking) Understanding SME sellers reasons for sale retreat of the owners – personal reasons a decline or anticipated decline of the business differing views of individual shareholders new business focus of the owners mature company with limited growth possibilities within the current management/ownership set up growth potential perceived – need for expansion corporate restructuring – sale of non-core business sale of a business by a bankruptcy administrator reasons often combined Understanding SME sellers expectations of the seller high sale price expected – key issue ensuring a “going concern” concept for their business sometimes quick sale solution confidentiality avoidance of insolvent buyers his/her business is salable Who are SME buyers? strategic – horizontal or vertical expansion financial small and medium financial groups venture capital and private equity investors private individuals foreign – limited to strategic, domestic – both strategic and financial ! lots of suspect insolvent individuals ! expectations of the buyer yields higher than in corporate segment good investment protection temporary management assistance from former owners often no concept of handling the takeover How buyers and sellers approach each other no institutionalized market market based on individual counterparties search SME sellers´ approach sole search within their local or business environment – prevails advertisement search via a mediator/broker SME buyers´ approach being sought out by sellers themselves contact network, sole search and advertisement search via a mediator/broker How buyers and sellers approach each other structure of brokers/mediators “big four” and investment banks medium M&A agents related services providers small and “occasional” brokers non commercial – chambers, associations, state agencies expectations from a broker the smaller the business → the smaller potential added value from an advisor → less willingness of owner to hire an advisor Main considerations when investing in SME sector and region stage of SME’s “life” and size yield/risk level within SME sector control strategy - stake to be gained full takeover majority takeover joint venture venture capital investment investment horizon and potential exit strategy legal form purchase of shares / share in an ltd. purchase of a set of property purchase of a business Main considerations when investing in SME participation and contribution synergies with own activities complete funding needs and their structure engagement of former owners in the business management resources needed stability of the employees team, disclosing relevant relations current capacity usage and expansion possibilities disclosing the real motivation for the sale other aspects related to SME characteristics Running an SME acquisition transaction process seller´s decision to sell – takes looong formalizing the decision – first real steps location of potential buyer(s) negotiation with potential buyer(s) agreement on the sale and its conditions transaction processing (due diligence, legal contracts, settlement) the whole process is LESS FORMAL evaluation of the business for sale Other aspects and facts personal sympathy of buyer and seller – PRECONDITION to proceed any further differences with corporate M&A SME investment generally riskier higher discrepancy in the evaluation view from buyer and seller negotiations directly between seller (owner) - buyer limited role and added value of M&A advisers less formal and standardized process less information quality and transparency success rate of SME takeovers – ??? success rate of business sale offers – we estimate below 10% Your potential way to buy an SME “matching” agent creating a theoretical marketplace, where SME sale offers and acquisition demands are matched pre-selection and presentation processing information and facilitating initial communication confidentiality concern Business Brokerage Partners, s.r.o. Na Výsluní 201/13 100 00 Praha 10 tel.: (420) 226 004 135 tel./fax: (420) 226 004 136 e-mail: [email protected] www.trhfirem.cz www.businessmarket.cz www.unternehmensmarkt.cz