[This is an English translation of an article originally published in Czech.]
The time will eventually come. Entrepreneurs who have often built their businesses from scratch into companies generating millions in revenue must hand them over to someone else. This applies both to family businesses that may have no successor and to fast-growing start-ups preparing for an investor to come on board. But how do you sell a company successfully?
“We often encounter the view that owners can manage it themselves. After all, they know their company best. What they do not realise, however, is the fundamental impact that having an independent adviser by their side can have on the entire transaction – someone with experience of dozens or hundreds of similar situations and a perfect understanding of the market, who can help them think through and manage the entire process and negotiations,” explains Tomáš Kozubek, a partner at the consulting firm Tarpan Partners, who worked on his first transactions as early as 2002.
“Choosing an adviser is like choosing a specialist doctor – you would hardly entrust your health to someone without specific experience of the problem affecting you. Selling a company is similar,” adds Tomáš Petržela, his colleague and another Tarpan Partners partner specialising in transaction advisory.
Both began their careers at large consulting firms, spent several years abroad and participated in numerous major domestic and international acquisitions. Both have experience in senior company management and as investors, co-founders and fundraisers in their own projects.
Since 2009, together with the other partners, they have led the boutique consulting firm Tarpan Partners. Today, it advises some of the most significant market players on company sales, while its team of experienced professionals also focuses on financing, investments, restructuring and insolvency.
Kozubek and Petržela were involved, for example, in billionaire Jiří Šmejc’s Emma Capital group investing in Mailstep, one of the largest Czech logistics companies in the e-commerce sector. They were also behind the sale of a majority stake in international audiovisual leader AV Media to the Czech private equity group Genesis Capital, which was completed only a few days ago.
Together, they now explain how to choose the right partners to ensure that your company ends up in good hands. “We have often been in the position of putting our own skin in the game. This is another reason why we understand how personal and confidential selling a company can be. The right adviser should be a partner and mentor to the selling owner – someone who is not merely selling the business, but above all addressing a unique personal situation, often the story of an entire lifetime,” Tomáš Kozubek notes.
1. Seek advice
Selling a company often requires approaching one hundred or more counterparties. “A technology start-up operating internationally may typically be a strategic fit for hundreds of companies around the world. Finding the right buyer at the right time can therefore be difficult, but also crucial. An adviser can target the relevant market internationally, view the transaction in the correct context and assess which potential buyer would find the company strategically attractive,” Kozubek says.
It is important to find a transaction adviser whom you trust and who will remain loyal to you under all circumstances. “You are not merely selling a company, but often a highly personal project that you have spent a long time building through considerable effort. That makes it even more valuable to have a trustworthy partner on your side,” Tomáš Kozubek emphasises.
“It is essential to assess precisely what will interest the buyer, where your value and competitive advantage lie and how to communicate them. The right adviser knows what standard documents and agreements should look like, as well as what would be excessive and could expose you to risk in the future,” Tomáš Petržela adds.
2. Do not choose a consulting firm; choose a specific team and individual
When selecting a transaction adviser, pay attention to who will actually work on the entire transaction. An experienced adviser often attends the initial meeting only to hand the case over to junior colleagues later. “This is another reason why choosing according to the firm’s prestigious name is not a good idea. You should choose according to the adviser themselves. What matters is who will work on the project, which parts they will handle and how intensively, as well as their personal experience and references,” Petržela warns.
It is also important to know in advance what the process itself will look like. “Many transaction advisers use identical teaser, memorandum and strategy templates for every company. Such advisers may work on several dozen transactions a year. But someone working in this way will not be able to devote adequate attention to your case,” says the other Tarpan Partners partner.
A well-prepared and properly managed company handover takes at least several months and is often a highly personal matter. “You should therefore also be compatible with your adviser on a human level. Before signing an agreement, one client once asked me what kind of music I listened to. It was actually an excellent test,” Tomáš Kozubek says with a laugh.
3. Ask for references
“When selling your business, you are not looking for someone with a large email database. You are looking for someone with genuine relationships with the people to whom they may be selling your company. Draw up a shortlist of advisers, meet them in person and ask for references – but, above all, verify those references by telephone,” Kozubek advises.
His colleague nods in agreement. “I spent sixteen years outside the Czech Republic and was accustomed to references being checked by telephone. This is common abroad; there are even specialist firms dedicated to reference verification,” he explains.
This is less common in the Czech Republic, but it remains an important step: you sell a company once in your lifetime, and the transaction adviser is a key individual. “The adviser should therefore be willing to show you the cases they have worked on,” Petržela adds.
4. Look for someone who has been in your position
Is it better to choose a career transaction adviser who has spent their entire professional life in that role, or an adviser who has previously built their own company or raised capital for it? Tarpan Partners has a clear view. “It is valuable to have experience of different types of companies, projects and stages of development. Transactions involve numerous nuances and situations that an adviser should understand and, ideally, have experienced personally,” Petržela explains.
He previously served, for example, as CFO of a rapidly growing Singaporean company. “We raised ten million dollars and ultimately sold the company to the largest competitor in the market for 65 million dollars,” he recalls.
5. Not everyone can handle everything
The Czech market is too small for advisers to specialise narrowly. The ability to learn and find one’s bearings in every situation that may arise during the sale of a business is therefore more important. As the owner’s sparring partner, the adviser should also be capable of handling situations in which matters do not proceed smoothly.
This approach proved effective for Tarpan Partners, for example, during the sale of the martech start-up Roivenue. “Technology start-ups are generally a highly specific sector. Nevertheless, the client selected us even though we did not focus specifically on SaaS start-ups. We had sufficient experience of the start-up environment, however, as well as an excellent track record across every acquisition in which we had been involved. Ultimately, we found a Dutch buyer for Roivenue,” Petržela explains.
The success rate of acquisitions is another important criterion. “For many advisers, it is common for only one-third of the acquisitions on which they work to be completed. We would be concerned if one-third of ours failed. Naturally, some situations are beyond our control, but the right adviser should have successfully completed at least two-thirds of their projects,” Kozubek adds.
6. Do not pay too much or too little
The price of the transaction adviser’s services is, of course, also important. The fee consists of two components: a fixed fee and a success fee.
“A high-quality adviser will always require a fixed fee as well. Developing the entire sale strategy is far from simple. When this component is absent, it usually means that the adviser spends very little time on preparation and is merely taking a chance: if the company sells, they receive a success fee; if it does not, nothing happens. But anyone who genuinely wants to place their company in the right hands needs commitment from their adviser, not merely an attempt,” Tomáš Petržela says.
His colleague also emphasises that price should not be the principal criterion guiding an owner’s choice of adviser. “The price of the service is always in the low single-digit percentages of the transaction’s total value. It is therefore an amount that will be repaid many times over if the sale succeeds,” he explains. “Good advisers will ensure that the documents are carefully considered and drafted to protect both you and, where relevant, the company in the future.”
7. Do not be tempted by promises
“Many advisers make unrealistic promises – for example, that they will sell the company quickly or for a specific sum – but later fail to deliver. Verify what is realistic, compare the estimates and do not place too much faith in anything that appears extreme,” Tomáš Kozubek warns.
A standard sale process takes six to nine months, and cases in which a company takes more than a year to sell are not unusual.
“Timing is considered and adjusted throughout the process. Sometimes it is necessary to extend the process to achieve the best outcome, and doing so is in the client’s interest. Wanting to complete the transaction as quickly as possible may also signal to the buyer that something is wrong with the company, significantly weakening your negotiating position,” Kozubek says.
A promise of an exact company valuation is similarly questionable. “It is essential to establish a basic expectation and determine whether it is achievable. But ultimately, only the market can determine what the company is genuinely worth in a particular situation and at a particular time,” Tomáš Petržela notes. “The best thing a good transaction adviser can do for you is create a highly competitive process in which your chances are as strong as possible,” he concludes.
24. 10. 2023