What happens in business is always unpredictable - any businessman is aware of this. Anything could happen. Good times and bad times alternate each other, and it might occur that - in order to remain in competition - a change of ownership is the only solution. The idea of selling one's company might come up when the younger generation won't be continuing the business when the older one plans to retire. It could also happen that the person in question desires to get involved in other areas of life. And then comes the big question: Should I sell my business?
The MM's new series of articles introduces the reader in the process of selling a company, presenting the details, meanwhile the big picture of the process can also be seen. Our professional partner is Dr. János Tamás Varga, lawyer and managing partner of VJT & Partners Law Firm; in the past twenty years, he has conducted more than 60 acquisitions that included the sale of companies, mostly involving foreign entities as buyers.
Part no 1. What reasons could lead to the sale of a company?
MM: Most of the technical development or producer companies are competitive on the Hungarian market. These companies have been established and built by Hungarian entrepreneurs, and are operated in the present also by their founders. When does the time come for a business owner to consider selling his company?
VJT: Each and every sale of a company is unique, but typical situations are also seen.
Sometimes the market conditions lead the owner to the decision of selling his company. For example, when the competition requires developments or extra resources that the owner cannot or will not undertake. On the other hand, it is very possible that no external pressure exists, only the company holds an outstanding market position, therefore there is a demand for the company's acquisition.
Another typical situation could result from the internal relationships within the company. For example, the founder of the company gets tired, perhaps wants to deal with other things, therefore desires to hand over the business, but there is no one to take it.
MM: Could it be the case that the manager - already at the moment of establishment – plans to build the business and then a couple of years later to sell it?
VJT: In several industries this case is quite common. But for the traditional technical industry where the companies deal with development and production, the change of ownership right after a company is establishment is not very likely. The value in this field is found in the technical knowledge gained and developed through decades, in solid production technology, and not in fast changes. Usually, production requires decades to achieve a market value that results in an appropriate selling price for the owner.
MM: Is it likely that the founder draws back right after the acquisition and the new owner also takes the company in hand right afterwards?
VJT: Nowadays it is very unlikely, that the remaining colleagues say goodbye to the former owner on the day of the acquisition. Usually, the purchaser expresses his specific demand for the work and experience of the former owner-manager of the company, especially in the 6-18 months period following the acquisition. The extent of this demand varies from case to case, depending on instance of the experience of the vendor in the relevant industry and in the Hungarian market.
It is imaginable that the vendor requests the operative management of the prior owner's company during the transitionary period; it is also possible that the managing of a running project is required, or there could be demand only for consultation. It's not unusual that the vendor does not acquire all at once and does not buy 100% of the company, thus the transitionary period might be longer. It's typical that in the first step the vendor acquires a majority ownership, this way the former owner remains in the company with a minority share for an interim period. And of course, it is possible that the vendor does not acquire the whole company, so the prior owner remains in the company for a longer period.
MM: I suppose we managed to cover the essential questions of the sale of a company. How should we continue?
VJT: If the decision to sell has been made, the only remaining question is: How to proceed to sale? This will be the topic of our next conversation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.