Automotive Aftersales Market Booming in Germany

KATJA SCHULT
IMAP Germany
katja.schult@map.de

A Clear Equity Story - What Distinguishes the Company From its Competitors?

The preparation of a compelling equity story is an integral component for potential investors in the M&A process. While essential information on the business model, market, strategy, and future direction of the company, as well as past and expected financial development are briefly presented in the information memorandum (IM), the true "value" of the equity story is, in fact, so much more than this.

To underpin the credibility of the corporate strategy, it is important to show concrete measures for further organic growth on the revenue, earnings, as well as liquidity levels, e.g., through product innovations and measures to increase profitability.

Inorganic growth through acquisitions along the value chain is also playing an increasingly important role. M&A as an instrument for external company growth enables rapid changes in established structures and swifter realization of market opportunities. With the help of a buy & build strategy and a pipeline of potential acquisition candidates, investors gain additional comfort regarding the company's credibility and further growth.

For medium-sized enterprises, developing the equity story or the unique selling proposition (USP) is often a challenge since not every company can shine against the competition through market leadership or patent-protected technology. On the other hand, businesses can oftentimes distinguish themselves as solution providers that are partly involved in the development phases of OEMs or larger tier 1 suppliers, as well as draw on many years of production experience, a loyal customer base, and established supplier networks. Due to their organizational structures and flat hierarchies, companies can also stand out because of their flexibility and quick response to customer requests.

A Structured M&A Process - Why it Makes Sense to Mandate an M&A Advisor?

Selling a company is a time-consuming and complex process. Leading this process as an entrepreneur or management on your own brings with it many new challenges. Furthermore, it raises key questions for the seller, who needs to make difficult decisions, such as whether they want to stay at the company following the sale, or how much they want to sell the company for and whether the type of investor or their strategic vision is an important factor when choosing a buyer. Hence, it is essential to define official goals (e.g., valuation ideas or buyer preferences) before an M&A process.

A structured M&A process goes hand in hand with extensive preparation, which is often underestimated and takes place in parallel to the business operations. In addition to the analysis and preparation of the company for the sale, it entails a company valuation with a derived purchase price range, as well as preparation of a marketing strategy and professional marketing documents (teaser, information memorandum), comprehensive market research to identify potential buyers, extending to the anonymous market approach based on the marketing strategy (number of potential buyers to be approached), conducting due diligence and contract negotiations up to the closing.

M&A advisors can look back on many years of industry-specific transaction experience, contributing to the assessment of potential transaction risks and their mitigation through a structured project management approach and coordination of the company’s management and other stakeholders on the client side. The M&A advisor represents a great relief from the strain related to the transaction and offers a comprehensive range of services along the M&A process to its clients, following the maxim of achieving the best possible results and positioning the target company in a way that secures maximizes profits.

The Right Timing - Why Speed Plays a Significant Role in an M&A Process?

As previously mentioned, an M&A process is always associated with a high degree of time commitment required on top of the operational activities and day-to-day business. M&A processes usually take between six and nine months, where all parties work towards one goal from day one - the successful completion of a transaction. Building up speed and maintaining the momentum presents both opportunities and risks at the same time, with success and speed being mutually dependent.

The opportunities are thereby clear: through speed, competition can be built up and cultivated. All parties strive for an accelerated closing of the transaction, the avoidance of long discussions and a prompt return to the day-to-day business, which also helps when trying to maintain the confidentiality of the transaction.

Yet the opportunities also entail risks that can jeopardize a successful deal completion. Too much pressure on the shareholders and the management can lead to wrong decisions and have a negative impact on the speed of the process. However, overburdening the management team, is a risk that neither party should take. A rushed process can ultimately lead to investors bailing out, as well as to a loss of credibility in the company and the process.

After all, it is the credibility and enthusiasm during or for the process that leads to success. This requires a concrete and feasible timetable with milestones to be reached, subject to prior consultation and assessment of available resources, in order to realize an efficient process and a successful deal for all parties involved. Therefore, it is important that the process is transparent for all participants concerned.

Ultimately, all three of the above factors are interrelated in an M&A process and should not be viewed separately, but rather as symbiotic complements to each other.