16. Dec 22

M&A and SMEs

A recent survey suggests small and medium-sized enterprises are increasingly considering selling their business in response to ongoing developments such as the war in Ukraine and the associated rise in energy prices.

These back-to-back crises are talking a heavy toll on many small to mid-sized enterprises, which are feeling the effects of the coronavirus pandemic being compounded by the sharp rise in energy prices due to the war in Ukraine. This appears to have resulted in a large number of these SMEs rethinking their situation and showing a greater willingness to sell their business. The German business newspaper Handelsblatt has reported on the assessment of Stefan Schneider, senior registrar at the Bundesverband M&A – Germany’s Federal M&A Association – according to which roughly half of all SMEs are considering selling up shop.

These are the findings of a survey conducted by the Bundesverband M&A in collaboration with the universities of Bamberg and Lancaster. Other reasons cited as possible catalysts for selling up are liquidity problems and disrupted supply chains. And yet it is also clear from the survey that the demands on potential buyers are high.

We at the commercial law firm MTR Rechtsanwälte note that in addition to economic considerations, it is also common, given that many small and medium-sized companies continue to be family-run, for an emotional component to play a role in transactions of this kind, and this should also be taken into account. There is often a desire to see the businesses continue operating and for jobs to be preserved.

Added to this is the fact that it is common for other family members to be employed in the business as well. This can be a factor when determining whether legal transactions satisfy the arm’s length principle. Moreover, it is necessary to clarify whether they will continue to be employed in the business going forward.

These aspects and, of course, the potential consequences of ongoing geopolitical developments need to be taken into account with transactions involving SMEs. A comprehensive due diligence review is therefore essential in order to arrive at a fair valuation of the business.

Other factors that are key to determining an appropriate purchase price include existing contracts with business partners, the order situation, patents, liabilities, existing employment contracts, and the legal form of the company.

Experienced lawyers can advise on corporate transactions, mergers, and acquisitions. Small to mid-sized, family-run companies, in particular, are up against major challenges when dealing with M&A transactions.

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