Costs of selling a business

Costs of a business sale in Europe

This page gives some insight into the costs of selling a company in Europe. We are not only looking at the actual ‘out of pocket’ costs that we show below on this page but considering the costs from a much broader perspective. Selling a company is selling your life work. Hence, it is a very important decision and needs to be executed correctly. What are the costs if you talk or sell to the wrong buyer and end up with no sale, difficulty in receiving (earn-out) payments or a destroyed company years later?

Proper preparation to control costs is necessary. Visit how to prepare for a business sale to get insights into effective preparation. Inadequate planning will result in an extended sales process and a waste of money. When you do the groundwork, you start adding value to your company before you start the actual sales process. Read how to increase the value of your business to add the maximum amount of value.

We come across many sellers of European companies and have seen a large number of business sales. We see business owners with different expectations and business sales strategies. Based on this knowledge, we try to give you an objective opinion on the various options and the advantages or disadvantages of each alternative. It is then up to you to make a decision on how to sell your company in Europe.

Reasons for selling a business in Europe

When you plan to sell your business, there might be many reasons for this. Each business owner is different and has their own background and plans.

Here are some reasons to sell your business:

• Retirement
• Focus on other activities
• Consolidation in your industry
• Economies of scale required to survive
• Further development is too capital intensive

What are the options or strategies when selling a company in Europe?

The first option is to do a business sale completely by yourself. We have seen instances where a business owner started a sale himself by speaking to different buyers one after another. After speaking to the first buyer he found out at an extremely late stage that this buyer needed to have him stay with the company. Being active in operations after a sale was not ideatl as he wanted to retire. Travel expenses from Turkey to Italy and time spent on many meetings were wasted. When speaking to a second German buyer, the seller realized at a late stage that the valuation he had in mind could not be paid by the buyer. It is difficult to quantify the actual costs based on the time spent, but clearly, if this energy would have been invested in growing the company, it would have been more wisely spent. This could have helped him to get to a higher valuation at the completion of a sale.

The second option is getting the active help of M&A advisers like the CFIE team in the business sale. This includes preparing detailed documentation and bringing various buyers to the table. The chances of optimizing the sales price are higher this way.

A third option, if you are fully opposed to paying a retainer fee, is the opportunity to list your company for free on the CFIE website.

Who helps me to sell a business in Europe?

There are various choices when you start the process of selling a company in Europe. You can do this yourself or ask for the help of various types of organizations. Below is a list of possible individuals that can help you in the process of a business sale.

Who helps you to sell a business:

• Yourself
• Your lawyer
• Your bookkeeper
• An M&A adviser
• A CFIE M&A adviser

If you decide to use an M&A adviser there are still many options to choose from. Where to source your M&A adviser:

• Large international office
• Small international office
• Local office
• General M&A network
• M&A network of specialists

The CFIE team has a strong background in your industry which is beneficial in many aspects when selling your company. It improves the chances of a successful sale and increases the price you will get for your company.

Download our M&A presentation and find out why a CFIE adviser is the most suitable solution for your business sale.

The costs of selling a business in Europe
There are a lot of costs related to a business sale. Our experience is that we often see a tremendous focus from sellers on the actual payment to an adviser for the search for suitable buyers. Of course, it is very much justified that a seller wants to keep the costs related to a company sale low. However, we also want to explain what the risks are if you try less professional methods. You might end up receiving a lower amount for your company or even worse, not be able to sell at all.

Here is an overview of some of the costs related to selling your business

• Your own (and company) costs
  • Meetings and travel
  • Preparing documents
• Fee of the M&A adviser
• Additional costs
  • Valuations
  • Tax and legal advice
• Costs of bad M&A advice
  • Low price
  • Prolonged process
  • Wasted resources

The added value of hiring an M&A adviser for a business sale

Given an adviser is relatively expensive, he or she needs to show added value. We think there are many benefits in deciding to go for an active business sale.

Here are some examples of added value that an M&A adviser can bring

• Increase the chances of actually selling your company
• Get a higher sales price (often the additional income clearly offsets the costs of an adviser)
• Find more suitable buyers
• Keep the workload and stress for a business owner to a minimum

Actual expenses of selling a business in Europe

There is a lot of secrecy around the fees for M&A advisers. The actual cost of selling a company charged by advisers differs enormously. We see countless different proposals of competitors. Compared to buy-side mandates we normally see a higher fixed amount to start an M&A project. The main reason is that detailed documentation regarding the company needs to be made. Below, we describe an overview of payment structures we encounter in the market.

Fee structures for M&A advisers we encounter in the market (for sell-side mandates):

• ‘No cure no pay’ – no fixed costs at all + Lehman formula [1] for success
• ‘Performance based’ – 4,000 EUR office costs + 10,000 EUR commitment fee (for making the company documentation) + success fee
• ‘Subscription’ – 4,000 EUR office costs + fixed number of days each month at 1,500 EUR (at least 3 days for at least 5 months) + 2,5% success fee
• ‘By the hour’ –  2,000 EUR office costs and 95 to 500 EUR per hour. These hours are sold in blocks of 4 to 8 hours –no success fee (or 1% if agreed)

We normally make a tailor-made agreement for each client based on the background and requirements of each seller. This offer depends on a lot of items and we prefer to discuss this with you personally. Please do get in touch if you want to learn more about how we can help you in the process of a business sale and what the related costs would be.

Information about the costs of selling a business

If you have any questions about the costs of selling your business, feel free to contact us. You might want to know what the costs of a CFIE adviser are. In this case, we suggest selecting your consultant in international M&A advisers and we will give you a quote.

[1] A formula that is used quite often. The Lehman formula for a success fee is determined as follows:
* 5% on the first 1,000,000 EUR, plus
* 4% on the second 1,000,000 EUR, plus
* 3% on the third 1,000,000 EUR, plus
* 2% on the fourth 1,000,000 EUR, plus
* 1% on everything above 4,000,000 EUR