Due diligence in corporate succession

Mario Busshoff

13. August 2020

Corporate succession and due diligence – an indispensable joint

The English term due diligence, in German careful examination or due diligence, is in business life for the buyer of investments such as shares, securities or real estate, up to the succession in a company, the indispensable overall examination or in other words the screening of the purchase object with all aspects. In this respect, due diligence, or DD for short, is much more than just a mere credit rating.

Due diligence in three phases

Experience has shown that high expectations are attached to corporate succession. The future owner needs to know what to expect and what, conversely, is expected of him. His DD focuses on aspects such as the previous sales and earnings position, the economic and financial situation or the company’s competitiveness. The due diligence is carried out by a specialist consulting company. In addition, both competent legal and tax advice should be brought on board. The objective is to identify all strengths and weaknesses of the company in relation to the purchase offer that the company successor has. DD in three phases has proven itself over many years.

Analysis of company succession

It can be equated with the consideration of the business model, roughly comparable to a business plan. In this phase, the entire company is put to the test. This analysis of the current situation also offers a prognosis for the future conceivable company development.

In addition, the decisive DD key points:

Initial situation
Reason for company succession; For example illness, death, inheritance disputes, reorientation, financing or even existential problems

  • Industry standing and corporate image
    Who is friend, who is enemy; was the previous head of the company contentious or rather in need of harmony; What is the relationship like with the authorities, what disputes have been and still exist at which courts
  • Financial situation [so far, current, future]
    Tax advisors and auditors are required here; Submission of all documents from previous years from the balance sheet to the tax assessment
  • Customers
    Evaluation of the customer base with database maintenance, with and without card parts, customer loyalty CRM, personal connection between customers and previous company owners, …
  • Suppliers
    Evaluation of each individual supplier relationship, precautionary fallback position with alternative suppliers
  • market situation
    Assessment of the current market volume and future growth prospects, inclusion of market changes such as risks, stagnation, customer behavior, …
  • Competitors and competitors
    Direct comparison one to one to identify possible deficits, considerations about innovations and innovations with a possible unique selling point compared to the competition
  • staff
    Duty to take over existing staff, how does the staff see the company succession, involvement of an expert [specialist lawyer for labor law]
  • Product (range of services)
    Existing and proven things are taken over without adding anything new or having to establish an existential foundation; what can be improved, added, changed, renewed …
  • Company-related rights [copyrights, property rights, …]
    Existing property rights and patent rights offer competitive advantages; how long they apply to what extent; Involvement of an expert such as the specialist lawyer for patent law
  • Legal form in the future [holdings, articles of association, …]
    Examination and evaluation of all existing articles of association as well as their execution; [Specialist lawyer for commercial and corporate law]
  • SWOT analysis
    Positioning according to SWOT with strengths and weaknesses, opportunities and risks of the company and corporate succession
  • Company location
    The operating location with the transport infrastructure, its equipment and furnishings, the fixed and current assets, are included here.
  • Insurance
    Target / actual analysis of company-related and bundled insurance, examination of a possible personal relationship to the previous company owner

Continuation plan for corporate succession

During the due diligence with the resulting seriousness of the company succession, a continuation plan for the successor company is worked on in parallel. Its form and structure largely correspond to the business plan for setting up a company. The main difference lies in the content. The continuation plan distinguishes between the actual and the target state. The present with the actual is contrasted with the future with the target.

The continuation plan requires very in-depth knowledge of the company to be taken over. First strategies for the future of the company or for serious company changes are developed as the content of the target state. This includes considerations for the future management as well as temporary, sporadic or long-term representation of the successor company.

Some core contents of the continuation plan

  • Changes to, in and with the company [tradition vs. Modern, new developments, restructuring, …]
  • Offer and business ideas [changes to existing products or services]
  • Follow-up financing [taking over existing financing or replacing it]
  • Summarized first answers to all questions from the DD analysis

Final assessment including conflict resolution

The corporate succession is not a love marriage, but an alliance between predecessor and successor. Naturally existing different interests, divergences and even animosities must be eliminated or, in other words, resolved. This is only possible with the highest degree of openness, transparency, honesty and a willingness to conflict, based on the principle: The company comes first.

This phase within the company succession ultimately makes the difference

  • the future of the successor
  • the retirement of the still-owner

Conclusion on the due diligence before the final corporate succession

The three-phase due diligence costs a lot of manpower, time and nerves. A competent, trustworthy and experienced DD consultant is one of the decisive factors for success. The succession within the existing company is always a natural area of ​​tension. After the successful DD process follow last

  • the determination of the purchase price
  • the purchase price financing
  • the handover contract

Ähnliche Beiträge

Pivoting used skillfully

Pivoting used skillfully

It can happen that an original business model fails for various reasons. In such a situation, a well-considered change of strategy is required to get a young company back on the road to success. But that is easier said than done. What can a start-up do to escape...

read more
Raising capital for your start-up: the right steps

Raising capital for your start-up: the right steps

It starts with a brilliant idea. But soon disillusionment sets in: whether the idea alone is enough to get a start-up off the ground? The answer is clearly no, because without capital acquisition a start-up has no chance of success. Here we explain which measures are...

read more