Mergers & Acquisitions
Comco Consulting helps SMEs and mid-cap companies leverage growth within the scope of acquisitions, disposals and capital raising operations.
Small steps, big success.
We offer competitive edge through our customised support for SMEs and mid-caps, and our results-oriented approach.
Our service offering :
- Disposals: we implement a structured, competitive process, identify and contact potential buyers, draft the documents needed for the transaction, assist with negotiations and coordinate the various players (lawyers, auditors, etc.)
- Acquisitions: we approach the target, validate the project’s feasibility, coordinate the various audits, assist with negotiations and seek finance
- Financing and capital raising advice: we analyse the feasibility of the transaction, identify and seek tenders from potential partners, draft the documents needed for the transaction, organise the entire bidding procedure and negotiate the financial conditions and guarantees
- Post-acquisition integration: we explore the key issues surrounding the company integration and help draw up the preliminary action plans
Tell us about your projects.
Why make a strategic acquisition ?
A strategic acquisition is a means of achieving an industrial project, helping a company become more solid and efficient and grow more rapidly.
Size is a contributing factor in terms of resilience and business continuity, i.e.:
- The bigger the company the lower the risk of default
- Bigger companies:
- Are better structured and organised;
- Can cross-finance loss-making businesses with those in better financial health;
- Have better access to public and private funding;
- Have a better financial support system (suppliers, clients, public authorities, shareholders, etc.) in the event of difficulties.
Size is also a potential source of competitiveness, thanks to:
- Synergies between the merged companies, in particular in terms of management (good practice exchange) and growth (cross-selling, pooling of strategic costs);
- The ability to increase sales and thus:
- Access more vibrant and lucrative market segments
- Sustain the costs required to be competitive in terms of R&D, strong brands, globalisation, evangelism marketing, etc.
- Enhance the company’s attractiveness, image, renown and reputation.
Lastly, a strategic acquisition helps businesses reduce their time-to-market:
- In growth sectors, speed is a major factor for success (first-mover advantage);
- When the sector matures it gets harder and more expensive to win back market share from competitors and acquisitions appear a more effective solution;
- When expanding abroad or changing activity, strategic acquisitions enable companies to avoid entry barriers in terms of both renown and technical skills.
What are the main challenges of post-merger integration ?
Post-merger integration poses six main challenges:
- Time pressure:
- The first 100 days are crucial to securing the anticipated value creation;
- The first financial reporting data must be produced within 30 days of the acquisition;
- Managers lack the time to (i) deal with their day-to-day responsibilities, (ii) manage the integration of the new business, and (iii) meet key clients;
- Becoming familiar with a new industry, if the acquisition took place with a view to diversifying without any prior industry expertise;
- Globalisation, if the target is located far from the purchaser the distance can cause problems, as can time and cultural differences;
- IT systems and processes, which can prove very different, and account headings, which may have the same name but not necessarily mean the same thing. Extra applications are sometimes necessary, and IT systems must be able to produce financial reporting information quickly and repeatedly;
- Financial pressure resulting from the obligation to apply a specific financing plan, which can be difficult to manage if a company’s business is particularly seasonal or if revenues have fallen following the acquisition. These issues may divert a lot of management’s time and energy and result in a lack of real-time business intelligence needed to warn of a slowdown;
- Organisation, which is crucial in a post-merger integration: support functions (HR, IT, marketing, finance) have a crucial role to play and a huge amount of work is needed to put a new structure in place.
Support from a post-merger integration specialist facilitates integration of the target for the company in order to maximise post-merger value creation and ensure sustainable and profitable growth for the newly formed group.
How to value a company ?
The idea of value is extremely important in business acquisitions.
Traditionally, there are three methods for financially justifying a company’s value, based on three different approaches:
- The company’s equity: net asset value method
- Past profit: yield and EBITDA methods
- Future cash flow: DCF (discounted cash flow) method
These methods draw on the company’s accounts and future business plan. However, there are two things that do not appear in a company’s accounts, but which are nonetheless crucial in terms of value creation: reputation and workforce.
The traditional financial valuation approaches are therefore not sufficient and need to be supplemented with an in-depth investigation of a company’s qualities – what makes it unique, its intangible capital or, on a more mundane level, its business capital.
The acquisition also needs to be sufficiently monetised and secured, notably by identifying the key personnel, without which the buyer risks acquiring nothing more than an empty shell.
Expert advice on targeting external growth opportunities.
An acquisition is a significant milestone for companies, allowing them to achieve critical size, acquire patents or expand abroad. A strategic acquisition creates value by generating synergies, in particular in terms of management (sharing of good practices), revenues (cross-selling) and costs (larger procurement volumes, shared support functions). Despite this, between 50% and 70% of acquisitions do not live up to buyers’ expectations, mainly because the buyer overestimates the strategic fit of the target or underestimates the cultural differences between the two companies.
Target-company-identification is therefore a key step, and businesses can start the process by formulating a business plan and understanding the challenges involved in external growth. This includes assessing the positioning, aims and needs of one’s own company, whilst also taking account of the dynamics of the target market and specific risks relating to the acquisition in question.
As such, companies can come up with acquisition criteria suited to their own particular strategy and – through a combination of structured research, networking and marketing – end up with a long list of attractive acquisition targets, which is then gradually narrowed down to a short list of the most suitable targets.
Comco Consulting, expert in strategy and M&A, helps SMEs and mid-tiers to target the right companies for successful external growth.
Dealing with cashflow when selling your business.
Cashflow can sometimes complicate the sale of a business. It can be problematic for the buyer because it is included in the company’s value and therefore increases the price. The buyer may have neither the means nor the desire to pay for the cashflow, and financial investors and bankers are not so keen on “financing cash”.
To resolve this, the company must determine exactly how much cash it needs to operate as a going concern and decide whether it can scale back all or part of its cashflow before the sale in order to bring the price down.
If cashflow is recorded as a reserve, all or part of the reserves can be distributed as dividends at year-end. If part of the cashflow is recorded to the shareholder current account, it comprises money paid by the shareholders to or on behalf of the company, which can be repaid to said shareholders before the sale.
If the cash outflow endangers the company’s ability to operate as a going concern and the buyer does not wish to pay for the available cash, the company may – in order to facilitate the sale – offer the buyer vendor credit in the amount of said available cash, meaning that the company can be sold with its cashflow intact. The cashflow is deducted from the purchase price in the final purchase agreement and will be paid for at a later date by means of reimbursing the vendor credit.
Comco Consulting is a strategy consulting firm specialised in supporting SMEs and mid-tier companies. If you require assistance in planning the sale of your company, please contact us at contact@comco-consulting.com.
Optimise your business transfer through proper preparation – Paris.
There has been a downward trend in the number of business disposals over the past 10 years, from 45,815 in 2010 to 31,300 in 2020. This decline cannot be explained by the Covid crisis alone, despite the significant impact it has had on the most heavily-affected business sectors. However, the age pyramid and the fact that there are more managers retiring should in fact be conducive to more transfers. Proper and early preparation is the key to a successful business transfer.
The rate of business disposals is influenced by the size of the entity to be transferred, the business sector in question and the location. Companies with more than 250 employees change hands every six years compared to every 15 years for SMEs with 10 to 20 employees. And half of all transactions take place before the director turns 52. Intended sales by older directors, which are naturally more common, do not always materialise. Why not? The answer is threefold, i.e., (i) older managers may not always be adequately prepared; (ii) the day-to-day running of the business already takes up all of their time; and (iii) investments have declined over time, favouring business viability over growth. The figures bear this out: some 46% of SMEs with more than 20 employees see their divestment process fail on the first attempt.
How can company directors successfully transfer their business? By starting early and preparing the transfer with support from specialised consultants. It takes on average 13 months between the time a company is put up for sale and the time the memorandum of understanding is signed, though in reality it can take up to two or three years to complete the disposal. This is because the sale phase must be preceded by a preparatory phase. The preparation needs to take place both at tax level, in terms of reorganising the business assets, and at marketing and operational level in terms of reviewing the company’s strengths and weaknesses and working on improving them over a period of several months to enhance the transfer value.
Comco Consulting is a M&A firm specialised in supporting SMEs and mid-tier companies. For assistance with your business transfer project, please contact us at contact@comco-consulting.com.
How to ensure a successful business transfer - Paris, 17th arrondissement.
The successful transfer of a business is crucial if the company is to continue to thrive after being sold by its founder or shareholders. Upstream preparation is required to highlight the various aspects of the transfer. This means defining the scope and anticipating tax alternatives, as some options require a certain amount of time to implement.
The main selection criteria are (i) the project; (ii) the price and payment terms; (iii) securing the funding; and (iv) the profiles of the interested parties. These profiles are varied, and may include corporate players wishing to strengthen their product offering or geographical location. The transaction can also be family-based, with an investment fund or a transfer of ownership to employees.
Comco Consulting is a Paris-based M&A firm specialised in supporting SMEs and mid-tier companies. We help you to implement your business transfer and identify and negotiate the best offer in accordance with your needs and expectations. For assistance in transferring your business, please contact us at contact@comco-consulting.com.
Present your business well and optimise its value - Paris, 17th arrondissement.
According to a survey of company directors and buyers, the main criterion for the successful sale of a business is its growth potential (55%), ahead of profitability (37%) and intrinsic value (25%). As such, a company takeover is not limited to economics alone. Instead, it is first and foremost a question of long-term vision and of trusting in the existing team’s expertise.
This idea has been backed-up by a survey of business transfer professionals, with 56% of them citing lack of visibility about the business as the main short-term obstacle to a sale, far ahead of price considerations (19%). This criterion is now underpinned by the uncertainties brought about by the Covid crisis, the war in Ukraine and inflation.
To successfully sell a business in this tougher market context it is vital to present it well, i.e., to communicate its long-term growth prospects, its differentiating business model and the expertise of its teams.
Comco Consulting is a Paris-based M&A firm specialised in supporting SMEs and mid-tier companies. We help you draft the documents needed to optimise the sale of your company (teaser, information memorandum, strategic plan, business plan) For assistance in transferring your business, please contact us at contact@comco-consulting.com.
Enhance your company’s value through Vendor Due Diligence (VDD) – Paris.
Almost half of all SMEs with more than 20 employees see their divestment process fail on the first attempt. One of the main reasons is that there is too great a divergence between the buyer’s and seller’s views of the company’s value, even though both of them are eager to see the transaction go through.
How can these conflicting interests be resolved? The seller’s need to maximise proceeds from the sale and secure his/her future must be reconciled with the buyer’s interest in paying a “sensible” amount based on a reasonable valuation. In short, how can you enhance your company’s value? Price negotiations can be made much easier through the use of Vendor Due Diligence (VDD), which is an in-depth review of a business carried out at the seller’s initiative.
VDD is often performed by a specialist firm and offers numerous benefits, namely:
- Heightening the parties’ confidence in the information produced
- Demonstrating the market’s significance and the company’s positioning
- Supporting the hypotheses made in the business plan and therefore justifying the asking price
- Standardising the company’s financial aggregations, which can positively impact the seller
- Providing a vision of the company’s value based on non-financial criteria
- Identifying and clearing up sensitive issues in advance
- Reducing the number of issues to be dealt with during the acquisition audit
- Providing the future buyer with dashboards
Although VDD is not systematic, it is required by certain types of buyers such as investment funds or family offices in order to lend weight to their purchase decision. Company directors may also perform a VDD of their own accord, thus speeding up the sale of their company and enhancing its value.
Comco Consulting is a strategy consulting firm specialised in supporting SMEs and mid-tier companies. For assistance with your Vendor Due Diligence project, please contact us at contact@comco-consulting.com.
Investments that are made during a recession generally generate better returns.
Think of a recession as a steep curve on a racetrack: the best place to make a good investment, but requiring more skill than straight lines.
This rule applies to acquisitions and equity investments because the lower the purchase price, the better the rate of return.
Thus, the year of entry under LBO has a considerable impact on the rate of return that will be obtained. An investment made at the height of the TMT bubble and their valuations in 2000 yields an IRR of 11% compared to 25% in 2001, 40% the following year and 47% at the bottom of the stock market in 2003.
Comco Consulting can assist you in your acquisitions and equity investments. Do not hesitate to contact us to learn more about our support offer at contact@comco-consulting.com
Towards a slowdown in asset disposals ?
The average asset holding period for private equity firms has steadily declined from 5.8 years in 2014 to 4.4 years in 2021.
The expansion of multiples has allowed private equity firms to buy a company, leverage it, and exit more quickly, moving on to the next deal. The exception is the “best of both worlds” approach: divesting a large portion of the equity as soon as possible while retaining a portion of the business to further benefit from the multiple expansion.
The question now is what happens in a more volatile environment, when cycles are more irregular and selling early is no longer as advantageous. Can the company count on at least a 2x return without finding new revenue streams or improving EBITDA margins?
Companies in the global economy are now feeling cost pressure and inflation expectations are influencing valuation behavior. In an era of inflation, the best IRRs will inevitably depend on value creation, helping to improve a company’s ability to generate more revenue and cash flow.
Comco Consulting can help you with your equity mergers and acquisitions. Please contact us to learn more about our support services at contact@comco-consulting.com.
The impact of inflation on business valuation.
Since 2022, inflation has risen from 0-2% to over 6%. It is expected to remain between 2 and 4% for the long term. This increase has a significant impact on company valuations, as we have seen from the fall in GAFA share prices in 2022.
Inflation first of all increases costs in a sustainable way: raw material costs, energy costs, transport costs, financing costs, etc. and salary costs in order to limit the loss of purchasing power of employees. Depending on its pricing power, the company increases its prices with varying degrees of success in an attempt to preserve its margins. But most companies see their margins constrained, resulting in reduced valuation.
Moreover, inflation increases stocks and more generally the working capital. To avoid supply shortages, companies increase the number of suppliers and build up safety stocks. The WCR therefore increases and reduces Free Cash Flows by the same amount, while at the same time increasing the debt required to finance it. This has a double impact on the value of the company.
Finally, and particularly for industrial companies, fixed asset investments are becoming more expensive, both because of the increased cost and because of the increase in borrowing interest rates, which are aligned with the key rates of the central banks, trying to control inflation through this increase. The more a company has to invest in its production tool, the more its Free Cash Flows will decrease, which will have a further downward impact on the value of the company.
A triple effect to be taken into consideration when valuing a company.
Comco Consulting will assist you in your company valuations. Do not hesitate to contact us to find out more about our support offer at contact@comco-consulting.com.
Case studies
Assistance with the proposed acquisition of a construction group in the greater Paris area.
As part of its growth strategy, a construction group in the greater Paris area called on Comco Consulting for assistance with a proposed acquisition.
The assignment was broken down into four key phases:
- Analysing the target, including preliminary meetings with management, site visits and project feasibility study (identifying the main strategic, business, operational and financial challenges and the main business integration issues);
- Coordinating all of the audits (accounting, tax, social, legal, etc.) required;
- Providing support with negotiations at various stages of the transaction;
- Helping the group to secure transaction financing, including drafting the information memorandum.
Preparing the first 100 days of a merger for a Bordeaux-based land survey company.
A Bordeaux-based land survey company was in the process of expanding its business internationally with a view to creating added value. To maximise its chances of success, the company called on us to help it prepare the first 100 days of the post-merger period.
The assignment consisted of:
- Assessing the integration plan and carrying out due diligence on the target;
- Disseminating best post-merger practices to the buyer’s and seller’s management committees;
- Building an integration roadmap setting out the priority actions to be implemented over the first 100 days.
Our news
The 2023-2025 trends in external growth operations
Mergers and acquisitions (M&A) activity face significant challenges in 2023 due to economic and political uncertainties, rising financing costs, and stricter regulations.
The focus will shift towards smaller deals, corporate restructuring, and US dominance in the next three years.
How to achieve successful post-acquisition integration
SMEs seeking growth through acquisitions face challenges, with 50-70% falling short of expectations. Successful integrations require careful planning, communication, and respect for employee well-being.
The 2023-2025 trends in external growth operations
Mergers and acquisitions (M&A) activity face significant challenges in 2023 due to economic and political uncertainties, rising financing costs, and stricter regulations.
The focus will shift towards smaller deals, corporate restructuring, and US dominance in the next three years.
How to achieve successful post-acquisition integration
SMEs seeking growth through acquisitions face challenges, with 50-70% falling short of expectations. Successful integrations require careful planning, communication, and respect for employee well-being.