report - Transeo

EUROPEAN
SME TRANSFER
S U M M I T
REPORT
26 MARCH 2014
BRUSSELS
BELGIUM
2
3
PLENARY SESSION
5
Taking stock of progress & preparing for the challenges ahead
5
THE BIG DEBATE
10
Given better support, many more people will be able to
buy an existing company
10
ADRESSES FROM MINISTER MARCOURT AND MRS BENINI
(CABINET TAJANI)
13
WORKSHOP A
14
Best practices in awareness-raising among business
owners about transfer
14
WORKSHOP B
18
Valuation and negotiation in SME transfer deals
18
WORKSHOP C
24
The biggest barriers in entrepreneurial buyouts
24
PLENARY SESSION 28
Transeo Academic Awards Ceremony
28
PLENARY SESSION
30
External growth, internationalization and financing as key
ingredients for sustainable growth of European SMEs
30
CLOSING SPEECH
35
4
5
PLENARY SESSION
TAKING STOCK OF PROGRESS & PREPARING FOR THE CHALLENGES
AHEAD
The European Commission has been working on the subject of SME transfer for 20
years. Transeo, for 5 years. Now we have an opportunity to update ourselves on the
progress made, as well as on what remains to be done!
In his welcome address, Jean-Pierre Di Bartolomeo, Chairman of Sowaccess &
Chairman of Transeo, mentioned the fact that Transeo is not simply an “idea”. The
first Transeo Conference was organized in 2009 and the association was founded in
2010 on the conviction that this type of initiative would make it possible to accelerate
networking and exchange of good practices, and therefore to improve the transfer of
SMEs in Europe. Belgium then joined forces with French and Dutch partners. Transeo
now gathers 40 Members from 13 countries. At present, the ideal would be for each
European country to have a specific plan of action on SME transfer with a stable
stakeholder as “gateway”.
Transeo is the only European organization that focuses on the transfer of SMEs.
Jean-Pierre Di Bartolomeo thanked the partners that have been there from the
outset, five years ago now. Thanks also went to the sponsors, the Transeo Members,
professionals and academics for sharing their knowledge. It would be wonderful if
new ideas arise as a result of this Summit. Transeo is a sort of hub that already works
with the European Commission and with some governments. “My desire? That this
way of working should spread to all Member States. I wish you all an excellent day of
discussion, networking and reflection.”
6
7
WHY NOT ACCELERATORS?
Did
you
know?
The
European
Commission has been working on the
subject of business transfer for 20 years,
with its first communication on this issue
dating back to 1994 and revised in 2006
and 2013.
So the matter is clearly of concern to
the European authorities, but much still
remains to be done, explains Marko
Curavic, Head of Unit ‘Entrepreneurship’,
DG Enterprise and Industry. He proposed
three areas in which progress could be
made:
1. New understanding of the concept
of transfer: transfer is not limited to
being a patrimonial question or one
of passing on to another generation.
Co-existing, diverging interests must
be taken into account: groups of
investors, for example, will not have
the same vision as a future retiree. All
types of interests must be considered.
2. W
e need more visibility: the start-up
phenomenon is very well covered by
the media and documented. It is the
subject of surveys, stories, etc., but
this is not at all the case with business
transfers. An active entrepreneurship
policy is required.
3. Attack rather than defend: we
need transfers to be seen in a
positive light. They need to be
seen as an opportunity for creating
growth, generating innovation and
development, not merely a means of
protecting employment.
Among a number of specific ideas, Marko
Curavic also launched the idea of the
creation of incubators or accelerators.
This type of structure exists to some
extent everywhere in Europe for startups, so why not extend this to business
transfer? That would make it possible to
better match buyers and sellers, and to
send the message to young people that
taking over a business might possibly be
a worthwhile means of forging a career.
Finally, we urgently need to better
support cross-border transfers, to
identify good practices and disseminate
them, and to improve organization
in order to gather further statistics.
Awareness and support services vary
considerably from one country to
another.
SPECIFIC
PROGRESS
STEPS
TOWARDS
In reply, Jean-Pierre Di Bartolomeo
mentioned Transeo’s analysis of the
remaining obstacles to business transfer
policies.
Political
attention, in particular, with a
critical need for better statistics.
Awareness–raising
& support. Today,
if we ask, “who wants to become an
entrepreneur?” to young people,
most of them raise their hand. This
is not at all the case with transfers,
they don’t think about it. But if you
take the trouble to give them some
explanation, you may be pleasantly
surprised.
Financing acquisitions: the formats
differ from one country to another.
For example, in Belgium, the risk is
shared between the public and private
sectors. The former offers a guarantee,
the latter provides the cash. It is a
format that works well and that could
be copied. Other current set-ups in
different countries are worth studying.
Legal aspects & taxation: Transeo
could help to define quality standards.
Matching platforms: these differ
considerably from one country to
another. Belgium, France and Holland
have worked to set up a common
platform without too many criteria
but giving priority to a qualitative
approach. That takes time but is worth
the effort.
Cross-borders deals: the European
Commission wishes this issue to be
emphasized and it is right. It is still
difficult, not only for legal reasons but
also for cultural and language reasons,
etc.
8
9
What Transeo can do to help? Five specific proposals:
BEING SME MINDED
1. O
rganize the biannual European Business Transfer Summit
on behalf of the EU Commission.
According to Peter Faross, who represents the voice of
European SMEs (UEAPME), there is an urgent need to be “a
bit realistic.” It is worth bearing in mind, in particular, that the
“room for manoeuvre” in the European Union in the field of
business transfer is extremely limited. It is utopian to expect to
work in the same way in 28 countries. Especially when dealing
with an issue that has a major cultural or emotional factor.
2. Be the EU Commission centre of expertise in business
transfer.
3. O
rganize the European Best Business Transfer Awards, as is
done in France.
4. Improve the political attention, information and support for
business transfer at EU level and in Member States.
5. P
rofessionalize business transfer advisors and work on a
system of incentives to be implemented in Member States
to provide affordable and professional advice to sellers and
buyers.
The situations are considerably different depending on
whether the business is staying within the family or being sold
to employees or third parties. One of the major problems for
SMEs is still access to funds. There is much work to be done in
this area also.
Then, André Kilesse, Chairman of the European Federation
of Accountants, also expressed the opinion that most of the
information from the European Union needs some interpretation
to be understood by SMEs. In their world, the role played by
the accountant is to position himself as adviser to the family
and the owners, but he must be able to surround himself with
the right people. The accountant must be the person who can
clarify positions before any transfer transaction takes place. He
knows the various parties in the family and can highlight each
one’s interests.
Speakers
Marko CURAVIC
Head of Unit Entrepreneurship
and Social Economy
DG Enterprise and Industry
European Commission
Jean-Pierre DI BARTOLOMEO
Chairman
Sowaccess & Chairman Transeo
Belgium
Peter FAROSS,
Secretary General
UEAPME
(European Association of Crafts
Small and Medium-sized Enterprises)
Germany
André KILESSE,
President of the European
Federation of Accountants
Belgium
Moderator
Richard WELLS
10
11
THE BIG DEBATE
FIRST REPORTS ON EDUCATION/
MENTORING SHOW POSITIVE
OUTCOMES
GIVEN BETTER SUPPORT, MANY
MORE PEOPLE WILL BE ABLE TO
BUY AN EXISTING COMPANY
By way of introduction to the session, an initial overview was given by Prof. Mike
Wright, Director at the Centre for Management Buy-Out Research at Imperial College,
a centre based in London, who has been interested in the subject of management
buy-outs since the early 80s.
Can anyone buy an existing company?
According to the considerable volume of research carried out by these experts,
confronted by a database of 30,000 operations carried out in Europe, it appears that
awareness is one of the greatest problems. If we want to see more successful SME
transfers, we certainly need advisors who can provide support and public authorities
that provide a favourable framework, but also and above all there is considerable
work to be done on the image. Indeed, the debate about private equity has been
damaging and misleading. It is extremely important to have role models of successful
deals. It is worth noting that highly specialized journalists such as, for example, at the
Financial Times, are entirely unaware of the issue of transfers.
Another academic point of view was
given by Prof. Lex Van Teeffelen,
Professor of Business Transfers and
Innovation in Utrecht. Researchers have
demonstrated that an entrepreneurship
awareness-raising plan, such as the one
implemented by the Netherlands for the
last 25 years, gives very tangible results.
What is needed to prepare such
“takeover entrepreneurs” to buy
an SME? Do governments need to
give a helping hand? How about
complementarity with the private
sector? What should be the role of
education?
It is also important to understand the seller’s ambitions. Some family business owners
want, above all, to maximize the price, while others want to remain in the business for
a few years after the deal, and yet others want to remain involved in other ways. It is
very important to clarify these points before striking a deal.
From the start of the 90s, the rate of
early stage entrepreneurial activity in
the adult population was very low in
this country: barely 2% of the adult
population. Through this long-term
programme, which was very focused on
education, the Netherlands succeeded in
completely reversing the trend (10%).
If we transpose this type of programme
to business transfer, it is highly likely
that the outcome will be the same. In
any event, this is what some empirical
experiments proved among groups of
20/21-year-old students. After being
informed of the existence of different
ways of getting involved besides business
start-ups, they completely changed
their view. The same conclusions were
reached by groups of potential buyers.
After a series of support meetings,
lectures and mentorship, their initial
fears were significantly allayed.
Conclusions: you have to go beyond
the idea that “Entrepreneurship = Startup entrepreneurship.” First reports on
education/mentoring show positive
outcomes. So it is worth continuing in
this direction if we want to see long-term
results.
AN ACQUISITION IS NOT ONLY A
QUESTION OF PRICE
Very pertinent, the point of view of
Thomas Spitaels, Chairman of the
Executive
Committee
and
Board
Director of TPF Group. Founded in
1991, this engineering and consultancy
company has an average growth of 25%
- 30% each year (doubling in size every
three years). With 31 acquisitions and 15
creations, as well as 3,350 employees
and subsidiaries in 32 countries, TPF
certainly has something to say about
enterprise acquisition.
If anyone can buy an existing company,
it doesn’t mean it’s a success. Note that
success is not only a question of price. In
order for it to work, there are a number
of aspects to be considered, in particular,
that of the shareholding structure (listed
company, partnership, subsidiary, limited
number of shareholders). If you buy a
business that is too different from yours,
it will not work.
The
same
reasoning
applies
to
the management style: at TPF, for
example, subsidiaries have always had
considerable freedom to act. They do
not expect everything to come from
the parent company. This style is also
manifest in the HR policy: either you
call on expats or you work with local
managers, as in the case of TPF.
In short, you need to know each other
well before buying another business. You
need to share the same vision, the same
set of values. This is something that is
reflected in the decision-making bodies
that are the image of the business. TPF’s
executive committee, for example, has
nine people from Europe as well as Brazil
and India. Being a Belgian company, one
might have expected there to be nine
Belgians.
In short, the question of price is certainly
important, but it must not be central.
If this is the case, that means that the
parties are not interested in working
over the long-term and this is a bad sign.
12
13
Speakers
THE END OF STEREOTYPES?
Another extremely thought-provoking
testimony came from Madi Sharma.
This expert in entrepreneurship has
established a group of eight businesses.
The philosophy of the group is to create
innovative ideas tailored to local action,
which can achieve global impact and be
beneficial to a sustainable society. Each of
the businesses is run locally by managers
who are brimming with enthusiasm,
passion and business savvy.
Madi Sharma calls for realism. Many
people are likely to buy businesses, but
those who do so are those that dare to
take risks. This type of attitude needs
to be more highly valued in Europe. At
present, this is not the case, especially
as regards people who have faced
business failure. The fact of creating jobs,
generating growth should be more highly
regarded.
Too many stereotypes persist in Europe
concerning the ideal entrepreneur profile,
who, in theory, should have a business
school background and be surrounded by
a multitude of advisers. In real life, things
are not like that at all. Very few successful
entrepreneurs have a university degree.
Very few of them began by making a
business plan. The business plan is only
a gateway to financing, but you do not
start up a business on the strength of
obtaining financing. The key to everything
is passion.
Business diversity is an issue that is
not well understood in the realm of
the advisers. And Madi Sharma raised
this question: if advisers are so good
at business, why don’t they create one
themselves?
At the end of the Big Debate, the audience
was asked to vote : the majority agreed
on the fact that given better support,
many more people will be able to buy an
existing company.
Madi SHARMA,
Expert in entrepreneurship, Member
of Employers’ Group of the European
Economic and Social Committee
and Member of Mr Tajani’s Advisory
Board for Industry and Enterprise
United Kingdom
Thomas SPITAELS,
Chairman of the Executive
Committee and Board Director of
TPF Group
Belgium
Prof. Lex VAN TEEFFELEN,
Professor of Business Transfers and
Innovation, University of Applied
Science Utrecht & Academic
Chairman of the Transeo Academic
working group
The Netherlands
Prof. Mike WRIGHT,
Director
Centre for Management
Buy-Out Research, Imperial College
of London
United Kingdom
Moderator
Richard WELLS
ADRESSES FROM MINISTER MARCOURT
AND MRS BENINI (CABINET TAJANI)
Message from Walloon Vice-President Jean-Claude Marcourt,
Minister for the Economy, SMEs & Foreign Trade.
Message from Fabrizia Benini, Member of Cabinet of VicePresident Antonio Tajani, Industry and Entrepreneurship.
Today, we focus a lot on business creation. Now, a third of
businesses in Europe risk disappearing within 20 years if they
do not find someone to take over. This is the reason why we
launched an awareness-raising programme in Wallonia in 2006
through “SOWACCESS”, the Walloon Agency for SME Transfer.
Since its set up, SOWACCESS reached 1,000 entrepreneurs
and 90 SME transfer deals were closed thanks to its actions.
For years, Europe has placed the accent on the services sector.
But the movement appears to be reversing now and industry
is once again on the agenda. Let us not forget that this sector
makes up for 80% of innovation and that each job created in
industry generates two in services. The EU specifically stated
that this new industrial policy must include SMEs. If they
prosper, growth will follow. If not, there will simply not be
growth.
Awareness-raising should be carried out internationally. This
is why Transeo was set up back in 2010 and currently has 40
partners in 13 countries.
The subject of business transfer must also adopt an SME vision.
Support services must be affordable, while also being extremely
relevant. The national level is therefore paramount as the EU
cannot work magic in all these areas. Local stakeholders also
have a major role to play as reputation is very important in SME
transfer deals.
14
15
WORKSHOP A
BEST PRACTICES IN
AWARENESS-RAISING AMONG
BUSINESS OWNERS ABOUT
TRANSFER
A significant aspect of a network
such as Transeo is identifying and
sharing good practices. It is also
important to «improve» these
good practices further. This is the
mission assigned to the Awarenessraising working group.
Launched in 2013, the awarenessraising working group has worked
hard throughout the year, collecting
information from Transeo Members,
through an online questionnaire and two
working group meetings, in March and
October 2013. Jean-Marie Catabelle,
Honorary Chairman CRA (Cédants et
Repreneurs d’Affaires) & BOD Member
Transeo presented the conclusions from
the working group final report, containing
a summary of the good practices and
recommendations.
The main recommendations particularly
include the desire to see each Member
State have a neutral contact point
specialized in the transfer of business.
Ideally, it would be necessary that each
country also creates an online platform
to match potential sellers and buyers. It is
also essential for this platform to work with
the private sector (brokers, advisers, …)
and local stakeholders. Connections
with other regional platforms and even
platforms from other countries is also
part of Transeo’s recommendations.
The working group also pointed
to significant efforts in the field of
communication. Communication media
should absolutely inspire confidence
among potential sellers. This is a key to
the success of all actions.
SPAIN:
A MESSAGE FOR YOUNG PEOPLE
Creating confidence among business
owners is also essential. Mentoring is
also a good way to increase awareness
of the change of ownership challenge. In
France for instance, entrepreneurs offer
their time to business owners starting
a transfer process. They are not in a
business relationship, it is therefore not
classic coaching. This type of action
can be decisive, especially early in the
process where potential sellers need to
talk to a sort of friend, a confidant.
In short, the inventory of good
practices exists, together with many
recommendations. What will happen
now? This report will be available for
Transeo Members exclusively, a summary
brochure and a Position Paper will also
be disseminated. It is now up to the
Member States, with the help of the EU
Commission and of course Transeo, to
take action and create and implement
efficient awareness-raising policies.
To go deeper into the realities of
countries, good practices from 5
countries were presented, with a focus
on the success factors of the practices.
WALLONIA:
LONG-TERM SUPPORT
In Wallonia (Belgium), SOWACCESS,
the Walloon Agency for SME Transfer,
developed several awareness-raising
In Catalonia, the “Centre de Reempressa” focused strongly on
its communication to young people, particularly the young
unemployed. The geographical scope is gradually expanding
across Spain. The underlying message is to position takeover
of an existing company as a way to create one’s own job.
and support tools. Christine Margrève, Manager, mentioned
their Business Transfer Guide published in 2008 in order to
dedramatize and popularize business transfer. Another tool
developped by SOWACCESS is an on-line diagnostic, under
the form of a multiple choice questionnaire of about a hundred
questions. It takes about an hour to fill in. The exercise leads to
a kind of Swot matrix that may be very instructive for the rest
of the process. This especially allows the business owner to
react to some weaknesses before entering the transfer process.
The approach is based on partnerships, involving both public
and private stakeholders. “We are not creating new structures,
but are rather equipping existing structures such as the city
Councils. For services, we refer to professionals in the private
sector,” says Oriol Alba, Project Manager.
One of the keys to success is to have a single database,
accessible via a single website, which greatly increases
visibility. Simultaneously, the local approach is very important,
it is a complete network of local players which is activated.
Christine Margrève believes that the transfer process may
take between two and four years. Which is why SOWACCESS
supports the buyer in the long-term, even after the transaction.
“The first year after the deal, the risks of human errors by the
new manager are high. It is essential to be present at that time”.
SOWACCESS is a neutral and independent stakeholder, which
connects sellers and buyers with quality professionals from
the private sector, an ambitious but very efficient organization
to reach as many business owners and potential buyers as
possible and provide them with professional advice.
The media, in particular Social media, is an efficient way to reach
out to young people and raise awareness about business transfer.
16
17
FLANDERS:
PRIORITY TO ENTREPRENEURS
OVER 55
In
Flanders,
Enterprise
Flanders
(Agentschap Ondernemen) is the
government agency, charged with
the economy and enterprise policy in
Flanders including “business transfer”.
Four years ago, a Masterplan for business
transfer was established in Flanders. The
awareness-raising campaigns are aimed
at entrepreneurs over 55 years old. As a
matter of fact, surveys have shown that
57% of them do not know what they will
do with their business in the 10 coming
years.
The campaigns are organized around a
“Week of Business Transfer” in the last
week of October. A date that was not
chosen at random! “Here, all families will
often visit the graveyard on November 1.
Therefore, we are trying to attract the
attention a few days beforehand, as
parents and children are less loathe
to broach this kind of subject then,”
explains Patrick Jordens, Business
transfer coordinator at Agentschap
Ondernemen.
More than 40 events are scheduled
during this week, which are widely
reported in the media. The Flemish
Minister President also sent a letter to
all entrepreneurs over 55 years owning a
small compagny. The message? To start
thinking about what will come next, to
talk about it, to look for information.
Various information packages are
In Flanders, the campaigns are aimed at
entrepreneurs over 55 years old and are
organized around a “Week of Business
Transfer” every year during the last week
of October.
available for people who request them.
Information sessions and trainings are
also offered.
According to Patrick Jordens, one of
the great merits of this action plan, in
addition to its regularity, is to make it
easier to make contact with a consultant.
This is a very delicate moment: the
entrepreneur wants to act, but he
doesn’t know who to ask. Agentschap
Ondernemen therefore works in this
direction.
“Above all, no pressure”, Toni Brunello,
CEO, StudioCentroVeneto insists. In the
messages, entrepreneurs are invited to
become informed, not to hurry, especially
not to make urgent decisions. The idea is
to give entrepreneurs confidence, that
they feel they are keeping control. Once
they are ready and familiar with the
transfer concept, they come back and
take action much more easily.
In the future, efforts will be focussed
on the role of women in the business
transfer process and on the training
of business transfer advisors (work in
interdisciplinary teams, emphasizing
soft skills such as emotional sensitivity
and mediation).
The online database, nexxt-change
is a very popular tool. It lists ads of
businesses for sale and buyers profiles
for free. The number of ads and visits
is growing significantly, according to
Joachim Rupp, Business transfer adviser,
Industrie und Handelskammer Ulm.
Lessons from the workshop
C
onsistency in communication is a key success factor, such as the Week of
Business Transfer (Flanders), which is organized each year at the same time.
Awareness-raising should also deal with how to find the buyer for one’s
company. In this respect, matching platforms play a crucial role. A nonfragmented database, accessible via a single website, greatly increases visibility.
Target groups depending on the socio-economic reality in the country: young
people in Spain, entrepreneurs over 55 in Flanders.
Neutrality of the official organization for business transfer and complementarity
with the private sector: public actors are sometimes seen as competitors
in the private sector but over time their neutrality inspires confidence among
entrepreneurs.
Speakers
Oriol ALBA SENDRA
Project Manager
Centre de Reempressa de Catalunya
Spain
ITALY:
NO DECISION UNDER PRESSURE
In Italy, the emphasis is on an intense
collaboration with local institutions. The
approach blends top-down tools with
bottom-up tools. The language used in
the communication is very creative, if
possible not too academic.
potential sellers. Awareness-raising is
working well, including more than 250
individual consultations for 2013 in
Baden-Württemberg.
GERMANY:
FEW ENTREPRENEURS PLAN
THEIR SUCCESSION
In
Baden-Württemberg
(Germany),
the issue of business transfer is also
very important, with only a third
of entrepreneurs planning for their
succession. A series of actions have
been set up to raise awareness among
Toni BRUNELLO
CEO
StudioCentroVeneto
Italy
Jean-Marie CATABELLE
Honorary Chairman CRA & BOD
Member Transeo aisbl
France
Patrick JORDENS
Business transfer coordinator
Agentschap Ondernemen
Belgium
Christine MARGREVE
Manager
SOWACCESS
Belgium
Joachim RUPP
Business transfer adviser
Industrie- und Handelskammer Ulm
Germany
Moderator
Richard WELLS
18
19
WORKSHOP B
VALUATION AND NEGOTIATION
IN SME TRANSFER DEALS
In order to negotiate and achieve
a successful transfer deal, the first
condition is to perform a relevant
valuation of the company to be
transferred. This may seem obvious,
but the process can hide quite a lot of
obstacles and pitfalls. The valuation
exercise is far from the only element
that must be taken into consideration:
a lot of ‘soft’ parameters, often linked
to emotional dimensions, must also
be identified and under control if all
parties wish to conclude a fair deal.
Being the first speaker of the workshop, Alexandre Streel (BDO Corporate Finance,
Belgium) started by setting the valuation scene and reviewing the various methods
for valuing a company as well as some mistakes to be avoided.
PRICE, VALUE AND VALUES
He first reminded the audience the following three truths in terms of valuation. Value
is not price. The “value” is the best estimation of the price, which is supposed to
satisfy a large number of hypothetical buyers, who are willing but not anxious to buy.
Conversely, the “price” is the final amount resulting from a negotiation between a
seller and a buyer in the context of a transaction.
Valuation is not an exact science. Several methods can be used for valuing an asset;
each of these methods involves many drivers, for which a range of numbers can be
accepted, so that it can be considered there are as many values as valuators.
Lastly, the value of any asset, being tangible or intangible, can be estimated using
three different approaches (each encompassing several methods): cost approach,
income approach and market approach.
• Bargaining position
• Seller’s requests
• Negociator’s quality
Negociation
• Timing
• Rep’s and
Warranties
Payment
method
Motivation
Price of the
parties
• Tax aspects
• Strategic
interest
• Majority vs.
minority
• Leeway
Value
Scarcity
• Diagnosis
• Secor
• Valuation
methods
• Distribution
• Interest rates
• Debt
• Technology
• Brond
20
21
COMPANY VALUATION METHODS
The cost approach considers the
company’s value being equal to the
(fair) value of its net assets. This is the
easiest valuation method. However it
does not reflect historical or forecasted
performances, a main drawback from the
investor point of view.
According to the income approach, the
company is worth the value of its future
discounted cash flows (Discounted
Cash Flow method or “DCF”). This is
a generally accepted method since it
considers the prospects of the company,
its risks and uncertainties. It however
requires reliable and sound financial
forecasts, which are not always possible
to determine. A few mistakes to be
avoided when using this method: to
overlook the non-operating assets, to
calculate the expected return on equity
based on the book value of the equity
(instead of its fair value), or to omit the
debt-like items (provisions, minority
interests…).
Thirdly, the market approach consists
in determining the value of a company
based on publicly available prices of
stock-quoted companies active in the
same sector or recent transactions
involving comparable companies. This
approach relates to the “multiples
method” (P/E, EV/EBITDA, EV/Sales…).
Some mistakes to avoid when using
this method: to consider the average
multiple of the peer group (instead of
their median), or to apply the current
multiples to the future results of the
company, therefore double-counting the
growth factor (in the financial planning
and in the multiple)!
This is the reason why a European-wide
(1)
SME specific study is conducted by
Transeo in partnership with BNP-Paribas
Fortis in order to identify such specific
factors, to determine which are the
best practices and to define valuation
guidelines for the valuation of SMEs in
the context of SME transfers in Europe.
This study is carried out by Transeo
Member “HEC-Ulg” on behalf of Transeo
and BNP-Paribas Fortis and involves all
Transeo Members.
Marie Lambert (HEC-Ulg) reminded
the audience of some of those specific
characteristics SMEs have, which make
the valuation process more difficult to
apprehend or make the classical methods
The reason why an owner decides to sell (financial reason,
health problems, “reward” for a life-long career, etc.)
This was one of the key points of Nadine Kammerlander’s
presentation (University of St Gallen) - entitled “the role
of sellers’ emotions in a price negotiation” - and the theme
of a 2013 Swiss survey that was sent to 1,345 SME owners/
managers.
The power to control the cash flows, etc.
SPEAKING FROM EXPERIENCE
less relevant. For instance, the lack of
product diversification (increasing the
risk and lowering the final price), the
lack of valuation of intangible assets or
the fact that the value of the company
is often equated to the “value” of one
or two key persons. This last criteria can
have a profound impact on the agreedupon value if this key person leaves the
company after the deal has been signed.
All those factors should therefore be
taken into consideration in order to
adjust valuation methods and account
for SME specificities. Price drivers of
the negotiation for both parties must
be taken into account as they deeply
influence the price discovery process
between buyers and sellers. Marie
Lambert listed a few examples:
The emotional attachment of the seller
to the company (being a member of
Countries involved : France, Belgium, Germany, Luxembourg, The Netherlands, Poland, Spain, Italy, Finland and Latvia. Respondents to the survey
of the Transeo-BNP-Paribas Fortis valuation study are business transfer professionals (lawyers, private equity advisors, etc.). Survey results are
expected by end 2014.
(1) elements often relate to psychological or even emotional
dimensions.
The market structure and competition: heavy competition
can mean numerous potential buyers with an obvious
impact on the expected price; small countries mean a
different market structure, a smaller hinterland, fewer
national buyers, etc.
SMEs specific constraints
Commonly used valuation methods
remain the same for SMEs (as for listed
or larger companies). Yet SMEs share
some unique characteristics which affect
the way of estimating valuation inputs
(cash flows/earnings, discount rates…)
and make the valuation exercise much
more difficult and technical.
the family, desire to guarantee some sort of family continuity,
etc. will have an impact on the sale price)
The second part of the workshop was dedicated to testimonials
from three experienced international experts who offered a
series of useful tips, advice and best practices drawn from their
respective experiences in negotiating small business transfers
in various situations and cultural contexts.
The fact is that even if the mere factual side of transfer is of
paramount importance (i.e. assessing the actual value of
a company), quite a lot of “soft” criteria must be taken into
consideration by both parties and their respective advisors if
they want to reach a fair and effective agreement. Those “soft”
To agree on a final deal price, buyer and seller must make their
expectations converge and avoid pitfalls that can derail the
negotiation process. “One piece of good advice is to come
to the table with a clear and optimized view of their own
BATNA”. BATNA? This acronym stands for “best alternative to
negotiated agreement.” In other words, each party must know
his/her own options. On the seller’s side, good advice is to
document various factors: is the timing right? Can the sale be
postponed? Are there many buyers? What are the alternatives?
Is the potential buyer the best possible successor? Will he/she
respect the seller’s wishes (staying informed of the business,
partial control of things, etc.)
But he/she must also try to discover the other party’s BATNA
beforehand: what are his/her motivations and expectations?
What alternatives will he/she agree to consider?
The 2013 survey revealed some very interesting insights
regarding the gap between the original expectations and the
final price on which the seller agrees. Average discounts vary
according to numerous criteria: seller profile; desire to sell
to a family member, a third party or a foreign buyer; type of
relationship with the buyer; seller’s length of career; seller’s
motivations, etc.
“There can be huge variations between the discount a seller
says he is ready to give and the final discount he will allow.
Especially if the buyer is a friend or someone he knows, the final
discount can be much bigger. And bigger still in the context of
an MBI. The longer the owner has been at the helm, the higher
the discount may be if he sees that the buyer will continue the
business – his/her business... A transfer for retirement reasons
will usually lead to lower discounts. The transfer of a large
22
23
Lessons from
the workshop
Company valuation is not an exact
science. Nonetheless, it often suffers
from conceptual mistakes, which can
have material impacts on the value.
company means there are potentially
fewer buyers. The discount can therefore
be high.” And so on...
CULTURAL INFLUENCE
Zakaria Fahim (BDO Maroc, Morocco)
was an eye-opener on the influence a
cultural context can have on a transfer
negotiation process. In Morocco (but it
can apply to other countries), SME owners
tend to stay at the helm till the end. “We
are not in a transfer culture: you transfer
when you die - or are too old to continue.
An owner will often say that his company
is like his daughter and that he can’t sell
his daughter. He often comes unprepared
to the negotiation table.”
Zakaria Fahim’s advice for professionals
“who must deal with such highly emotional
transfer situations”? “Be patient so that
the parties really listen, know the limits
of the negotiation, get the real numbers,
prepare alternatives.”
Cultural differences exist everywhere
and not only between continents. “A
simple hurried use of a first name can be
damaging in some European countries,”
explained Lise Lotte Hjerrild.
things, or “missing some crucial points,
such as the other party’s real motivations
or,” added Lise Lotte Hjerrild.
Conclusion: when engaging in a crossborder transfer deal, every buyer and seller
would be well advised to pay particular
attention to the cultural environment. And
because the devil is often in the details,
every facet counts, including the language
dimension. “One piece of good advice is
always to level the playing field,” stressed
Lise Lotte Hjerrild. “Switch to English or
German with the other party if both of
you speak different languages and feel
at a disadvantage in the language of the
other party.”
Dealing with obstacles means a
professional advisor must master a
minimum of skills and trump cards.
According to Lise Lotte Hjerrild, “An
international mind-set, various human
‘soft’ skills starting with an open mind,
an international network of qualified
persons he/she can turn to in order to
get the local or domain experience
needed.”
DEALING WITH OBSTACLES
Negotiations can be hampered by
very different events and situations.
Zakaria Fahim cited, for instance, illprepared dossiers, immature projects,
lack of recognition of the other party’s
emotions, a hidden unwillingness to
achieve convergence, among other
One other pitfall that must be avoided
in her view is “negotiating with more
than one master.” In other words, every
person involved on the seller’s side
must agree on the expected outcome.
“Never find yourself in the shoes of a
split advisor... Discuss each and every
item in the contract and get everybody
to agree.”
Even if the principles are basically the
same, the valuation of SMEs is much
more difficult than the valuation of
publicly traded or larger companies,
due among others to their unique
characteristics.
Failing or ill-advised communications
between sellers and buyers can hinder
deals or even make them collapse.
Do not hurry a transfer deal: a business
as well as its owner must be well
prepared, “fit” for sale; but waiting too
long can also harm the company, if it
loses value or misses opportunities.
Sellers and buyers must take the time
to know each other, to build trust, to
mitigate the potential fears of the
owner.
A negotiation process must be
carefully prepared: know the other
party, the motivations and alternatives
that can be agreed upon.
Build a climate of trust and a balance
of power between the parties so that
no party takes precedence over the
other.
Speakers
Zakaria FAHIM
Managing Partner, BDO Maroc,
Morocco
Lise Lotte HJERRILD
Partner
Horten Law Firm
Denmark
Nadine KAMMERLANDER
Senior Research Assistant
Center for Family Business,
University of St.Gallen
Switzerland
Marie LAMBERT
Assistant Professor
PhD in Corporate Finance, HEC-ULg
Belgium
Alexandre STREEL
Partner
BDO Corporate Finance
Belgium
Moderator
Dr Hartmut SCHNEIDER
CEO
M&A Strategie GmbH, Board Member
Transeo
Germany
24
25
WORKSHOP C
THE BIGGEST BARRIERS IN
ENTREPRENEURIAL BUYOUTS
Given the ageing of the population,
which includes SME owners, the
optimum transfer of businesses is a
major economic challenge and at least
as important as the creation of new
businesses. This workshop addresses
a number of psychological, financial,
administrative and fiscal obstacles to
the takeover of an SME. The speakers,
who include an entrepreneur who has
himself just taken over an SME, also
provided concrete advice.
Age is not the number one criteria when it comes to selling a company. Size prevails.
In his introduction to the workshop, Alain Tourdjman, Director of Economic
Forecasting and Research at BPCE (Banque Populaire et Caisse d’Epargne)
presented some figures extracted from the bank’s own statistics and analysis of
business transfers. Indeed, BPCE has developed an original method for evaluating
the number of SME transfers and family successions, at least in France.
The age of the SME owner is not the main criteria when it comes to arranging a transfer.
52% of transfers take place before the SME owner has reached the age of 55. The
size of the business is a greater determining factor, as is the sector of activity. Some
“problematic” sectors such as the construction industry, printing and land transport
are differentiated by a relatively low rate of transfers and therefore high rate of SME
dissolutions.
The BPCE analyses, focussing on France, also show that while the tradition of family
succession is perhaps less present in France than in Germany, in Italy or in Spain, it is
far from being marginal and accounts for 14% of transfers.
The BPCE studies also indicate that the longer an SME owner waits to transfer his or her
business, the less likely it is that he/she will have the opportunity of doing so. Above the
age of 60, the gap between those wanting to sell and those actually selling, tends to widen.
At the time of transfer, the price is only the third criteria. Above all, it is the trust
between the seller and buyer that takes priority. Where this trust exists, owners are
ready to compromise. Hence the importance of arranging informal meetings before
dealing with negotiations per se. 47% of sellers prefer to sell to an individual (rather
than a company or investment group) or to a competitor.
Hans Vanoorbeek concludes with 3
recommendations:
The Vlerick Buyout Academy (7 sessions
a year) helps them with coaching, “real
life” exercises and a lot of networking.
1. H
elping people to take the leap
from their golden cage to being
entrepreneur and being their own boss
is key! Many need a little push…..
The typical profile of participants (with a
real desire to buy a company) is a senior
executive, in his or her mid-40’s, with a
university degree. 88% of participants
are male. Most have worked for 3
companies. The potential buyer wishes
on average to invest between 100,000
and 300,000 euros in equity.
The bank based its findings on a series of events and transactions in the lives of its
SME business clients to determine probable business transfers. Out of some 15,000
transactions examined in 2012, 10,872 were in fact transfers.
SOME OBSERVATIONS ABOUT SME TRANSFER IN FRANCE
senior, well-paid position in a corporation
to buy a (small) company.
A PLATFORM TO HELP POTENTIAL
BUYERS ‘TAKE THE LEAP’
Vlerick also organizes an Entrepreneurial
Buyout Conference each year, with
around 300 participants.
Hans Vanoorbeek has 20 years’ experience
in private equity. As an ‘Executive in
residence’ at Vlerick business school, he
helps teaching with a practical perspective.
3 OBSTACLES AND 3
RECOMMENDATIONS
He starts by defining an entrepreneurial
buyout: «a smaller version of the classical
MBO, whereby the buyer/investor simply
buys the relatively small company,
almost entirely with his own funds, in
order to be an entrepreneur to further
build up the company.»
Famous “captains of industry” started
this way. Think of Warren Buffet, who
started by buying an insurance company,
but also Albert Frère in Belgium.
Hans Vanoorbeek explains why he
cofounded a specific platform for
Entrepreneurial Buyouts at Vlerick:
because people need help to take the
leap! It is not easy or “natural” to leave a
These events are coupled with surveys
that enabled Vlerick to determine that
the 3 main obstacles for potential
buyers are:
1. F
inding the right company. The supply
is there, but it is not easy to find the
right fit and not all companies are in
good shape.
2. L
imited expertise with the buyout
process.
3. Limited personal financial resources.
2. A
ssisting potential buyout candidates
by providing them with the basic
knowledge on how to perform an
entrepreneurial buyout!
3. Creating networking opportunities
where potential entrepreneurs meet
debt and equity providers.
26
27
The financing of the operation was done
by the Agence Gh Hendrick house bank
(another facilitating element) and by
Sowalfin, the Walloon public banks for
SMEs.
The SME owner had been looking to
sell, without success, for 6 years after
many encounters with “cowboys”.
Everything went well, despite this type
of transaction being far from plain
sailing. Here is some of the advice shared
by Philipp Quodbach:
A FOCUS ON FAMILY BUSINESS TRANSFERS
As senior policy advisor at EFB (European Family Businesses),
Darius Movaghar reminds us that family businesses account
for between 40 and 50% of employment in Europe. Successful
succession of these businesses is, therefore, a major issue, on
which 2 million jobs depend.
EFB defends the cause of family businesses at European
institutions, whether in matters relating to taxation, legislation
or governance.
One of the challenges in the case of family succession is the
inherent complexity of this type of transaction, due to the
transfer of ownership, the size of the business (from a 3-person
SME to a giant like L’Oréal) and the complexity of the family
itself (number of inheritors).
EFB therefore advises families to prepare well in advance, to
define a common project, to establish effective governance
(through a family council, for example), to identify and train
successors and, last but not least, to surround themselves with
external advisers. It is important to get professional advice
from people that have no ties with the family and can give an
objective point of view.
Finally, Darius Movaghar insists on the importance of preparing
the groundwork for taxation. Business property tax relief plans
do exist in almost all EU countries, but the dossiers must be
submitted well in advance. Tens of millions of euros are at
stake.
«I WISH I HAD DONE IT BEFORE»
To round off the workshop, Philipp Quodbach shared a
very interesting testimonial. Eight months ago, he took over
“Agence Gh Hendrick”, an international pharmaceutical
products wholesaler. Founded in 1987, this company in the
Liège area (Belgium) employs 8 people and has a turnover of
about 12 million euros.
Aged 52, Philipp Quodback decided to “jump out of the golden
cage” to buy that company. He had, indeed, a confortable
position as Emerging Markets Finance Director at UCB.
«Everybody tried to discourage me,» he explained.
As potential buyer, Philipp Quodback had access to the profile
of “Agence Gh Hendrick” thanks to the SOWACCESS matching
platform. He was then able to immerse himself in the SME and
rub shoulders with its owner over a six-month observation
period. Both parties then agreed on an acquisition price based
on the EBITDA and the turnover.
Be patient – don’t jump at the first
opportunity. You need a cash reserve
to “survive” the first months.
The acquirer’s profile has to bring some
added value to the target company.
«In my case, I had pharmaceutical
experience
including
network,
international profile, language skills
(German).»
lways conduct a due diligence, even
A
if limited to specific topics.
uickly remove “toxic” employees.
Q
“Early on I had to get rid of one
employee who created a horrible
atmosphere in the business.
After some months, Philipp Quodbach is
happy with his decision, encouraged by
a marked upturn in sales. “I wish I had
done it 10 years ago,” he said.
Speakers
Moderator
Philipp QUODBACH
General Manager
L’Agence Gh Hendrick
Belgium
Sakari OIKARINEN
CEO
Confidentum Ltd & BOD Member
Transeo aisbl
Finland
Darius MOVAGHAR
Policy Advisor EFB
European Family Businesses
Spain
Alain TOURDJMAN
Director of Economic Forecasting
and Research
BPCE
France
Hans VANOORBEEK
Executive in Residence
Vlerick Business School
Belgium
28
29
TRANSEO ACADEMIC
AWARDS CEREMONY
PRESENTATION OF THE 3 BEST
RESEARCH PAPERS ON SME
TRANSFER
As explained by Bernard Jehin,
Transeo BOD Member responsible
for the Transeo Academic Awards,
this exclusive contest is organized
by Transeo in order to stimulate
academic research on business
transfer. After the first edition in
2012, this is the second edition of
this Award. 14 contestants from 12
universities in 9 countries, a panel
of 6 judges. 3 research papers
were awarded prizes at the closing
session of the Summit. Pr Lex
van Teeffelen, Transeo Member,
Professor of Business Transfer
and Innovation at the University
of Applied Science Utrecht
and Academic Chairman of the
Transeo Academic working group,
introduced the 3 winners.
1st PRIZE
EMOTIONAL PRICING OF
RESIGNING ENTREPRENEURS
Nadine Kammerlander received the
first prize (€2,500) for her article
titled: “Emotional Pricing of Resigning
Entrepreneurs”.
As a researcher at the University of
St.Gallen, Switzerland, she conducted
an empirical study of owner-managers’
inclination to provide discounts to
buyers. What drives an owner-manager’s
willingness to provide a discount to the
successor?
She found out that 3 main factors
determine
discounts:
the
ownermanager’s position within the firm, the
familiarity of the owner-manager and
successor and the firm’s performance.
2nd PRIZE
THE STRATEGIC ROLE OF THE
FAMILY
Sabine Rau, from WHU – Otto Beisheim
School of Management in Germany, is
co-author of the paper conducted by a
team of 3 researchers, Peter Jaskiewicz
(Concordia University in Canada), James
Combs (University of Alabama, USA) and
herself. She presented the findings of their
common study.
Titled
“Entrepreneurial
Legacy:
Towards a Theory of Family Succession
Across Generations”, this work was
awarded the second prize (€1,250).
The researchers used 21 testimonies
gathered from different countries. These
surveys show that the family is very
important for business transfer: early
child involvement, strategic education, …
The work is based on interviews of
entrepreneurs with a maximum of 9
employees. The conclusion? Location
matters, incentives matter. That’s why a
one-size-fits-all policy within the EU-28
will not work.
Speakers
Bernard JEHIN
BOD Member SOWACCESS & BOD
Member
Transeo aisbl
Belgium
Dr. Nadine KAMMERLANDER
Senior Research Assistant
Center for Family Business
University of St.Gallen
Switzerland
Working together for several years has a
strategic influence on the transfer of the
business model. According to Sabine Rau,
the beginning of the end is wanting to
transfer a business equally between all the
children. This model inevitably leads to the
dissolution of entrepreneurship.
Prof. Dr. Sabine RAU
Lehrstuhl für Familienunternehmen
WHU
Otto Beisheim School of
Management
INTES Institute of Family Businesses
Germany
3rd PRIZE
A ONE-SIZE-FITS-ALL POLICY
WITHIN THE EU-28 WILL NOT
WORK
Geraldine RYAN
Lecturer
School of Economics
Cork University
Ireland
Geraldine Ryan, University College
Cork, School of Economics, Ireland was
awarded the third prize (€750) for her
research paper: “Small Business Transfer
Decisions;
What
Really
Matters?
Evidence from Ireland and Scotland”.
This is the first article on this subject in
this geographical area.
Moderator
Pr Lex VAN TEEFFELEN
Professor of Business Transfers and
Innovation, University of Applied
Sciences Utrecht & Academic
Chairman of the Transeo Academic
working group
The Netherlands
30
31
PLENARY SESSION
EXTERNAL GROWTH,
INTERNATIONALIZATION AND
FINANCING AS KEY INGREDIENTS
FOR SUSTAINABLE GROWTH OF
EUROPEAN SMES
What are the growth prospects of
European SMEs? What are the barriers
to growth? To what extent do they
consider external growth by acquisition
as part of their growth strategy? What
are the biggest remaining problems
to get access to finance for external
buyouts? What are the remaining
barriers to internationalization/crossborder sales/acquisitions? How can the
new EU framework programs help them
towards more growth?
Financing is one the key elements to answer such questions. What does the banker
think? Max Jadot, CEO of BNP Paribas-Fortis Belgium recalled that the growth of
an SME is financed in different ways. The role of the family is initially very important
as the first investor of capital (equity). In the next stage, business angels and family
groups enter onto the scene, they could bring a lot of cash into the business. Then
comes the risk capital which is made available in large quantities in Europe. Finally,
the IPO may also be considered, although the European stock exchanges are not
really appropriate for SMEs.
Internationalization is a must for our SMEs, especially Belgian SMEs that are already
in another country 50 kilometers from their door. The economic diplomatic network
is an excellent lever, as is evidenced by the recent royal visits where King Philippe was
accompanied by nearly 500 businesses, of which some were very small. The banker’s
role is very important in the internationalization process: therefore it is essential to
choose well, in particular whether their banking network is well represented abroad.
That can help!
THE FIRST EU FUNDING PROGRAM SPECIFICALLY DESIGNED FOR SMES
Facilitating access to finance is one of the priorities for Europe. That is what
Jürgen Creutzmann came to explain. The Member of the European Parliament
took part in the development of COSME 2014-2020, the first EU funding program
specifically designed for SMEs, with a budget of 2.3 billion euro. Improving access
to finance is just one of four specific objectives of COSME. Other objectives include
improving framework conditions for competitiveness more generally, strengthening
entrepreneurship and improving access to markets. “As it was clear from the outset
that the budget for COSME will be limited, we decided that we should focus on what
SMEs need most: money. This is why we have earmarked 60% of its overall budget
for financial instruments”, explained Mr Creutzmann.
COSME will improve access to finance in the form of equity and debt capital. All in
all, COSME is estimated to support financing for at least 220 000 SMEs. Certainly,
COSME will not solve all the problems. But it is a great example of how the EU can
complement national and regional efforts to address market failures and thereby
improve the situation for SMEs, which will remain the drivers for innovation and
32
33
Speakers
growth in Europe. The problem is that
many SMEs don’t even know that these
possibilities exist. And if they do, they
often find the programs too bureaucratic,
costly and time-consuming. We want to
change this, said Jürgen Creutzmann.
Jürgen CREUTZMANN
Member of the European Parliament
Group of the Alliance of Liberals and
Democrats for Europe
COSME rapporteur
Member of the ITRE Committee
Germany
NO MIRACLE SOLUTION
Philippe Lambrecht, Secretary General
of the Federation of Enterprises in
Belgium also believes that many SMEs
are “condemned” to internationalization
if they want to grow. That said, whether
they are big or small, businesses face
the same type of problems: salary costs,
the need for qualified staff, energy bills,
etc. Some concerns are more specific to
SMEs: increased drive for administrative
simplification, access to finance at a
competitive price, …
There is no single solution that works
to grow all businesses. However, there
are some guidelines, such as a focus on
quality and value rather than on prices,
boosting revenue rather than cutting
costs, trying out new ideas rather than
drawing up detailed business plans.
With regard to business transfer, Philippe
Lambrecht insisted on the importance
of having a vision. Buying for buying’s
sake is not a strategy. He also insisted
on the need for a preparatory phase for
this type of deal. It is often assumed, for
instance, that industrial synergies will
occur naturally and it can be seen that, in
reality, it does not happen like that due
to a lack of preparation and the fact that
corporate cultures are too different…
VIDEO MESSAGE
Yves Leterme, Deputy SecretaryGeneral, OECD. The former Prime
Minister of Belgium is in charge of
entrepreneurship within the OECD.
His conclusion was that family
continuity in businesses does not
work good enough. Often the issue
of the succession comes too late,
the children are not interested…This
means that policymakers have a job
to do. He identified at least 3 relevant
areas of intervention:
-T
o monitor at local level the
business owners close to
retirement and to approach
them to raise the question of
continuity of their company
and transfer options;
-T
o improve information for
sellers and buyers and to
develop
professional
and
quality on-line platforms;
-T
o ensure that legislation and
taxation do not discourage
business owners and buyers to
go into a transfer process.
Max JADOT
CEO
BNP Paribas-Fortis
Belgium
Philippe LAMBRECHT
Secretary General
Federation of Enterprises
in Belgium
Belgium
Yves LETERME
Deputy Secretary-General
OECD and former Prime
Minister of Belgium
Belgium
Moderator
Richard WELLS
CLOSING SPEECH
With over 150 European participants, some 30 international
speakers, the support of BNP Paribas Fortis, BDO Corporate
Finance Belgium, the Federation of Enterprises in Belgium,
topics that were both political and technical... this Summit was
a great success!
In order to wrap the Summit up, Jean-Pierre Di Bartolomeo,
Chairman of SOWACCESS (Transeo founding member) &
Chairman of Transeo expressed his thanks, highlighting the fact
that Transeo currently has 40 Members in 13 countries and is a
true & essential European hub for the exchange of information,
experience and good practices in business transfer.
Awareness-raising efforts must continue at all levels in order
to ensure that SME transfers are no longer seen as a fatality
but rather as a real positive opportunity to preserve economic
activity, employment and know-how. From this perspective,
Transeo shall continue to relay the recommendations arising
from its work with European political decision-makers.
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35
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4000 Liège - Belgium
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