News | September 2021
Lödige Industries: New sales director in Berlin
At Lödige Industries, Robert Lukoschek will with immediate effect be responsible for sales management in Berlin.
There are many myths regarding the market value of a lift manufacturer in the lift sector. The claim is often made that the service business is decisive. But it is actually far more complex than that.
Many transactions fail due to sellers’ inflated desired prices. Inversely, this means that a realistic company price estimate will greatly enhance the odds of a successful transaction. But how do you know what a realistic price is?
Some lift entrepreneurs still see the actual value of their company in the service business. A fatal error. But common valuation methods like DCF (discounted cash flow), which are based on multi-year financial planning of the seller or the comparable transaction method, which determines purchase prices based on comparable transactions in the overarching mechanical and plant engineering sector, would also result in extremely imprecise valuations of a lift manufacturer.
To illustrate: according to "Finance", operator of the most comprehensive multiples database, mechanical and plant engineering companies are currently sold for 7.6 x EBIT. By contrast, medium-sized and large lift manufacturers have been able to achieve purchase prices amounting to 20 to 40 x EBIT in recent years, according to surveys by Watermann Agens GmbH.
The reason for this large discrepancy: whereas conventional valuation methods refer to earnings as the major determining factor for purchase price, a whole range of factors influence the value of a lift manufacturer:
• turnover structure (according to new lifts, products, maintenance, emergency call, modernisation, repair, spare parts, etc.)
• employee structure: number of highly qualified specialists
• new lifts: product range, quality, conversion rate NI to service contracts
• transparency and comprehensibility of preliminary and post-calculation
• customer structure: ABC analysis, any cluster risk, regional distribution, distribution of public/private clients
• lifts under contract: type, term, age, repair and modernisation potential, contractual price adjustment clauses, loss in recent years, distribution of own-/third party makes, contractual mix (all-in contracts), overall impression of lifts.
Consequently, as far as this crucial point for lift entrepreneurs is concerned, the issue is not pure mathematics, but instead precise weighting of these factors. This is the only way of accurately forecasting the value of the company at an early date.
Based on selected balance sheet and income statement items as well as key data on the transactions concluded in recent years in the lift sector, experienced advisors can accurately forecast the expected purchase price. As a consultant in numerous transactions, Watermann Agens GmbH has determined that the purchase price achieved in almost all cases diverged considerably from the parties’ original ideas.
Once the seller has agreed on the company value with the buyer, a very different question arises: how will the standard purchase price adjustment clauses affect the amount actually paid? Because in the end, only this amount is relevant to the seller.
What many do not know: the seller can greatly influence the adjustment clauses with considerable material effects. But this is obviously only true if the seller knows what is possible here. Moreover, an experienced advisor knows what concessions customary and where clear lines need to be drawn. This is because a deal is only good if it provides the seller with the certainty needed as quickly as possible.
By Dr Lars Watermann
The author is managing director of Watermann Agens GmbH and specialised in company transaction in the lift sector. He has advised numerous lift entrepreneurs on selling their companies in the last 15 years, including Marohn, Colonia and the Eggert Group (TK Elevator), Janzhoff (Kone), B&T, Dralle and – currently – A.S. Aufzug + Service (Schindler).
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