Selling a Workshop in Germany
Purchase price and contract negotiations: Tips from a german lawyer
When selling a craft business in Germany, there are many contractual, tax and liability aspects that the craft business owner as seller should be aware of. Depending on whether the business is to be purchased by a family member, a competitor or a professional private equity investor, the complexity of the sales process can vary in german practice. Experience has shown that good preparation of the sale of a business can achieve a high purchase price and avoid the assumption of unnecessary liability risks on the seller's side.
Further information on business succession in the skilled trades and the seller's tax burden can be found here: Handicraft business: succession, sale & tax under german law (following soon).
For a non-binding inquiry, please contact one of our experts directly by phone or e-mail or use the contact form at the bottom of this page.
Legal know-how in the sale of handicraft businesses in Germany
We see ourselves as a medium-sized law german firm for the medium-sized entrepreneur. Our english-speaking attorneys, certified specialists for german corporate law and tax advisors have many years of expertise in the sale of handicraft businesses in german practice. From our offices in Hamburg, Berlin, Munich, Frankfurt and Cologne, we advise businesses, buyers and business sellers throughout Germany on the following aspects:
- Advice in the run-up to the sale of the business, planning preparation of the sale of the business as an asset deal and share deal, preparation of a company exposé
- Valuation of the craft business by means of annual financial statements and financial accounting
- Preparation of the company sale contract under german law
- In the case of larger craft businesses, we also carry out a company audit (vendor due diligence) in order to optimize the sale.
- Tax audit and support during the sales process
Company purchase agreement: The right way to sell a handicraft business in Germany
In german practice, before drawing up the company purchase agreement, the vendor should identify all the risks involved in selling his craft business in order to position himself correctly, especially during the contract negotiations. Only if the crafts business owner knows where there are predetermined breaking points in his business he will be able to avoid liability risks during the negotiation of the company purchase agreement and also prevent excessive discounts on the purchase price.
In the case of larger craft enterprises, the buyer carries out a due diligence investigation before concluding the company purchase agreement in Germany. The buyer's objective is to identify all risks associated with the business and to obtain an overview of the economic, financial and legal situation of the craft business. On a well-informed basis, the buyer can finally carry out a share and company valuation. This then forms the basis for the purchase price negotiations in german practice.
Basically, the buyer will try to reduce the purchase price and shift financial risks to the seller on the basis of the information obtained and risks found during the due diligence investigation.
Typically, at least the following fields are contractually bindingly agreed in the COMPANY PURCHASE AGREEMENT:
- Guarantees at the expense of the seller and liability clauses by which the seller assumes certain business risks;
- Limitation of liability clauses in favor of the seller
- Purchase price regulations, including payment modalities
- Provisions on the workforce of the craft enterprise, which are intended to safeguard the transfer of business operations
- Tax clauses;
- In the case of larger businesses, antitrust regulations;
- Provisions on the statute of limitations;
- Restrictions on competition
The sale of a craft business in Germany often involves high economic values, the fate of the employees and liability risks for the seller. The company purchase agreement is therefore always individually drafted and must take into account the interests of the crafts business owner and the buyer. Unlike a simple car purchase, no sample agreements or contract forms are signed when selling a company in Germany.
Purchase price and enterprise value of the german craft enterprise
If the craftsman entrepreneur has decided to sell his business in Germany, he will always be faced with the question: "What is my business worth?" In a handicraft business, many factors determine the enterprise value. It's not just a matter of key business figures such as profitability, sales, ebit or branding.
It is not uncommon for contract negotiations in Germany to fail because the seller and buyer cannot agree on the purchase price. The purchase price is generally based on the value of the craft business under german law. There are various valuation methods for valuing the business. Background information on the valuation procedures and valuation methods commonly used in the german market can be found here: (following soon)
If the buyer and seller have widely differing ideas about the value of the business, it is often possible to reach an agreement on the sale by adjusting the purchase price in the form of cleverly drafted purchase price clauses. Further information on common purchase price clauses can be found here.
Valuation by our expert!
In our team, our tax advisor Martin Stürmer will take over the valuation of your craft business for the determination of the purchase price. As a specialized expert, he works together with our lawyers in german corporate law. You can also engage him independently of a legal mandate.
Ask for a quote for a company valuation or a cost-effective indicative company valuation:
Private equity companies / financial investors on the buyer side in Germany
If the business succession cannot be carried out within the family and successors cannot be found outside the family from strategic interested parties such as competitors or customers, a sale to financial investors comes into consideration in german practice. Whereas competitors, partners or suppliers in Germany used to take over a business as strategic buyers in the past, nowadays private equity companies are increasingly appearing on the scene as buyers of craft businesses. A craft business that is in a good economic situation and has a stable sales and earnings situation is interesting for financial investors.
Investors need well-prepared information about the business. As part of a professionally prepared sales process, it is possible to negotiate the sale of a business with the private equity investor on an equal footing.
Every craftsman entrepreneur in Germany should know: Every risk identified by the investor is associated with a price discount. High price reductions can be avoided if the risks have been analyzed by the german seller in advance of the sales negotiations and appropriate measures to strengthen the business are initiated at an early stage. Experience has shown that short-term window dressing measures do not lead to successful negotiations within german practice.
Special features of the purchase of a craft business by private equity investors under german law
The special feature of a private equity investment is that the crafts business owner remains involved when an investor joins the company. As a rule in Germany, the financial investor takes over the majority shareholding. The craftsman entrepreneur, on the other hand, retains a minority stake and continues to retain control and information rights as managing director and shareholder. The fact that the managing director of a professionally managed craft enterprise remains in the management and ensures continuity despite a "change of control" also has an effect on the question of the purchase price amount in german practice. As described, not only hard factors such as the BWA, but also soft factors play a decisive role in determining the value of the company in Germany.
It is not uncommon for the seller to be given a so-called "back participation" of up to 20%. If the craftsman entrepreneur is also given a seat on the advisory board in the german company, he also has co-decision rights in important decisions.
A successful company succession by means of financial investors should be planned in advance by every german craftsman entrepreneur. Experience shows that he should plan at least two years for the sale. The sales process itself (negotiations with the investor and drafting the company purchase agreement) usually takes only a few months in german practice.
If you have any questions about the sale of your business or need advice from a german corporate and tax law expert, please contact our offices in Hamburg, Berlin, Cologne, Frankfurt or Munich. Feel free to contact us without obligation by phone or e-mail or use our contact form: