KEY INGREDIENTS TO DEVELOPSUCCESSFUL BUSINESS TRANSFER

ECOSYSTEMS

Based on the expertise of Transeo, the European community of Experts in Transfers and Acquisitions of SMEs

HANDBOOKFOR EU MEMBER STATES

TRANSEO

| 2 |

FOREWORDTransferring the ownership of a company to the next generation is an event to be expected in the life cycle of a successful company. A business transfer, including intra-family succession, is a complex process that requires a proper planning and preparation by the owner, but it also needs a transfer friendly environment. To accompany the owner throughout the transfer process, it is crucial to unders-tand the importance of both the econo-mic and human aspects of transfers.

The European Commission has worked on business transfers, together with the Member States and other stakeholders, for almost three decades. This policy has always been an integral element of the Commission policy framework to foster a favourable business environment in the EU and in the Member States.

Barriers to successful business transfers mainly exist at local, regional and natio-nal level, and this is where they can be addressed in the most efficient man-ner. Member States are encouraged to develop their own action plans on bu-siness transfer, which is in line with the approach endorsed during the Competi-tiveness Council of May 2017.

This handbook on Key ingredients to de-velop successful business transfer eco-systems, put forward by Transeo, the European association for SME transfer, is a valuable tool for the Member States to create their own recipes for building business transfer ecosystems, using the most appropriate mix of ingredients and inspiration from best practices de-veloped in this field. I recommend it to policy makers at all levels, to mana-ging authorities responsible for develo-ping and managing regional operational

programmes funded by EU regional funds, and to all stakeholders involved in supporting business transfers. In my experience, those involved in promo-ting and facilitating business transfers across Europe are all very committed to the cause and work tirelessly to make it a success. Please keep up your good work for the benefit of European SMEs!

Ms. Kristin SchreiberDirectorDirectorate-General for Internal Market, Industry, Entrepreneurship and SMEsEuropean Commission

WHY “BUSINESS TRANSFER”?

Guaranteeing the continuity and the sustainability of SMEs once their owner withdraws from business due to death, illness or other incidents… is of crucial im-portance. Entrepreneurs, including family business owners, have many different op-tions to secure the continuity of their com-pany by transferring it within the family or outside. Member States have every inte-rest in investing in policies to support the transfer of ownership and the continuity of their SMEs.

Business transfer should also be consi-dered from the “entrepreneurial” point of view. In other words, Member States have the opportunity to encourage “entrepre-neurship through acquisition”, just as they encourage start-up creation for example. Acquiring an existing company offers great prospects for innovation and growth, and represents a profitable and less risky alter-native to organic growth, in other words, creating a business from scratch. Taking over an existing business is a fantastic way to become an entrepreneur, either as suc-cessor taking over the family business or as individual entrepreneur taking over an existing company. The skills needed, the path to follow and the financial investment are not the same as for starting up a bu-siness from scratch, but acquiring an exis-ting company follows the same pattern!

Business transfer can also be used to en-courage the growth of companies. To un-lock the untapped growth and internatio-nalisation potential of SMEs by strategic acquisitions of other companies, in their home country or beyond national borders, Member States can develop adapted in-centives, support programmes and tools.

WHY THIS HANDBOOK?

This Handbook is a useful source of in-formation and inspiration for EU Member States to develop or to improve their so-called “business transfer ecosystems”. Dealing with the phenomenon of “business transfer” is a complex task for a regional or national government for many reasons :

because the issue tends to be disre-garded by business owners : transfer-ring one’s business should be a ratio-nal phase in a life-cycle of a company but most of the time it appears to be a very emotional task for the entrepre-neur, who tends to disregard or post-pone the decision to start preparing their business for transfer;

because transferring one’s business should be conducted with confidentia-lity, which makes the market opaque;

there are many different ways a bu-siness can be transferred : within the family to one or several successor(s), inside the company to the manage-ment for instance, to the workers also under the form of a cooperative, or outside the company to an entrepre-neur or to an other company;

there are many different stakeholders who interact in the “business transfer ecosystem”: entrepreneurs of course, but also support organisation from the private sector and the public sec-tor, and professionals from the private sector, with different specialties. These stakeholders each have a role to play in the ecosystem. Depending on the level of “maturity“ of the country, the historic background or the culture, the complementary role of stakehol-ders will be specific and different from a Member State to an other. A fragile

balance to find and to maintain.

| 3 |

INTRODUCTION

| 4 |

Indeed, barriers to successful business transfers mainly exist at the local, regio-nal, and national levels. To help EU coun-tries shape their policies and design sup-port measures, the European Commission underlines the usefulness of the present Handbook to promote good practices and help Member States develop or improve their frameworks. It is also to be noted that national and regional governments can use EU structural funds to support actions that improve among others awareness-raising programmes, online platforms, and advi-sory services related to business transfers.

The good news is that Member States that have developed business transfer ecosys-tems and support programmes have seen the benefit and return on investment for their economies. As a matter of fact, provi-ding information, support, tools and finan-cing solutions to guarantee the continuity of the SMEs active in one’s regional/natio-nal territory makes it possible to safeguard the value added and jobs from these com-panies. By the way, one of the recommen-dations in this Handbook is to define Key Performance Indicators (KPIs) for govern-ments to be able to measure the impact of their political action and the efficiency of the implemented measures.

The other good news is that solutions exist and can be used by governments in Europe. The European Commission has worked for almost 30 years on the “bu-siness transfer” phenomenon, supporting projects, expert groups, organising confe-rences on the topic and issuing recom-mendations for Member States.

In addition, Transeo was founded as an in-ternational non-profit association, in 2010, to facilitate the exchange of good practices in the field at European level. For more than 10 years, Transeo has worked hand in hand with the European Commission as reference expert to provide feedback and expert advice on this phenomenon. The work of Transeo and its Members (ins-titutions, professionals and academia spe-cialised in business transfer, from all over Europe and beyond) on “business transfer ecosystems” is summarised in the present Handbook. Each Member State is invited to discover the key ingredients to deve-lop its own ecosystem and to get inspired by existing good practices (frameworks, tools, programmes).

Building a thriving business transfer eco-system contributes to support in a sustai-nable way, transfers of companies in a spe-cific region or country. The issue of change of ownership and continuity of companies is, most of the time, not considered as a topic of crucial importance. Yet, as you can imagine, it is essential to stimulate dynamism in entering and exiting entre-preneurial activity, for example by making sure businesses are able to continue their activities once the owner has retired, and even have the opportunity to grow with a revival brought by a new owner. This is why having an ecosystem to back up your business transfer strategy and action plan will help you keep the topic on top of the political agenda and have everyone “play the game”.

This Transeo E-Book shares the conclu-sions of a dedicated 2-year working group to help you gather and mix the right ingredients to build a balanced, effi-cient and sustainable ecosystem to foster and support transfers and acquisitions of SMEs…

Ingredient #1Win-win collaboration

A win-win collaboration of private, public, academic and media stakeholders at the benefit of entrepreneurs. The public sector and the private sector have each their role to play to inform and advise entrepreneurs in their transfer and acquisition projects. The situation differs from a country to another but in any case, this complemen-tary role should be considered and respec-ted. The academic researchers can bring valuable and objective contributions, for example to help policymakers develop and adjust business transfer policy. Finally yet importantly, the media can play an im-

portant role to put the “business transfer” topic on the agenda and to encourage bu-siness owners to look for information and support, for example thanks to inspiring testimonies from peers. It is also very im-portant to keep the Ministry of Economy, and for example the national SME Envoy, informed and involved: it will contribute to guarantee that policymaking takes the market reality into consideration.

Ingredient #2Comprehensiveness

Make sure to consider the business trans-fer process from A to Z & to provide gui-dance or support for each phase:

Raising awareness (among entre-preneurs, family businesses, young people, but also policymakers, ban-kers, academics and all other stakehol-ders …) using the right communication tools, content and networks;

Support & advice for entrepreneurs, for both soft & technical aspects. Do not forget the complementary role of private advisors & government agen-cies or chambers of commerce for ins-tance;

Financing of takeovers: the first step is to guarantee the availability of finan-cing schemes for acquisitions of com-panies in your region/country. Then, consider hybrid financing schemes to mitigate the risk for the bank & the en-trepreneur. Bear in mind that financing the takeover of business tends to be less risky than financing start-ups for instance;

| 5 |

EXECUTIVE SUMMARY

KEY INGREDIENTS FOR SUCCESSFUL BUSINESS TRANSFER ECOSYSTEMS

| 6 |

Ingredient #5Specificity

In other words, no one-size fits all! The first step is to identify your country-spe-cific priority areas, then to learn from the good practices across the world (with the support from Transeo & its Members for example) to create your business transfer ecosystem. It is important to consider that the good practices from other regions/countries need to be adapted to your mar-ket reality. Therefore, no copy-paste but “copy-adapt-paste”! Then, as a last recom-mendation, do not forget that Rome was not built in 1 day… In other words, make sure to have a long-term ambition and strategy but set realistic/achievable goals and review them each year with your KPIs.

Business transfer friendly fiscal & legal framework: avoid red tape for entre-preneurs and don’t underestimate the impact of taxation in decision-making. In case of cross-border transaction, be aware of the heterogeneity of the legal and tax frameworks across the world and call on a trusted local advisor.

Ingredient #3Entrepreneur centricity

Make sure the ecosystem is “entrepre-neur”-centric: keep the path to follow as simple as possible, consider organizing a user-friendly “one-stop shop” with clear and up-to-date information, as well as easy access to support services and tools. Also, keep in mind the importance of monito-ring the progress and efficiency of your ecosystem: use smart Key Performance In-dicators (KPIs), which reflect your strate-gic priorities, to measure the success of your ecosystem and to improve it year af-ter year.

Ingredient #4 Plurality

Consider all kinds of business transfers and changes of ownership from the start: succession in family businesses, manage-ment buyout, management buy in, em-ployee buyout, strategic acquisitions … For each type of transfer of ownership, make sure your ecosystem provides adapted in-formation, guidance and advice to support entrepreneurs.

| 7 |

AWARENESS-RAISING 8

SUPPORT SERVICES 13

FINANCING OF AN ACQUISITION 16

LEGAL ASPECTS IN CROSS-BORDER TRANSACTIONS 21

WRAP UP: KEY INGREDIENTS FOR BUSINESS TRANSFER ECOSYSTEMS 25

ABOUT 28

QUOTES - WHY THE LEARNINGS OF THIS WORKING GROUP MATTER 28

CONTACT 31

TABLE OF CONTENT

Raising awareness on business transfer is a challenge shared by all EU Member States. They face the same difficulties in making business owners aware of the need to pre-pare, in time, for the change of ownership. It was emphasized by the European Com-mission, among others, in the 2006 Com-munication, in the Small Business Act & its Review, in the Entrepreneurship 2020 Action Plan and in the “2013 Study on Eva-luation of the Implementation of the 2006 Commission Communication on Business Transfers”.

In order to improve the situation, and based on what we have seen and discussed with our Members active all over Europe, Tran-seo encourages competent authorities in Member States to check the concrete re-commendations and to find inspiration in the existing good practices. This pheno-menon is important to tackle if we want to guarantee the continuity of our businesses active all over Europe, that it is worth sha-ring a maximum of information, pieces of advice and good practices Europe-wide.

Transeo is convinced of the priority of im-proving awareness among potential sellers, because it is the best way to prepare suc-cessful transfers of ownership and mana-gement. It is also important to raise awar-eness about takeover entrepreneurship among potential buyers : in other words, if family successors are not ready nor wil-ling to take over the family business, exter-nal persons, entrepreneurs can be trained, prepared and properly advised to take the company over and make it grow.

Please find below insights, recommenda-tions and good practices to help you bet-ter understand how to develop or to im-prove awareness-raising strategies.

| 8 |

AWARENESS-RAISING

| 9 |

AWARENESS-RAISING

In a nutshell:

Awareness-raising strategy depends on the

level of development of the Business transfer

ecosystem

Role of government depends on the level of

maturity of private sector

Information about business transfer should be

part of start-up & scale up programs

One-stop-shop – coordinating body with in-

formation & guidance

Main challenge: reaching out to entrepreneurs

at local level

Long-term approach, repeating messages

through multiple channels

Adapting strategy, messages & tools to target

audience (sellers / buyers)

Testimonials & storytelling (pains vs. dreams /

desires)

| KEY TAKEAWAYS |

| 10 |

RAISING AWARENESS ON THE TRANSFER OF THE COMPANY

Raising awareness on transfer of business among entrepreneurs is an essential part of any successful business transfer ecosys-tem.

The policy-making should focus on the fastest way to make impact, for instance by raising awareness through a one-stop shop involving all stakeholders active on the field, at local level.

A decentralized model involving local partners who integrate business transfer in their own programme/infrastructure, and can redirect to the one-stop shop.

Business transfer awareness-raising activi-ties & services should also be integrated into existing start-up and scale-up support infrastructures, fostering growth and em-ployment.

The maturity of the private sector also defines the role that should be played by the government. Incentive can start from government to build the ecosystem, then when the market is ready, a collaboration with private advisors should be imple-mented.

5 STEPS TO RAISE AWARENESS ON BUSINESS TRANSFER AMONG ENTREPRENEURS:

IDENTIFYPOTENTIALSELLERS

CATCH THE ATTENTION OF POTENTIALSELLERS

PREPARE THEIR MIND ABOUT BUSINESSTRANSFER

PREPARE THEIR BUSINESSFOR SALE

GET THEMSTARTED

| 11 |

Prepare their mind The most important step is the

“onboarding” of the business owners, starting with a low com-mitment action :

Identify “potential sellers”: Databases of business owners

should be used to approach them, respecting the GDPR regulation;

Business owners should be (digi-tally) nurtured over a long time, then one should motivate them to take action;

Make sure to repeat business transfer messages through multi-ple networks & stakeholders.

Catch their attention: Have a good communication

strategy and action plan; Don’t underestimate the impor-

tance of the content of your com-munication, for example : Use testimonies and success

stories – entrepreneurs like to hear advice from their peers

Don’t focus on technical as-pects;

Keep it simple, do not try to educate entrepreneurs;

Underline the need to think about the continuity of the bu-siness but do not over-argue about the many years needed to prepare the transfer of the company

Promote events without men-tioning business transfer;

“Indirect marketing” appears to be the most efficient way to reach out to entrepreneurs, so make sure to work through a good network of partner organisations, such as industry organizations/federations, chambers of organi-sations, banks, …

WATCH A SHORTVIDEO

DOWNLOADA GUIDE

FILL INAN ONLINE

SELF-ASSESSMENTTOOL

ATTEND AN EVENT(FOR EXAMPLE

DURING BUSINESSTRANSFERWEEK)

| 12 |

ADVICE FROM TRANSEO EXPERTS

In many cases, selling their business is looked upon as the first step to death by their owner. Avoiding the subject is a self-protection. So never forget that the challenge is psychological.

Reassure the business owner, underli-ning confidentiality is guaranteed.

Create different solutions for different countries – there is no “one solves all” solution;

A national Business Transfer Week ta-king place every year during the same week is a good way to raise awareness among entrepreneurs and stakehol-ders, with a complementary role of the government agency (communica-tion/coordination) and the private and other public partners (organisation of events).

RAISING AWARENESS ON ACQUIRING A COMPANY

Use storytelling to show potential buyers that they can make it.

Highlight the available support pro-grammes and financing schemes.

Organise basic training programmes where potential buyers can be infor-med and coached, as well as meet other potential buyers to exchange ex-periences with them;

Promote existing support pro-grammes to help the business owner start reflecting on the trans-fer of the business (subsidies to call on professionals, mentors with previous experience with trans-fer of business, local operators, coaches, …)

Encourage business owners to “open the debate”, to break the secrecy of the transfer issue & to share information with their fami-lies.

Prepare the business for sale Make sure the business owners

have access to the necessary infor-mation and support to prepare the business for sale;

Identify the #1 issue/priority for the owners (maximum value, keeping the brand, keeping the employees - sellers have many different priori-ties);

Communicate about the “pains” and the financial waste in case the owner does not prepare the trans-fer, possibly with real cases where money & jobs were wasted due to lack of preparation.

Get them started Keep on nurturing business

owners (with free e-mails, videos, checklists, meeting offers, …) & fol-low them up;

Emphasise the role of the ac-countant: they are often the first contact person of the business owner.

After the essential phase of raising aware-ness among entrepreneurs about transfer of business, the next phase is to provide them with support to go further and enter a business transfer process.

Learnings from research show the impor-tance to provide entrepreneurs with sup-port and advisory services – indeed, trans-ferring one’s company is once in a lifetime issue for most entrepreneurs.

In order to provide entrepreneurs with a comprehensive approach, support should be organised taking into consideration the complementarity of the different stakehol-ders in the market : professionals (all kinds of advisors from the private sector), ad-visors in government agencies and other public or semi-public institutions such as Chambers of commerce, but also mentors for instance. It is worth underlining the fact that each country has its own history, back-ground, culture… and the role repartition between the private and the public sectors in providing advice so entrepreneurs, may vary. What matters is that each entrepre-neur gets easy access to affordable and quality advice to prepare the transfer or the acquisition of a business.

Please find below insights, recommenda-tions and good practices to help you bet-ter understand how to develop or to im-prove support for entrepreneurs entering a business transfer process.

| 13 |

SUPPORT SERVICES

| 14 |

SUPPORT SERVICES

| KEY TAKEAWAYS |

In a nutshell:

Business transfer – once in a lifetime issue :

advisory services needed

Most entrepreneurs assisted by several advi-

sors (# 1 accountant)

Micro companies – underserved market seg-

ment (digital tools, government subsidies,

group advisory)

Cooperation between different specialists nee-

ded

Advisors providing both emotional & deci-

sion-making support

Digitalization is an opportunity – decreasing

cost, increasing information sharing possibili-

ties

| 15 |

Digitalization: digitalization is an opportunity, also for business transfer advisors (access/sharing of information, efficiency, cost re-duction, opportunity to develop more targeted/quality services). Nevertheless, the help of an advi-sor is still needed to change infor-mation into decision & to support the entrepreneur.

Certification: business transfer professionals are not submitted to a regulation. Therefore, it would be useful to develop quality stan-dards. These standards should be defined by the private sector as a kind of auto-regulation & official-ly recognized by the government/public institutions.

Government subsidies: subsidies can help entrepreneurs take ac-tion and call on professional ad-visors thanks to a lower cost. Yet, the existence of vouchers does not guarantee better services (risk of creating perverse effect: some ad-visors are likely to charge more for the same level of service) and is not secured in the long-term (poli-tical changes over time).

SUPPORT FOR BUSINESS TRANSFERS

Importance of advisory services – business transfer is a once in a lifetime issue for most entrepreneurs.

Large majority of entrepreneurs are assisted by several advisors. Accoun-tants are the most often mentioned advisors of SME owners.

Advisors should take emotional as-pects into consideration. Possible so-lutions include the education/training of professionals on that specific topic and the opportunity to call on trusted third parties such as family, friends, re-tired entrepreneurs and mentors.

Specific aspects of advisory services: Underserved market segment

(micro companies): Micro com-panies do not have easy access to professional advisory services. Possible solutions include: support by the government

(vouchers, support services & activities organised by semi public or public institutions)

digital tools for self-service group advisory: a way to lower

the cost of advisory services (in particular for micro-com-panies) is to organise advisory in groups. It appears that both group advisory and one-to-one advisory services are useful and could be combined: group learning to share experiences and one-to-one advisory to provide personal advice, on a specific case.

Cooperation between different specialists: different kinds of coo-peration are possible to offer the entrepreneur access to specific ex-pertise in an easy way. With digita-lization of services and the rise of artificial intelligence, advisors will have to become more and more expert in specific areas, as well as skilled to deal with soft/emotional aspects.

Member States also have a role to play in encouraging smooth and easy transfers and acquisitions of SMEs by providing en-trepreneurs with several kinds of financing solutions.

Entrepreneurs must be able to rely on available financing shemes to transfer the company, or to acquire one. These finan-cing solutions may come both from the private sector such as banks but also from the public sector such as subordinated loans and guarantees from development banks to lower the risk for the banks and the entrepreneurs.

What is “called” hybrid” financing appears as a good practice because it encourages a mixed approach, involving private and public financing solutions and reducing the personal guarantees asked to the en-trepreneur.

An important aspect is also to inform en-trepreneurs about the available financing schemes and to encourage them to seek advice to prepare the financing package behind the deal.

New trends, such as the Search Funds, are also coming on the European market, creating interesting opportunities for both sellers and buyers.

Member States might also consider ap-plying for European funds to be able to leverage the local or national financing products, and finance more transfers of businesses, with lower risks both for the development bank, the private bank and the entrepreneur around the table. There are also many interesting good practices availables in Europe in this field.

Please find below insights, recommenda-tions and good practices to develop or improve financing solutions for business transfers.

| 16 |

FINANCING OF AN ACQUISITION

| 17 |

FINANCING OF AN ACQUISITION

In a nutshell:

Financial advisors increasingly important (3/4

entrepreneurs)

Choice #1 among entrepreneurs : bank loans

(low interest rate, convenience – fast decision,

professional habits, financial illiteracy of entre-

preneurs)

Needed profession : SME finance advisor (in-

dependent, trusted, educated) capable to as-

sist entrepreneur in business / financial plan-

ning

Hybrid financing of the deal (sources: sharehol-

der equity, loans, VC/private equity, institutio-

nal actors, seller, tax incentive measures, pri-

vate call for capital)

New trends : Search funds (needed adaptation

to each country context)

| KEY TAKEAWAYS |

| 18 |

GENERAL TRENDS

(presentation powered by Transeo Member & Chairman of Transeo Academic Working Group Pr Lex Van Teeffelen, HU Business School Utrecht)

Ideally 10% - 30% buyer, 10% - 30% seller, 40% - 80% externally

Banks may be reluctant to provide small loans (< 1 M)

Growing supply of non-banking solu-tions for SME’s

Financial illiteracy among SME-owners is high

Need for a professional code of conduct for financial advisors

FOCUS ON SEARCH FUNDS

(presentation & roundtable powered by Mr Eddy Zakes, IESE Business School)

Emerging international mechanism for business transition

A search fund is a financial vehicle created by one or two individuals who raise money from a group of advising investors to support their efforts to locate, acquire, and lead a privately held company over the medium to long-term.

The lifecycle of a searchfund:

A few reasons why it works: Alignment of incentives Entrepreneurs need help (fun-

draising, searching, acquiring, operating, exiting)

Sellers need help (protecting their “baby”, succession or li-mited paths to exit)

Investors need help (try before you buy, giving back, mento-ring)

Community Driven : the ecosystem self-protects Small enough TODAY to vet al-

most all actors Promotes and rewards good

actors Weeds out bad actors Generosity is the “rule” Not zero-sum

Diversity Entrepreneurs’ backgrounds

aren’t correlated to success Opportunities in many sectors,

business sizes, geographies, etc.

Only a growing “problem” of

owner transition!

The future of search funds: International expansion (US, Ca-

nada, Europe, Mexico, Brazil, Ar-gentina …) including new “country pioneers” (Japan, Taiwan, Belgium, France…).

Performance: expect some “align-ment” to U.S.-type performance as more searches are conducted in-

ternationally.

STAGE 1 RAISE INITIAL CAPITAL 2-6 months

STAGE 2 SEARCH FOR AND ACQUIRE COMPANY 12-24 months

STAGE 3 OPERATION AND VALUE CREATION 4-7+ years

STAGE 4 EXIT 6 months

| 19 |

FOCUS #1: HOW TO PRESENT AN ACQUISITION FINANCE DEAL TOWARDS BANKS

(roundtable powered by Transeo Member Mr Quentin Santy from KBC Match’It)

Best preparation possible + reduce senior debt with more equity from the buyer. Development banks like SOWALFIN and PMV are offering gua-rantees to mitigate the risk.

Bank wants to build a relationship on the long-term with the entrepre-neur so good balance to find between asking too many or too few collaterals.

Good discussion between the bank, the seller and the buyer – the bank is the first support to the company.

The price does not matter as long as the bank and the development bank know why and receive the explanation (balance sheet, potential of the com-pany, black money). If price is really a problem, the bank will carry out a benchmark.

Importance of well-thought business plan and financial planning when sub-mitting an acquisition finance deal towards banks – the company needs to have the support of a financial ad-viser. Where do you make the money,

how do you increase your margin, …

GOOD PREPARATION & HELP (external aid - Due Dilligence)TYPE OF ACQUISITIONAcquisition within the familyManagement Buy Out (MBO)External acquisition (MBI)Private Equity (PE)SECTOR EXPERIENCE

OWN EQUITYCONTRIBUTION Standard: 25%?HOW? Cash, Mezzanine, subordinated loans, vendor loansTENOR: 5 – 7 yearsDEBT PUSH DOWNFINANCING OF WORKING CAPITALCOLLATERALCOVENANTSPRICING

ACQUISITION PRICECorrect one?CashflowAttention for CAPEXand WORKING CAPITAL needs

DIVIDENDS (pre-closing)MANAGEMENT FEESFINANCIAL ASSISTANCE

QUALITATIVEFACTORS

FINANCIALFACTORS

FINANCINGSTRUCTURE

LEGAL & TAXISSUES

| 20 |

FOCUS #2: FINANCING SCHEMES FOR BUSINESS ACQUISITIONS – THE CASE OF CROATIA

(powered by Transeo Member & working group leader Mrs Mirela Alpeza from CEPOR)

AVAILABILITY

No tailor made financial products to finance SME acquisitions

Banks seethis type of acquisitions

as investmentsand they provide financing

in that way

ACCESS TO FINANCINGThere are 28 banks operating

in Croatia and 26 credit unions

Low access to finance for start'ups and even worse for SME

acquisition - Friends and family, VC funds

Some commercial banks had a few transactions in the past- some successful and some are not

Development bank financed2-3 transactions recently

GOOD PRACTICES

Recently approved HAMAG BICRO (SME Agency)

guarantee is expected to unlock commercial bank financing

of business takeoverin SME segment

KEY CHALLENGESDevelopment of financial

schemes is rather slow - not just for business transfer

Raising awareness aboutthe existence of such product

among clients

Coordination among HAMAG BICRO, commercial banks

and clients

Bankers are selling more profitable products

Transferring the ownership of a business has also many legal dimensions, depen-ding on the type of structure and the type of transaction, which should be considered before the transaction, often with the help of a professional (legal advisor, lawyer). Business transfer legislation is either a re-gional or a national competence across Member States. Policymakers and deci-sionmakers are invited to create a legal framework which is business transfer frien-dly, just not to discourage entrepreneurs from transferring their business fearing an instable policial situation or multiple changes in taxation for example. Laws should also take the entrepreneur’s pers-pective into consideration and not bring red tape.

Cross-border acquisitions of companies should also be considered from a le-gal point of view. Indeed, entrepreneurs buying companies in an other country for the first time ought to be aware of the specificities of the legal framework in the target country, and should be encouraged to seek advice to navigate the legal com-plexities of the transaction.

Due to the fact that each EU Member State has its own legal framework for business transfers, but also because Transeo encou-rages the single market through cross-bor-der acquisitions of SMEs in Europe, Tran-seo decided to focus on the legal aspects in corss-border transactions.

Please find below insights, recommenda-tions and good practices on legal aspects in cross-border acquisitions of SMEs.

| 21 |

LEGAL ASPECTSIN CROSS-BORDER TRANSACTIONS

| 22 |

LEGAL ASPECTSIN CROSS-BORDER TRANSACTIONS

In a nutshell:

Different countries = different legal systems

Pros & Cons : differences & difficulties may be

balanced with economic advantages

Project structuring must take into account go-

vernance and financial flows monitoring &

control

Implementation in a foreign country is to be

organised upfront in order to avoid additional

costs and delays, or to weaken your negotiation

The EU is an ever more integrated zone (save

as Brexit) enabling easier business interactions,

forecasting legal evolution

The EU allows for alike international agree-

ments, smoother dispute resolution solutions

& enforcement

Setting up in one country may serve neighbou-

ring countries or zones

| KEY TAKEAWAYS |

| 23 |

LEGAL ASPECTS IN CROSS-BORDER TRANSACTIONS

(with the expertise of Mrs Caroline Cha-zard, KPMG France)

Cross-border transactions imply va-rious legal & practical considerations.

The main difficulties relate to the fol-lowing aspects: business control, bu-reaucracy, legal protection and work.

It is essential to consider the following key elements: tailored legal structu-ring, compliance, contracts (secure and adapt them) and employment law

INTEGRATEDM&A

APPROACH

Legal support

Le�er of Intent (LOI)Legal due diligenceSales Purchase Agree-ment (SPA) assistance

Post-merger integra�onEn�ty reduc�onGovernanceCompliance, etc.

Tax support

Tax structuringTax due diligence

Purchase price

Alloca�on

Transac�on servicesFinancial due diligenceFinancial Sales Purchase Agreement (SPA) assistance

Valua�onFairness opinionValua�on

LEGAL PROCESS: TRANSACTION LIFECYCLE:

| 24 |

USUAL QUESTIONS IN CASE

OF CROSS-BORDER ACQUISITION:

Who is the best person/entity to speak to if I want to set-up a company in [country]?

Is really [country] a business/start-up-friendly country?

Can I own or rent a professional/pri-vate property in [country]?

Would the [social/political movement /current strikes] in [country] have an impact on my business?

Will there be an important tax or legal reform in the upcoming years? Maybe with coming elections?

Is my activity subject to specific regu-lations?

Is it possible to protect my brand or my technology?

How to resolve disputes?

LEGAL FOCUS: KEY ISSUES,

LEGAL UPDATE:

CORPORATE COMMERCE TAX ACCOUNTING EMPLOYMENT

Due diligence : documentation disclosed, GDPR impact

Warranty clause vs. warranty agreement

Security law, enforceability of proceeding

Company governance, organization, limitation of powers

Quorum Information

rights of shareholders

Protection of minority shareholders

Intellectual Property Rights (IPR) regime, protection, recognition, enforcement

Trade agreements (alleged  unfair and unlawful)

Break of esta-blished business relationship

Competition Significant

imbalance between the rights and obligations of the contracting parties

Antitrust regula-tions to prevent abuses of domi-nant positions

Environment

Carry forward losses, postpo-ne depreciation periods

Tax consolidation “integration”

Reduced Corpo-rate Income Tax (CIT) in Special economic zone

Shareholdings ownership exceeding thresholds

Foreign ownership ratio

Transfer pricing, Management fees agreement

Accounting methods, Inter-national Finan-cial Reporting Standards (IFRS)

Non- deductibility of certain expense items

Invoices drafting Quick fixes VAT

management

Employees representatives : Offense of action blocking

Employees take-over to maintain employment

Employees consulting or agreement in regards with acquisition project

Salary split Social status Pension regime Employment vs.

self-employed through service contracts

| 25 |

WRAP UP:KEY INGREDIENTSFOR BUSINESS TRANSFERECOSYSTEMS

| 26 |

Ingredient #1Win-win collaborationof private, public, academic and media stakeholders at the benefit of entrepreneurs

Identify best role repartition of stakeholders according to the country/market reality/needs/prio-rities

Depends on the culture & level of involvement/support of the public sector/government

Complementary role of public and private sector : public sector should fill the gap where private sector is not active (because not profitable enough for instance)

Involve the Ministry of Economy and the national SME Envoy, or at least maintain connection/inform authorities

Multi-year programme & natio-nal/EU budget should be planned (long-term)

Added value of involving acade-mic researchers & experts to de-sign & improve business transfer ecosystem/policy/data

Try to involve the media & get their attention (amplify your message)

Ingredient #2Consider the business transfer process from A to Z & make sure to provide guidance or support for each phase

Awareness-raising Family businesses / business

owners / (potential) entrepreneurs / young people

Support Soft & technical aspects Complementary role of private ad-

visors & government agencies/CCis Finding the successor/buyer Considering all possible options for

transfer + in case no family succes-sion possible : tools available inclu-ding marketplaces for third party/strategic investors

Financing of takeovers Hybrid financing schemes to miti-

gate risk for bank & entrepreneur Business transfer friendly fiscal &

legal framework Avoid red tape for entrepreneurs

– don’t underestimate impact of taxation in decision-making

KEY INGREDIENTS FOR BUSINESS TRANSFER ECOSYSTEMS

| 27 |

Ingredient #3Make sure the ecosystem is “entrepreneur”-centric & use smart KPIs to improve it

Don’t get lost in bureaucracy, “over-layers”, complicated struc-tures

Make it simple for an entrepreneur to find information & guidance (one-stop shop)

Keep a close connection with the entrepreneurship world & include “business transfer” in entrepre-neurship events/programmes/education

Show good results of your ecosys-tem & use testimonies of satisfied entrepreneurs/successful deals to inspire & grow your community

Define & follow smart KPIs to inno-vate & bring your ecosystem to the next level

Ingredient #4Consider all kinds of business transfers from the start

Preliminary survey/research/ba-rometer can help identify trends/needs in your country-specific market (X% intrafamily succession, X% MBOs, X% MBIs, …)

Adjust priority information & sup-port to provide to entrepreneurs accordingly BUT…

Make sure to consider all kinds of transfers

Discuss all the options with the en-trepreneurs & identify the best one for him/her & his/her successors

Ingredient #5No one-size fits all!

Identify your country-specific priority areas

Learn from the good practices in EU Member States - With the pos-sible support from Transeo & its Members

No copy/paste : make sure to adapt the good practices to your market reality

Don’t forget that Rome was not built in 1 day

Have a long-term ambition and strategy

BUT… set realistic/achievable goals each

year

| 28 |

ABOUT

TRANSEO

Transeo is the international community of experts in transfers and acquisitions of SMEs. Tran-seo stimulates the exchange of good practices between its Members and stimulates cross-bor-der dealmaking.

WHY THE LEARNINGS OF THIS WORKING GROUP MATTER

Connecting important actors that can contribute to the creation of a favourable envi-ronment for successful implementation of SME business transfer is a prerequisite for the development of business transfer ecosystem at the national level. In recent years, CEPOR has been working intensively on connecting those actors and improving the business transfer ecosystem in Croatia.

Croatia, like other Central Eastern Europe countries, is characterised by a large number of owners of small and medium-sized enterprises established in the 1990s who will face the challenges of business transfer in the next few years. Due to the poor development of infrastructure to support entrepreneurs in the business transfer process (advisory, educational and financial services), the experiences and good practice of developed EU countries that have been facing the challenges of SME business transfer for decades are of special importance for ecosystem development in Croatia. In this context, the results of the Transeo working group are of great importance for further directing of activities in the field of development of the SME business transfer ecosystem in Croatia.

Mirela AlpezaDirector, CEPOR – SMEs & Entrepreneurship Policy Centre, Zagreb, CroatiaResearcher, J.J. Strossmayer University in Osijek, Faculty of Economics in OsijekLeader of the Transeo Business Transfer Ecosystem Working Group

| 29 |

Business ownership transfer is a complex and multidisciplinary process, that is why many small business owners find it hard to understand where to begin and what it takes to make it happen. That is why building a support ecosystem around small business trans-fers is or should be such an important part of every economy. As a business transfer intermediary, I find it crucial to also have support of international organisations such as Transeo, where industry knowledge and experiences can be shared among members. Keep up the good work Transeo ;)

Tomo SenekovicCEO BorzaPosla, SloveniaTranseo Member (professional)

The business transfer ecosystem has proven to be extremely complex and consists of many different factors. In the true spirit of European cooperation academic peers, com-pany owners, business transfer experts, policymakers, branch organizations worked to-gether to help make this phenomenon more understandable. Developed ecosystems shared their experiences with the less mature ones. At the same time the less mature ecosystems had a level playing field to experiment. I truly believe that if we keep on ex-changing our experiences, ideas, the good and the bad in constructive way we can help those involved.

Edwin WeesieResearcher, HU Business School Utrecht (The Netherlands) Transeo Member (academic)

| 30 |

Patrick Jordens Advisor, Agentschap Innoveren en Ondernemen / Flanders Innovation & En-trepreneurship (Belgium)Transeo Member (institu-tion/government agency)

Laurent Wenric Manager, SOWACCESS / Wallonia Business Transfer Agency (Belgium)Transeo Board Member (institution/government agency)

Hugues LuyckfasseelBusiness transfer advisor, 1819/Hub Brussels (Belgium)Transeo Member (institution/government agency)

As we say in Belgium, “strength comes from unity”! We are convinced that we need to stand united to foster business transfers in Belgium, especially to raise awareness among entrepreneurs about the added value to prepare the transfer of their company. Indeed, one of the conclusions of the Transeo Business Transfer Ecosystem working group is to encourage a complementarity between private and public stakeholders but the public/government agencies at regional level should also work efficiently together for the bene-fit of SMEs in Belgium. That is why we decided a few years ago to organise joint editions of the Business Transfer Week in our 3 regions. This is, to us, definitely a good practice to foster business transfers at national level.

| 31 |

CONTACTTRANSEO SECRETARIAT GENERAL:

Hugo Bovessehugo.bovesse@transeo-association.eu

Marie Depelssemakermarie.depelssemaker@transeo-association.eu

www.transeo-association.eu

SHARE & FOLLOW US!

LINKEDINCompany page “Transeo - European Association for SME Transfer”

TWITTER@Transeo_asso

Didier Kinet, Belgium SME EnvoyMarie Depelssemaker, Secretary General of TranseoLucyna Kaminska, Policy Officer, EU CommissionAlbert Colomer, Director of Reempresa and Board Member of Transeo

KEY INGREDIENTS FOR SUCCESSFULBUSINESS TRANSFER

ECOSYSTEMS

WWW.TRANSEO-ASSOCIATION.EU

| 32 |