Dr. Tim Bauer, Henryk Ciesielski
July 23, 2026
The realizable value of a company is determined long before negotiations begin. Owners who substantiate earnings quality, cash conversion, growth logic, and risk profile early on lay the foundation for a robust valuation, an attractive pool of buyers, and a controlled sales process. Those who first have to argue the company's value when approaching the market negotiate from a defensive position.
In 2025, 2,586 transactions with German involvement were reported—six percent fewer than in the previous year, but still well above the long-term average. Financial investors noticeably expanded their market share. In 2026, the dynamic is shifting: In the KPMG M&A Outlook 2026, 42 percent of the decision-makers surveyed expect a significant upturn, and in the first half of 2026 alone, transaction volume with German involvement exceeded USD 140 billion—driven primarily by large-scale transactions that had been prepared over several years. At the same time, valuation gaps, geopolitical uncertainty, and demanding financing conditions remain the key hurdles, particularly in the mid-cap segment.
For sellers, this means: Market activity alone does not create pricing momentum. The 2026 volume stems largely from processes whose foundations were laid long before the market approach. Buyers are distinguishing more sharply than ever between companies whose future potential is backed by robust data and those whose valuation rests primarily on expectations.
Pressure to act is growing in the Mittelstand. According to KfW , around 109,000 Mittelstand companies per year are seeking a succession solution through the end of 2029—and for the first time, the number of planned closures, at around 114,000 per year, actually exceeds the number of intended successions. At the same time, owners' price expectations have risen by around 34 percent in nominal terms since 2019. These are expectations—not realized sale prices.
This intensifies a tension that is critical to many transactions: Owners want to realize the value they have built over the years; buyers are scrutinizing more closely which earnings are sustainable, which investments will be required, and how robust the growth scenario really is.
The central thesis is therefore: Maximizing the purchase price is not solely the result of a well-organized sales process. It is the consequence of value readiness established early on.
For owners, this results in three priorities:
The company's operational and financial quality must match the target valuation.
Risks and dependencies should be reduced, or at least transparently managed, before due diligence.
The equity story, business plan, and buyer approach must rest on the same robust data foundation.
Enterprise value, purchase price, and net proceeds are often treated as equivalent. For owners, however, the distinction is essential.
Enterprise value refers to the value of the operating business, generally independent of how it is financed. Equity value is the value of the shares being transferred. In simplified terms, it is derived from enterprise value, adjusted for cash, financial debt, other cash- or debt-like items, and, where applicable, a working capital adjustment. Finally, net proceeds refer to the amount the seller actually receives after transaction costs and taxes, taking into account deferred or contingent purchase price components.
A high enterprise value therefore does not automatically translate into equally high sale proceeds. The definitions of financial debt, working capital, provisions, pension obligations, or shareholder positions can significantly change the economic outcome.
Whether buyers ultimately recognize the target value depends on seven key levers.
EBITDA is an important valuation anchor in many Mittelstand transactions—but not the sole decisive metric for every business model. Depending on the industry, buyers also look at EBIT or EBITA, free cash flow, recurring revenue, growth rates, capital expenditure requirements, or specific operating KPIs.
What matters is the quality of earnings:
Which earnings are sustainable and repeatable?
How reliably are earnings converted into cash flow?
Which investments are required to secure earnings power?
How volatile have revenue and margins been in the past?
How resilient is current trading compared to budget?
One-off effects and non-operating costs can be normalized. Examples include clearly attributable transaction costs, exceptional restructuring expenses, or shareholder-related compensation that is not in line with market standards.
However, buyers accept such adjustments only if they are transparently documented and genuinely non-recurring going forward. Aggressive normalizations do not increase value, but rather perceived risk. A robust quality of earnings analysis is therefore often more valuable than a maximally adjusted EBITDA.
A company can appear profitable and still generate too little cash. Long receivables cycles, high inventories, unfavorable payment terms, or a significant investment backlog become visible in due diligence at the latest.
Owners should therefore not only optimize the income statement, but also:
improve receivables, inventory, and payables management,
present seasonal working capital effects transparently,
separate operating assets from surplus assets,
realistically reflect capital expenditure needs and maintenance backlogs,
consistently link cash flow, balance sheet, and business plan.
A sustainable improvement in cash conversion strengthens the economic substance of the valuation. At the same time, it reduces the risk of subsequent purchase price adjustments.
A compelling equity story explains why the company can grow in the future and why a specific group of buyers is able to realize this potential. However, it must not be confused with a promotional repositioning.
Robust growth arguments are based, for example, on:
demonstrable customer retention and recurring revenue,
pricing power and realized price increases,
order backlog and a qualified sales pipeline,
concrete market share or internationalization potential,
scalable processes and available capacity,
technological differentiation and protected IP,
product or market expansions that can be realistically financed.
Highlighting an attractive customer segment in communications is not enough. Buyers examine whether the revenue mix, references, capabilities, and investment planning actually support the strategic positioning.
The equity story therefore needs to be as consistent as possible rather than as ambitious as possible: consistent with the company's history, the business plan, its operational capabilities, and the evidence available in the data room.
Many discounts arise not from insufficient earnings, but from risks that could jeopardize future cash flow.
Typical examples include:
heavy dependence on the owner or individual executives,
lack of a second management tier,
high customer or supplier concentration,
insufficiently documented know-how,
unresolved IP and usage rights,
outdated IT systems and cyber risks,
incomplete contracts or permits,
tax, legal, or compliance risks.
Not every risk can be eliminated in the short term. It should, however, be identified early, prioritized by economic relevance, and addressed with a robust action plan.
For buyers, it makes a significant difference whether a risk is already being transparently addressed or only surfaces unexpectedly during due diligence. In the latter case, the seller faces not only valuation discounts but also additional warranties, indemnities, or the termination of the process.
A transaction-ready business plan should generally cover three to five years and be built from the relevant operational drivers. Depending on the business model, these include customers, prices, volumes, capacity utilization, personnel, investments, and working capital.
Internal consistency is critical:
Is the revenue plan consistent with the order backlog and sales pipeline?
Are capacity, staffing, and investments sufficient?
Are the profit and loss, balance sheet, liquidity, and cash flow plans aligned?
Can the assumptions be derived from historical developments?
What is the impact of deviations in price, volume, or costs?
In addition to an ambitious base case, key sensitivities should be made transparent. A business plan gains value not through the steepest growth trajectory, but through comprehensible assumptions and high forecast accuracy.
Current trading is particularly relevant. If the company repeatedly misses its communicated targets during the sales process, it is not only the business plan that loses credibility. The purchase price and the likelihood of closing also come under pressure.
Professional sales documentation alone does not create added value. It must be based on a consistent, complete, and verifiable data foundation.
Deal readiness includes, among other things:
a clearly structured information memorandum,
a financial fact book or—depending on complexity and process—a vendor due diligence,
a complete and logically structured data room,
a comprehensible EBITDA, cash flow, and working capital bridge,
documented contracts, ownership rights, and permits,
a coordinated management presentation,
a realistic timeline, resource, and communication plan.
Data quality is becoming even more important as buyers and advisors increasingly use analytical and AI-supported methods in due diligence. In the KPMG M&A Outlook 2026, 76 percent of respondents state that they already use AI in due diligence; 74 percent cite insufficient data quality as the biggest obstacle.
Inconsistent figures, long response times, and repeated corrections are interpreted as risk signals. A robust data foundation therefore improves both the efficiency of the process and the negotiating position.
Not every buyer values a company using the same logic. Strategic investors, for example, consider market access, technologies, customer relationships, or synergies. Financial investors focus more on sustainable earnings power, scalability, financing, and future exit options.
However, synergies do not automatically increase the purchase price. The seller can only participate in this added value if the buyer universe is selected strategically, the potential is presented convincingly, and sufficient competition is created in the process.
A broad auction is not always the best solution. Depending on confidentiality requirements, market size, and buyer structure, a targeted approach may be more suitable. With international buyers, foreign investment control, antitrust law, and—for larger transactions—the potential relevance of the EU Foreign Subsidies Regulation should be assessed at an early stage.
The overall economic offer also matters. In particular, the following should be compared:
enterprise and equity value,
cash, debt, and working capital definitions,
financing certainty and approval conditions,
earn-out or reinvestment components,
vendor loans and payment timing,
warranties, indemnities, and liability caps,
conditions between signing and closing.
An earn-out can bridge differing expectations about future performance. However, it does not automatically increase the secured purchase price; it shifts part of the proceeds and the risk into the future.
The highest nominal offer is therefore not necessarily the best one in economic terms.
Six to twelve months may be sufficient for the actual process preparation. However, owners who want to reduce operational dependencies, professionalize the management structure, improve cash conversion, or demonstrably develop new growth areas should start considerably earlier.
Value readiness covers operational, financial, and strategic value creation. Depending on the starting point and the measures involved, it takes twelve to 24 months or longer.
Deal readiness covers sales documentation, the data room, the buyer universe, process architecture, and internal resources. It focuses on the months before approaching the market.
The earlier both perspectives are brought together, the greater the strategic options—and the lower the pressure to explain weaknesses only once the process is underway.
An attractive purchase price is achieved neither through a particularly extensive information memorandum nor through the most optimistic forecast possible. Buyers reward demonstrable earnings power, reliable cash flows, a manageable risk profile, credible growth, and a professionally managed process.
The decisive question before selling a business is therefore not: How can the highest possible value be presented? It is: What conditions need to be created today so that buyers will actually recognize this value later?
Financial Advisory
Raw materials, labor, energy, transportation: everything is becoming ever more expensive. But that's not all: the rising costs of important input factors are endangering the profitability of companies. With our interactive inflation calculator, you can quickly find out just how much price increases are impacting your company's earnings and how price increases to your own customers can provide relief.
