Musical Charis in M&A

by admincf | Oct 10, 2025 | Insight, Newsroom

From Kruger National Park to Jerusalem

Kruger National Park, South Africa. Closing offsite. The morning sun is already high in the sky, breakfast is almost digested. The two CEOs use the time before the workshop to take a walk through the savannah. Good idea. Fresh air, clear head, strategic thoughts. When suddenly a lion stands in front of them. Big cat. Hungry. Interested. Its facial expression leaves no doubt: the animal has not had breakfast yet.

One of the two CEOs remains surprisingly calm. He opens his backpack, takes out trainers and starts to put them on. Slowly, concentrating, as if he had all the time in the world. His colleague watches the scene with a mixture of disbelief and derision. “Seriously? With your athletic build, you think you can run faster than the lion?” The first CEO ties the last shoe, stands up and smiles. “Fortunately, I don't have to. It's enough if I'm faster than you.”

This could, of course, also be an answer to the CEO question. Two companies merge, two bosses come together, but at closing it is still unclear who will actually take the helm from day one. Postponed. Deferred. Left open.

Another option? Musical chairs. Anyone familiar with the game from children's birthday parties will understand the principle immediately. Two CEOs. One executive chair. As long as the music is playing, everyone remains relaxed. But at some point, the music stops. And whoever is sitting in the chair first gets the job.

All joking aside, though. When two companies that are more or less on an equal footing merge, playing the famous and often invoked merger of equals, how do you actually deal with the CEO question? Does it really have to be clarified before the closing? Or can you take your time to calmly develop a viable and sustainable solution that fits the strategy and achieves the goals of the acquisition?

The setting – the myth of a merger of equals

Textbooks have a clear idea of what a merger of equals (MoE) actually is. Two companies merge to form a new, independent entity, the NewCo. The details of the transaction are meticulously set out in advance in the business combination agreement (BCA). This agreement also sets out in black and white how the shares in the new company are distributed among the shareholders of the two old companies.

In a merger of equals in the strict sense of this doctrine, one company does not take over the other. Both parties are more or less equal in the process from the outset. Because NewCo is legally established as an independent entity, it needs a defined management structure from the day of inception. Anyone who has ever been involved in founding a limited liability company or stock corporation knows that this is not possible without explicitly specifying a management board or executive board. This can be designed as a temporary solution in which both CEOs of the old companies play a role, and the CEO question is deliberately left to be decided after closing.

In practice, however, the picture is often less idealistic. Many M&A transactions clearly follow the classic buyer-target relationship and are nevertheless generously labeled as mergers of equals. What this usually means is that the parties meet on eye height and refrain from imposing all of the buyer's structures on the target without discussion.

Those who take eye height seriously will logically also put the buyer's management structure and its staffing up for discussion. The target may have systems that are more interesting, more efficient, or more suitable. And this also applies to the relevant executives, including the target's CEO.

Before making hasty decisions, before really getting to know the people involved, it therefore makes sense to wait until after closing to clarify key personnel and structural issues. Especially since there are plenty of other issues to deal with between signing and closing. Anything that takes the pressure off at this stage creates room for maneuver.

Bye the way: When the acquisition is deliberately not intended to be on eye height. The decision to consistently roll out the buyer's model to the target is effectively a foregone conclusion for many buy-and-build projects. Even then, it is still worth consciously looking for best practices at the target. This is not only an important sign of appreciation for the organization and its employees. In practice, you almost always discover something interesting that should not be overlooked.

There is always a referee – the myth of a leadership vacuum

Then there is another special case. A financial investor buys several companies together. This does not necessarily have to happen as part of a buy-and-build strategy in a fragmented market; it could just as easily be only two or three companies – competitors, for example.

If the structure does not start with an anchor investment, but rather with a parent company that gradually acquires the two to three individual companies, then this acquisition vehicle has legal control from the outset. We recall the founding ceremony at the notary's office.

This means that there is no leadership vacuum in any scenario. At the very latest, the shareholder representatives or the shareholders of the company themselves not only have the opportunity to intervene, they also have an obligation to do so.

CEOs, supervisory boards, advisory boards, and owners shoulder the responsibility of ensuring that the M&A transaction does not turn into a chaotic children's birthday party, where the parents of the guest children think afterwards, “Thank goodness I don't have to clean up this mess.” This applies to mergers of equals as well as to acquisitions at eye height and any other M&A transaction. And it applies regardless of whether the CEO question has been clarified before closing or not.

The opportunity to finally clean up – the advantages

In many companies, executive board responsibilities are set in stone. Opportunities to fundamentally change these arrangements are rare. When they do arise, it would be downright negligent to let them pass by. This is a lesson learned by anyone who seriously engages with organizational change. Even when a new CEO takes office, the structures often remain unchanged.

However, the merger opens valuable space. Suddenly, the opportunity to restructure responsibilities is on the table. Changes in the market can be reflected in the organization. The desired, perhaps even necessary, transformation can finally be anchored at the highest organizational level. Where it actually belongs.

Separating structure and staffing is challenging. If the management team has already been determined in advance, it becomes nearly impossible. If the company takes its time here, it first marks out the playing field and then determines the lineup. As part of the integration process, the target company is often reorganized. This occasion can also be used to reorganize the buyer. It is an opportunity that is far too often left untapped.

By taking the time to experience the existing structures and management teams in the truest sense of the word before making decisions, the company sends a clear signal of appreciation for the target. This ensures that the target's best practices are not lost along the way. The much-cited encounter at eye height is visibly lived out and does not remain mere lip service.

Uncertainty and lack of transparency – the Downside

Unresolved decisions create uncertainty. This uncertainty affects employees within both organizations internally and customers, suppliers, partners, and financiers externally. If this situation persists for too long, there is a risk of leaving. The same dynamic can be seen time and again, especially among employees: the good ones leave first.

Parallel structures lead to inefficiencies. To prevent the two organizations from working against each other, additional coordination is necessary at various levels and in almost all functions. Although this increased coordination effort is part of every integration phase and thus every M&A transaction, it remains a noticeable hindrance.

A lack of final structures and responsibilities can also blur the focus. Corporate strategy and acquisition goals are interpreted differently and implemented less consistently as a result. In some constellations, an unresolved CEO issue opens the door to tactical maneuvers, political games, and power games. A spectacle that no one really needs.

In any case, the not taken decision will temporarily delay implementation and the achievement of acquisition targets. The risks are there. Whether and to what extent they will have an impact depends directly on how this phase of uncertainty is organized and managed.

Organizing the transition – How to succeed

The first step is to define the goal, the vision for the joint future of the two organizations. What goals should be achieved together? What will the success of the acquisition look like in one, two, or three years? What can be achieved together that was not possible alone? These are the familiar questions. The answers that breathe life into this vision carry both organizations through the uncertainty of the transition phase.

The vision is followed by the less glamorous but crucial process. If the original question cannot yet be answered, it should at least be clear how this question will be answered. How does the path lead from today's unresolved situation to the new target state, including the then clarified CEO question?

Ideally, this approach should be defined before closing. What steps will be taken, what coordination and co-determination are planned? When will which results be communicated? In addition to time limits, the process also needs content limits, guidelines, and a clear framework. What is set in stone? What scope for design is there? What can, what should, and what must be designed? Answering these questions means providing support to the people in both organizations.

This creates security in an open space. The more unfamiliar the terrain, the greater the demands on leadership. As long as the CEO question has not been conclusively clarified, a central leadership task lies with the shareholders or their representatives. This is where supervisory boards, advisory boards, or the shareholders themselves are called upon.

Leadership skills – Successfully reaching the goal 1

It has already become clear before that even if the CEO question remains unresolved, no one is steering through a leadership vacuum. At the latest, the owners are available as referees. As is so often the case in life, there is a mutual obligation here. In this uncertain phase, shareholders or their representatives must demonstrate clear leadership. This includes visibility, availability, and accessibility. The referee must be on the field when the whistle blows – anyone hiding in the locker room or wellness area has already lost before the game has even started.

Official structures such as a steering committee or a decision-making charter prove to be useful aids in standard situations. They bring calm and structure to the collaboration. That makes perfect sense. However, the real test lies in special cases, in exceptional situations, where no checklist can help.

When tempers flare over seemingly minor issues - such as whether to introduce centralized accounting or whether both locations should retain local accounting - discussions quickly escalate. Uncertainty spreads like wildfire throughout the organization. This is precisely the moment when arbitrators must intervene. Immediately, not just at the next official steering committee meeting in two weeks.

When a second playing field opens up in such moments, the focus shifts dramatically. Power games suddenly dominate alongside the substantive debate. Tactics are employed – in the truest sense of the word – until the arbitrator arrives. If the owners do not intervene in time and put a stop to these destructive patterns, constellations arise that will later be regretted deeply. Periods of great upheaval and pronounced uncertainty are not the time for power games, however popular they may be out in the wild.

A consistent separation of run-the-business and change-the-business provides reasonable guidance. Which issues belong to normal business (run) and which to the upcoming change? This clear distinction proves to be surprisingly effective. In many cases, business as usual can continue steadily during the transition period. This allows the arbitrators to focus their valuable attention on the relevant issues and clearly recognize how much tactics and power games are actually going on in the background.

Transparency creates trust – Successfully reaching the goal 2

The vision for the merger is in place. The reasoning behind the CEO question has been clarified. The clarification process has also been clarified, and milestones and expected responses for the organizational change have been clearly defined. But is everyone really in the picture? Do the employees of both organizations know what is planned? Or are they groping in the fog of uncertainty?

People can tolerate uncertainty, even over long periods of time. Provided they know approximately how long they have to wait and what steps lie ahead. Just like waiting for Santa Claus as a child: agonizingly long, but bearable because the Advent calendar counts down the days transparently and St. Nicholas makes the wait more bearable in the meantime.

It is precisely this transparency about the vision, the why, the process, and the milestones that those responsible must provide. It helps immensely to disclose the reasons for any delays. For example, a hearing and approval by the works council is pending or that an official shareholders' meeting must give its consent. These are not annoying excuses, but the reality of mature companies. And when communicated honestly, they create understanding instead of frustration.

That was the start. Now comes the real challenge: staying on track. With regular updates, the journey through uncertainty towards success continues. It is not only at milestones that there is sufficient reason to keep your word and provide information about the promised results. Small updates in between maintain trust. This does not always require staff meetings or pompous town halls. A short email from the respective CEO, ideally signed by both, creates a pleasant feeling of being informed, involved, and important.

But what if a milestone starts to falter? What if the expected result is not yet available because the works council is still wrestling with itself or the consultants? Or because a good solution has simply not yet been found and another week is needed? This happens and is rarely a disaster. On the contrary. As long as it is communicated directly and openly, it actually fosters trust. Because the truth has an amazing superpower. It makes you credible. And credibility is the hardest currency in any transformation.

Persistence and perseverance – successfully reaching the goal 3

This does not mean that plans and milestones should be thrown overboard at the first opportunity. Only truly compelling reasons, such as significant external influences that no one could have foreseen, justify adjusting the plan in absolutely exceptional cases. Two things are important for real change and true transformation: perseverance and persistence.

Difficulties, challenges, and headwinds are as inevitable as death and taxes in transformation projects. They will come. This is not unique to unresolved CEO issues or M&A transactions. It often seems as if a quick decision, a rapid resolution of the situation, is the right solution. In the short term, this may indeed work. In the medium and long term, however, vision and acquisition goals go to the dogs.

A proven rule of thumb for M&A transactions is that after closing, around 10,000 additional decisions have to be made in an uncertain environment. These are decisions that lie far outside the usual standards and processes. They consume additional time and energy and create a considerable amount of additional uncertainty. This is the inefficiency that M&A transactions always bring with them at the beginning.

All of this is part of the successful path toward achieving the goals of the acquisition. Uncertainty is part of the process. It takes persistence and perseverance to see the transformation through to the end without taking any tempting shortcuts along the way.

Two CEOs are okay – an open flank is not

Going into the closing and Day One of an M&A transaction with two CEOs is anything but usual. It is not impossible, and it is certainly not nonsensical. The real question is rather: Why?

What is the vision and what are the goals behind it? Why wait to make this decision? If there is crystal-clear conviction on this point, then it is the right way to go. With the necessary leadership strength, including on the part of the shareholders, this uncertain phase can be mastered with confidence.

Succession strategy: Why the best company is the one you don’t want to sell

by admincf | Aug 3, 2025 | Insight, Newsroom

Preferably 65 years old!

“We prefer 65-year-old CEOs and owners who want to sell their company. We generally do not accept mandates from anyone under the age of sixty.” It is rare to encounter such a pointed definition of a target group. Admittedly, it sounds rather uncompromising when this M&A consultant describes his ideal clients.

From his point of view, this makes perfect sense. The closer the CEO and owner gets to retirement age, the greater the pressure to act. Opinions always differ when it comes to the purchase price – especially when it is one's own life's work. However, if there is no time pressure to sell soon, deals often fall through just before the finish line. This happens more often among those under 60, who think to themselves: “I'll just keep going for another five years.”

Is that understandable? What is strategically clever for the M&A advisor proves to be less advantageous for the CEO and owner. Shortly before retirement, the scope of options narrows dramatically. Then, in most cases, the only option left is to sell. But is that really the best solution? For everyone involved? For customers, suppliers, and employees?

A look at M&A activity among small and medium-sized enterprises shows that, alongside digitalization, succession is one of the most common triggers for a transaction. This is reason enough to take a closer look at this issue and clarify key questions: Is a sale really necessary? What alternatives are there? What are the next steps? And when should you start?

What are the reasons for selling all or part of your company? When does it make strategic sense? Let's address these two questions first. The following situations, which have occurred repeatedly in recent years, provide possible answers.

Financing – Transformation costs money

Without adequate financing, any transformation remains a pipe dream. This does not refer to companies in acute financial distress or even insolvency. Their restructuring would also require considerable resources, but that is another chapter – in another article.

No, the focus here is on companies that are doing well financially. Nevertheless, the available cash flow is often insufficient to cope with necessary or sensible changes. The situations for this are manifold.

For example, an automotive supplier wants to move away from combustion engine components and switch to electric mobility. After all, not everyone just produces bumpers. This portfolio metamorphosis usually requires new technologies that demand different expertise than before. The transformation is rounded off with new production technologies. This is not only a major mental shift, but above all a very expensive one.

New production facilities are established for a variety of reasons. Relocating production abroad is only one motive. Sometimes existing premises are bursting at the seams, rental or lease agreements are expiring, or regulations are forcing a move. Depending on the scope of the project, parallel continued operation to ensure continuous customer supply, and possible social plans if the locations are too far apart, considerable financing requirements arise. In the case of fully automated production, the sums quickly run into the high double-digit millions — even the most experienced CFO pauses to think about that.

Added to this are industries in the midst of market consolidation. Often, one company starts the process, and all the others are forced to follow suit. In order not to be left behind or to be “swallowed up” themselves, the only option is to actively acquire competitors. This, too, cannot be done without the appropriate financing.

These are just a few examples of how successful companies can face significant financing challenges. These challenges can result in a sale or partial sale. Ideally, however, in such situations, the company should not just bring an investor on board who merely provides the necessary capital.

Skin in the game

The company is now in the comfortable position of having secured financing for upcoming changes, whether through moderate transformation costs, sufficient cash flow, or a generous investor. However, depending on the transformation project, money and leadership alone are not enough. The right expertise and experience are also required.

Digitalization provides a prime example of this. Without the necessary expertise, it is virtually impossible to even select and recruit the first suitable digital expert. Production relocations are highly complex and fraught with pitfalls. Anyone who wants to avoid these should bring the relevant expertise in-house.

A few years ago, there was a DIY-store supplier that had been successfully run by the same family for decades. It could have continued like this for several more years. Fortunately, the family recognized the need for change in their own company in good time. Even though all sales managers were equipped with smartphones, sales were somehow still stuck in the 1980s. Fit for the future definitely looks different.

The family was also aware that they lacked the experience to make such changes to the organization, not to mention the internal expertise in the company. The solution? They sold 50% of the shares to a private equity fund with the relevant specialization. This not only brought expertise and experience on board, but also many helping hands to support the transformation process. Not to be underestimated: the board now included a representative with sufficient skin in the game, so that they didn't turn back halfway just because it was getting tough.

With secure financing and the right mix of expertise and experience, any necessary transformation can be mastered, the company can be positioned for a sustainable future, and substantial additional value can be generated along the way. Is that the end of the story? Not at all — it could well continue.

Stepwise exit

Those who proceed skillfully and have brought a private equity investor on board for one of the two reasons mentioned above can elegantly use Private Equities’ investment logic to their advantage. Private equity funds typically sell their portfolio companies after a holding period of five to seven years. In this sales process, which is usually professionally orchestrated thanks to private equity experience, it is then possible to completely exit one's own company and enter retirement.

A service company with an plain me-too strategy was facing precisely this situation. It was unable to make the leap into the growth phase on its own. The founder and owner was planning to retire in the next 5-10 years. However, in its current state, the company was hardly saleable.

He brought a professional investor on board at the right time, who contributed both expertise and financing for the upcoming changes. Together, they prepared the company for the growth phase and took the first steps toward expansion. After just under seven years, the company was sold in its entirety to the next investor, who was able to immediately devote himself to intensive growth. A happy ending for everyone involved.

The planned and timely partial sale paved the way for the complete exit. The private equity investor increased the pressure on the subsequent sale process. There was no turning back.

Before you get the impression that we are singing the praises of private equity investments in medium-sized companies, it makes perfect sense in many situations. All three scenarios demonstrate thoughtful strategic action. In no case is the decision to sell or partially sell made at the eleventh hour. Instead, someone has given careful consideration to the future of the company beforehand.

And besides that? A great company?!

Entrepreneurs find themselves in a situation where succession has not been thought through, planned, and initiated ten years in advance — and strategic visions for the company are also in short supply. Nevertheless, the exit for founders and CEOs should now take place in the near future. What remains? Sale “as-is.”

This is very reminiscent of buying a used car “as is.” If you think back to the opening story, it certainly works. At least when the founder and CEO has reached a certain age and the pressure to exit is correspondingly high. If the price is right, there is usually always a buyer.

The info memo then talks about a fantastic company with countless opportunities for the future. The somewhat succinct “fantastic” can be replaced by countless other superlatives that praise the company to the skies. This immediately raises a few critical questions: If there are such great future opportunities, why haven't any of them been realized yet? Or at least started to be realized? And even more critically: Why sell a company that is doing so well?

If things are going so well, then why not just keep it? A solidly positioned company could easily be used to finance retirement simply through cash flow. Before investing the proceeds from the sale in a stock portfolio of companies whose products and strategies are unfamiliar, one could simply hold shares in a company that one knows inside out. Instead of a stock portfolio, company shares can also be passed on to children.

But if that doesn't happen, what does that say about the company? What does that mean for the organization? In short, there is probably a lack of confidence that things will continue to run smoothly without the founder and CEO. Difficult.

That's why you should only sell at sixty-five – then you can swallow the bitter pill of realization. The company isn't doing so well after all, the future isn't so bright, it's too late to start thinking about tomorrow. The value isn't as high as expected. Price reduction! But the pressure is on, and then the deal goes through. And everyone is happy...

A kind of carve-out from the CEO

If there were still time, if the seller were not over sixty, what options would there be? Sometimes, even at over sixty, there is still the opportunity to stay on board for another five years and push ahead with the necessary changes.

What is on the agenda? Essentially, it is quite straightforward: to structure the organization in such a way that it can be maintained with a clear conscience. This would essentially be a type of carve-out from the founder and CEO. To make the company independent of him. To dissolve all interdependencies between the founder and CEO on the one hand and the organization on the other.

This means changing processes so that they run through the “normal” responsible parties – not because it has always been that way. When it comes to recruiting, it is no longer Mr. Meyer who makes the final decision, but the responsible manager; after all, they are the ones who have to live and work with the new employee. Pricing is not based on Mr. Meyer's mood on a given day, but on a clear price list and a defined process.

What if the managers described above do not exist? Then it is essential to establish an organization that can make and implement decisions independently. A sustainable structure that relieves the CEO and functions even when he is on vacation, without the company coming to a standstill.

In most cases, there are many implicit rules, processes, tactics, and treasures of know-how. These must be made explicit, at least the important ones. They need to be documented. And yes, they must be transparent. Then it is easy to check whether this is really how things are done or whether success lies elsewhere.

Preparation is everything. That will take time. The positive aspect? The founder and CEO has enormous influence on this. The sooner he can let go and give the organization the chance to emancipate itself, the faster things will progress. There it is again, the question of trust. But if you can't trust the organization while you're still on board as CEO, you won't trust it when someone else takes the helm either. After all, the new CEO won't save the world on their own.

Ultimately, it remains a strategic question

If you don't want to be faced with the bitter truth at the last minute, you need to sit down earlier and answer the question — less for yourself than for the company: What will the future look like when you retire?

Is a future with a different CEO conceivable? It could well be someone from within the family. But more importantly, is there enough trust in the organization that, if in doubt, the shares can simply be retained? Does the future require extensive changes or even a fundamental transformation that requires a financial and strategic partner?

Ultimately, it remains a strategic question. It should be addressed at an early stage, not just twelve months before the planned retirement. And it should be done explicitly. For companies that are (still) highly dependent on their founder and CEO, this should be part of the strategy. Certainly not right at startup phase, but about ten years before the planned or expected retirement.

This gives customers, suppliers, and employees the certainty that work is being done to secure their future and the future viability of the company. Ultimately, it remains a strategic question, but one that is better asked at the outset.