This post is the second in our series designed to help business owners discover the key steps involved in successfully finding a buyer/investor. Earlier this week we looked at four risk areas that buyers focus on and provided ways to impact them, which would enhance the company’s valuation and sale-ability.
Today we look at a step that is often overlooked by sellers: creating key documents to protect the company and attract professional buyers. Both are equally critical. The key documents we are referring to include:
All three of these go hand in hand and are equivalently vital.
To begin, before sending detailed information about your company to any buyer, be sure to create an ironclad Confidentiality Agreement (CA). To be safe, it is a good idea to have an attorney draft this for you and if you can afford it, preferably an attorney who is well versed in M&A transactions. This point cannot be stressed too heavily.
You need to protect your business from unscrupulous competitors who would like to gain access to your company’s operating metrics and competitive strengths. If you send information to a buyer without getting a signed CA first, you open yourself and your business up to significant risks. Spend the money necessary and hire an attorney to create a solid, workable CA.
After the CA is created, your next task is to create an Offering Memorandum (OM). This is the document you will send to buyers after they sign and return your CA. What do you need to include in your OM? Depending on your business, some of these items will include:
Looking at this list of typical Offering Memorandum contents it is pretty clear that unless you are a trained accountant, you will most likely need help from a financial professional for some of this information.
For example, if you are unfamiliar with the recasting of financials, it will be vital to hire someone that is. Recasting allows you to restate the true profitability of your business. Most likely you and your accountant have worked hard over the years to help you personally retain as much of the company earnings as possible. Typically this means that the company’s true profitability is most likely much higher than what your historic financials portray. If you don’t make the effort to recast your historical financials, odds are good that you will be undervaluing your business.
The Valuable Features
In addition, one of the key areas of the OM that you will need to address is identifying those features of the business that make it unique; we call these Intangible Assets (a.k.a. off-balance sheet assets) because they are not necessarily accounted for directly in your earnings but they play a HUGE role in the company’s success.
Often this is a challenge for many business owners. Usually the entrepreneur is so close to the daily operations of the company that he/she does not have the ability to objectively view the business as a buyer would. Taking the time to truly catalog what makes your business distinctive is critical for the creation of your offering memorandum.
One thing to NEVER mention in your OM is the price of the business. There is an old saying: “He who mentions price first loses.” This applies to the sale of your company. Let the buyer(s) tell you what it is worth after they review your OM and spend some time learning about the business.
The final document you will need to create is the Confidential Business Profile (CBP) or teaser. This is a 1- to 2-page document that takes key information from the OM and “highlights” those items that you want a prospect to immediately be aware of regarding your opportunity. Typically you will want to show a summary of three years of historic revenue and earnings as well as your five-year forecast.
Also, be careful to not disclose too many specifics about your company’s location and any unique identifiers that might enable an industry insider to determine who you are. Provide just enough details to get them interested without breaching your confidentiality. This is a fine line to walk and you may need to create several different versions of your CBP depending on the types of buyers you will be approaching.
And again, never mention price in the Confidential Business Profile, AND do not send the Offering Memorandum even if someone expresses interest until they return your CA signed and dated!
If you take the time to carefully craft these three documents, you will be in much better shape to attract the attention of professional buyers to your opportunity. If you would like to see some actual samples of these documents, attend a complimentary Generational Equity M&A seminar. We conduct these throughout North America and odds are good that we will be near you soon. To find out more about our services, please visit our website, provide us with your contact information, and we will be in touch.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2016 Generational Equity, LLC. All Rights Reserved.
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
By submitting my name electronically and clicking the “submit” button, I understand that I am providing Generational Group, Inc., Generational Equity, LLC, Generational Capital Markets, LLC, DealForce LLC, their affiliates, representatives, contractors, etc. (“Generational Group”) my telephone number, which may include a number that is wireless and/or a number that is on a national, state, or other Do Not Call registry or list. I hereby consent and agree to receive telephone calls including any autodialed and/or pre-recorded telemarketing calls and/or text messages (telemarketing) from or on behalf of Generational Group at the telephone number provided. I further consent and agree that telephone calls may be made using automated technology such as an automatic telephone dialing system, artificial or prerecorded voice, or SMS text messaging. Consent is not a condition of purchase. I further warrant and represent that any telephone number provided is not on any state or national Do Not Call Registry and that by agreeing to these terms and conditions that if any number provided is on any such registry, I hereby consent and agree to receive telemarking calls and/or communications including any phone calls, text messages, URLs, links, emails, etc. to the telephone number(s) and/or any e-mail addresses provided. I understand that by entering my name in the electronic form provided, that I am signing my name as equally as if it was my handwritten signature and that it is my intent to provide an “electronic signature” as that term is defined in state and federal law, as well as industry practices for e-commerce.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Group.
Success, you have been added to our list.
it all started with a conference.
start your story today,
speak directly with one of our senior advisors +1-972-232-1121