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.
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I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
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The most important contribution I think Ahmad made was with his personality and work ethic. He is sincere, efficient, and very hard working. He was available to me at all times, whether it was for specific detail of the negotiation or just to talk through the bigger picture. He listened, advised, and recommended, but never forced his idea or opinions. In the time we worked together, he became a valued colleague and also a friend.Salvo Stoch, Founder and CEO of Sleeping Partners
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
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We were represented by Michael Goss with Generational. The due diligence was grueling and exhausting, but Michael propped us up and kept us motivated throughout the process. Debi and I continued to ask each other how we could possibly make it through this process without the assistance of Michael. Michael's professionalism and knowledge is absolutely amazing, and we are so blessed to have had him by our side as we made our future dreams come true.Bob and Debi Lee, Owners of BL Technology, Inc and BL Tl Services, LLC
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
We had the pleasure of working with Mr. Ahmad Behjati Managing Director, M&A, for Generational Equity during our acquisition of Papa's Dodge in late 2021. Generational Equity and Mr. Behjati represented and marketed Papa’s Dodge. As our primary contact, Mr. Behjati was professional in every facet of this acquisition process, conveying valuable advice most times and assisting us in every step of the process.Rick Greene of Dobbs Equity Partners LLC
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Thanks to you, the entire GE team and especially Michael Goss for driving a great valuation, coaching me and driving the process across the finish line. Please let me know if there is anything I can do to support GE going forward. P.S. Given my experience with GE I felt comfortable enough to sign up with Generation Wealth Advisors!Tom Currier, Former President & CEO, Rackmount Solutions
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I decided to attend the conference and hopefully receive some guidance on how to structure an exit plan of my business. Upon arriving at the conference, I was so impressed with the presentation given by Generational Equity that I set a future appointment that week to discuss the possibility of selling my business with their Senior Managing Director David Robinson.JoAnn Ellis, Owner of Fondren 5 Star Kennels
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After attending a conference with GE, I decided that the value they bring would be worth the expense and as soon as I started working with them, I realized that was the right decision. When we started to get LOIs, Fred Zweifel took the lead on the communication and supported negotiations throughout the process, which got tricky as we moved forward. I learned that it can be common for companies to make a great offer then work to erode that price with their discoveries, but Fred and the GE team kept that from happening.Caroline Connelly, CEO, OptoTest
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I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!Eric Erlandson, Owner, Action Fastenings, Inc.
The professionals at Generational Equity then helped develop a roadmap for enhancing the value of the firm and an evaluation report. This was completed by June 14, 2021. We then developed the Confidential Information Memorandum and put Taylor Studios, Inc. on the market by July.Betty L. Brennan, President, Taylor Studios
Generational Equity’s professional staff helped me every step of the way. Their network and professionals are the only reason I sold my company this quickly. For me this is a once in a lifetime sale and I was unfamiliar with the process. I was able to lean on them with questions and concerns.
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
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