One of the major advantages of using a skilled, experienced M&A advisor is the quality of the presentation that they will make on your behalf to buyers. If you use an M&A firm to represent you, their demonstration of your opportunity will typically be found in two critical documents:
Each of these documents plays a key role in marketing efforts on your behalf. The CBP is a 1- to 2-page teaser that highlights the key areas of your business that buyers will find attractive. Most CBPs include a summary of your historical and projected income statement, typically three years of history and five years of projections. A paragraph or two describing your business is also included, along with a brief description of your future growth possibilities. In addition, most dealmakers will also briefly highlight the important off-balances sheet assets your company has that specific buyers will find attractive – without disclosing the name of the business obviously.
The goal of the CBP? To grab the attention of professional buyers, folks that look at 500-1,000 opportunities each year and have a limited time frame to analyze prospects and possibilities.
These individuals like to see information presented in a standard format so that they can literally, within a few minutes, decide if your business is something that they want to look at in more depth. The creation of the CBP is a real challenge because taking reams and reams of information that you have provided and distilling it down to something that highlights the most important facts takes skill and experience.
The second document, the OM, is only sent to prospects who have reviewed the CBP, indicated an interest in looking at more information, are approved by you, and sign a Confidentiality Agreement (CA). This last point cannot be over-emphasized.
If you are NOT using professionals to negotiate with buyers, then you need to have an attorney familiar with M&A draft an ironclad CA on your behalf. Do not send detailed information about your business to any buyer who is not willing to sign your CA. Even if you know the prospect well and trust him/her, protect your business from confidentiality breaches by having all interested parties sign your CA.
Once your dealmaker has the CA in hand and you have approved the target, the OM is sent. It is a fairly lengthy detailed document and is usually comprised of the following key segments:
The length of this document can vary from 40-60 pages or more depending on how complex your business is and the level of documentation needed in order to alleviate buyer concerns regarding the risk of your opportunity. And that is why the OM needs to be absolutely accurate in its detail. The OM is used as the backbone to start the eventual due diligence process and any inaccuracies, especially relating to your financials, can have a huge impact on your transaction both in terms of valuation and deal structure.
One of the key aspects of this transparency is the “base year.” This generally is the 12-month period your business is in whilst you are in market. It is perhaps the most important year of your entire financials because it is this number that buyers will most closely scrutinize during due diligence. If you are projecting revenue growth of 10% and gross margin improvement by 5% during the base year, it is vital that you be on track to do so during due diligence.
There is nothing more damaging to a deal than for your deal maker to have to disclose to a buyer that not only are you not on track to reach your projected revenue target in the base year but your margins are not in line as well. This issue calls into question your entire five-year forecast and obviously is a determining factor in what the buyer will ultimately pay for your business (and how the structure of the deal is determined as well).
Quite often if the base year projections are being missed (even if the “miss” can be explained), many buyers will structure the transaction to include an “earn-out” whereby key metrics in terms of revenue and/or earnings are met over a 1- to 3-year time frame (or even longer) and where you are often required to stay with the new company and ensure that these benchmarks are reached. Obviously if they are not achieved, even if the reasons are beyond your control, the ultimate dollar value paid to you for your business could be drastically reduced.
So avoid this situation if possible by projecting a realistic base year for the company. Doing so will save you potential headaches and heartaches later. All too often we have to counsel a client to balance their base year expectations with the reality that if the company has been growing at a compound annual rate of 5% over the past many years, that suddenly projecting 20% growth in the base year will probably do more harm than good for the transaction value. Realism is the key and reflects again, the importance of creating a very accurate OM and CBP.
This also points out how critical it is to listen to the advice of your M&A advisor. Unless you have sold a business before, you will have no idea of how buyers will look at your company and how that view will impact the offers you receive. Your dealmaker knows what to expect because, assuming if they are like Generational Equity dealmakers, they have dozens of years of experience dealing with and negotiating with professional buyers. Heeding their input on the process, especially as it relates to the quality of your documentation, is vital.
Ultimately this is why buyers we deal with really like looking at Generational Equity clients: Our process ensures that by the time an OM gets to them, it is fully vetted, accurate, and complete. Before we approach any buyers, we conduct a full business valuation on all clients, which feeds directly into our OM creation and also ensures that the client has realistic expectations of the business’ value.
To learn more about the services that we offer business owners, please call me at 972-342-0968 or email me at firstname.lastname@example.org.
By Carl Doerksen, Director of Corporate Development at Generational Equity.
© 2016 Generational Equity, LLC. All Rights Reserved.
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.
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
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 are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
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
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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.
Generational Equity, LLC’s affiliates are all part of one corporate family, they work with one another and may work together to provide services to you. The sharing of your information among affiliates enables Generational Equity to serve you more efficiently and makes it more convenient for you to do business with Generational Group. Generational Equity is permitted by law to share information with its affiliates. All of our affiliates follow similar privacy policies.
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.
Honored to win Investment Banking Firm of the Year 3 years running.
Over 50 awards and counting.
Sign up to receive regular email updates, industry-leading insights and details on complimentary M&A executive conferences in your area from our award-winning team
Success, you have been added to our list.