The mergers and acquisitions (M&A) sales process begins with the preparation of a thorough Confidential Information Memorandum (CIM). This critical document provides the framework for profiling a company and positioning it for sale.
An effective CIM requires collaboration between the Sellers and the M&A Advisor to capture the essence of the business. These conversations will include:
• Company overview – history, who we are, what we do
• Define the core business – processes, technologies
• Strengths and weaknesses – success factors, opportunities, challenges, shortcomings
• Description of the industry and competition – market analysis
• Financial and/or contractual obligations
• Description of the work force – key executives/managers, backgrounds, personnel
• Major contracts and customers
• Normalized and recast financial statements – including original statements prepared by an independent CPA
A properly prepared CIM should summarize essential business information with the intent to engage numerous prospective buyers in a negotiated sale of the business. The CIM will serve as the backbone of the negotiations process; providing a clear and detailed story, ensuring a successful transaction.

Recently, I was discussing with a good friend and long-time client the past financial successes of her company. Its continued annual growth in revenues, net income, and earnings before interest taxes depreciation and amortization (EBITDA) was extraordinary. Should she continue with the Company’s compounding growth and ride it to the glass ceiling of mid-size companies or sell?

Determining the right time to sell a Company at its maximum value is not a luxury afforded to many owners; however, it is not entirely out of the question. The inconsistent phenomena of a business positioned in the right place at the right time, a bubble, cycle, or roll-up does occur. Value multiples increase to 7 – 10 times EBITDA versus the historic valuation multiples of 3 – 6 times EBITDA. Value is best determined in the context of the business’ strategic fit, growth strategy, industry specifics or timing.

Owners must seriously consider the opportunity to sell out when premiums in value may be realized.  Investment professionals should be able to provide guidance on identifying the occurrence and duration bubbles, cycles and roll-ups.

Most private companies have an opportunity to double their value over a 3 – 5 year period by adopting a disciplined approach to reducing risk and increasing quality. A preliminary valuation performed by an experienced M&A professional will identify many of these “risk areas,” and may be used as a road-map to strengthen the business, prepare it for long-term growth, and maximize its sales value.

As a general framework, consider the following:

• Planning – strategic planning, target market, competition, product/market development
• Leadership – board of directors, senior management team, corporate culture
• Sales – team, strategy, operations, projections, geography served, customer base
• Marketing – team, strategy, positioning, branding, financial resources
• People – organizational structure/strategy, incentives, policies/procedures, scalability
• Operations – team, strategy, efficiencies, supply chain, quality assurance, scalability
• Finance – team, strategy, sustainability, balance sheet, internal controls
• Legal – litigation, intellectual property, contracts/agreements, licenses, filings

The most significant financial transaction of an owner’s life may be the sale of his/her company. Early planning for maximizing the sales value of a company is the first step in a successful exit plan.

Upon engaging an M&A Advisor to sell their business, a seller can expect an Advisor to find a buyer for the business at the highest possible price with the most advantageous terms. An M&A Advisor would provide the following services to accomplish this goal:

• Provide the seller with a preliminary business valuation; confirming the expectations of the seller with the realities of the marketplace. M&A Advisors are a great source of information on current market conditions, issues related to pricing and financing, and many other facets of the transaction process.
• Develop a Confidential Information Memorandum of the company; detailing the business and market for potential buyers.
• Prepare a marketing strategy for conducting buyer searches and marketing the business to prospective buyers. Qualify and pre-screen buyers for their ability to financially complete the purchase.
• Coordinate negotiations and provide deal structuring advice; making the sale progress smoothly.
• Facilitate the transaction until the sale is complete.

Most importantly, an M&A Advisor ensures confidentiality of the sale and provides the seller with the ability to stay focused on their business during the entire sale process.

In Merger & Acquisition activity, the anticipation of the first meeting with a potential Buyer may be very intimidating for the Seller. The Seller must be relaxed, open, honest and friendly; however, the Seller must be prepared and rehearsed to answer several questions:

• Why are you selling?
• What are you going to do after the sale?
• Does the culture of the two companies fit?
• How good is the future?
• What are the hidden opportunities and risks?

The first meeting does constitute a preliminary negotiation and impressions are being made that will inform the parties throughout the transaction. There is a certain amount of irony in the first meeting in that the prospective Buyer will do most of the selling. The Seller must listen carefully and answer factual questions but does not need to aggressively sell. In the words of Jack Welsh, the Seller “might as well tell the truth, since everyone knows it anyway.”

The inevitable question will arise as to “how much you want for the company.” The answer should be left to the investment banker. The success of the first meeting for the Seller should be measured by the deepen interest of the Buyer to purchase the Company.