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It’s all about the story

During merger and acquisition, communicating value to investor is crucial, writes Bob Cronin

Sellers today are in the driver’s seat. Lending rates are still low (but rising), multiples have gone up, and a number of areas are garnering significant investor attention. But the process of selling is complicated. There are a number of stages to go through and crucial obstacles to navigate along the way.

Even if you have a hot property in a high-demand segment, your effectiveness at each sell stage is important. Getting through these wisely – with expert and experienced support – will ensure your best outcome. The typical sale process follows six stages: 1) Preparing an offering memorandum; 2) Creating a management presentation; 3) Determining your best acquirers; 4) Selecting your match; 5) Performing due diligence; 6) Closing the deal.

The first stage is critical. Most businesses are shopped with an offering memorandum. And thus, a compelling one is key. An offering memorandum communicates your company’s value – and gets it considered. It’s all about the story. Your ability to engage and entice investors will determine which opportunities are available to you. This article, thus, focuses on creating an offering memorandum so you can get the best return from your hard work. 

Since you lead your company every day and are very close to it, you may think this would be straightforward. But be assured that it’s very complex. It can be especially difficult for an investor who may not work in labels or packaging to grasp what it will take to grow to the next level. The most effective way to communicate complex messages is through a story. Your acquirer must clearly understand your key strengths. Moreover, they must be able to grasp what new growth is possible – or your own or in combination with another entity. 

Your offering memorandum starts with an executive summary. This is a 3- to 7-page (or so) discussion about the business. It’s a synthesis of the entire offering memorandum, highlighting your greatest attributes – as they relate to a potential acquirer. We put these together all the time for our clients and have found certain keys to success. The most effective executive summaries cover the following. 

How did you start? Purchasers want to know where you came from. They want to see your initial plan and objectives, and how well they were aligned with the market at that time. They also want to see how you planned and grew over the years, so that they can gauge the validity of your future vision. Accommodating cyclical change can be perceived favorably, while rebrands and larger risk-taking may be seen in a different light. Purchasers will be determining how solid your foundations are to assure them of their investment.

Who helped you build your business? You’re selling your business. 

Thus, it’s not a story about what you did, but rather what your people have accomplished and are prepared to achieve in the future. Great people make a great business. Acquirers want to make sure that a solid team would remain to propel the operation. If you have staffers with unique abilities, call out their experience and potential. Having such assets will yield you greater reward.

Why are you selling? Reasons behind a sale can tell a buyer how much risk is at hand. If you’re selling only because of age or retirement, it’s a lot different than selling because of an outdated product line or income volatility. Take on this question honestly and openly. Also, show how you’ve made plans to manage your exit. Any underlying motives and issues will be discovered in due diligence.

What has the business become? Businesses evolve over time, and your original goals are likely not your goals for the present or future. Provide an accurate pinpoint of who you are today. Be specific in describing your company’s strengths, weaknesses, assets, and obstacles. And be able to back up any claims.

What can the business be in the future? Working off the previous question will be a discussion of where the company can expand. Think through multiple trajectories, and clearly articulate how each of these can be attained. Growth plans may vary based on whether you sell to a strategic acquirer or private equity investor. Will the business need capital to expand? Can it rapidly grow with entry into a new channel? What does it need to reach its full potential? Explain how you believe new ownership will make the business stronger. This will strengthen your position to sell.

As you work through these questions, remember to stay positive, but realistic. Provide clear details, research, statistics and other evidence to substantiate your assertions. Remember to customize your document to your target investor or acquirer. With a relevant and compelling story, you can get your business noticed. More important, you can maximize interest to enhance value and bring your transaction to a successful and profitable conclusion.


Bob Cronin is a regular columnist in Labels & Labeling, writing about M&A activity in the industry.

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