Step 3: Your Business Broker Will Prepare a CIM & Data Room
Our client’s companies are large enough to attract offers from investment groups and these investment groups expect a wealth of information on the businesses that they look to acquire/invest in.
If you’re selling a small business (under $500k profit), your business broker will likely put together a much shorter version of the same documents.
A confidential information memorandum (CIM) is a full detailed report on the business. It should cover each of the business departments, client/customer concentration, how it is differentiated from competitors, teams, forward-looking materials, and industry research.
This will be accompanied in the data room by redacted client information, contracts, forward-looking financials and historical tax returns among other materials.
This needs to be a thorough marketing document as it is how buyers know whether or not the business is worth their time and attention or not.
Here is a look at a CIM we put together for a previous client that sold for $22.5M.
Example Slide From a Previous CIM
Step 4: Create a Targeted Business Buyer/Investor List (Specialized for Your Business)
We’ve tailored our process to optimize the number of qualified bids from capable buyers we can get for a business. As part of this process, we’ve created the buyer list creation process that combines three resources:
Our in-house buyer database
- We have an internal database of over 20k private equity groups, family offices, search funds and holding companies. We filter this list down to pull those groups that are interested in your industry, business size and location.
- About 80% of buyer bids are sourced from this list as they are in our database from having looked at previous businesses that we took through the same marketing process.
Outside Investor Databases
- We purchase access to outside databases that track transactions. We’ll look for any groups that have recently invested in your industry and size companies.
We Develop a Strategic Buyer List
- Strategic buyers could be competitors, suppliers, customers, or any other investor that could have a strategic or synergistic interest in your company.
Step 5: Market the Business to Potential Buyers
Once all of the materials have been prepared, it is time for the business broker or M&A advisor to bring the business to market.
For small deals that are going to be sold to an individual, this means putting an asking price on the business, getting it pre-approved for an acquisition loan from a bank and putting it on market until a bid comes in.
For companies we work with that are a bit larger, the marketing process is typically 6-8 weeks. This process entails marketing the business with a confidential document called a teaser, having buyers sign NDAs, interviewing them and granting them access to a virtual data room (VDR) to review that business information.
The process then concludes with us setting a date where potential business buyers will need to submit an indication of interest outlining the price, terms and structure of their proposal to buy the business.
Step 6: Receive Indications of Interest (IOIs)
This indication of interest outlines the broad terms of their proposed offer for the business. It will include at a minimum: Purchase price (typically in a range), structure (earnout, seller note, rollover, etc.), what is needed from the sellers in transition, source of financing, time to close, etc.
It is important that all IOIs are received simultaneously so that we can narrow the list of finalists and who to bring to the next round of bids. These finalists will then be invited to meet with the business owners in person. We will also work to conduct a secondary presentation to share more granular business information with them that was not included in the CIM or data room at the previous stage.
One of the questions we get most frequently is “what is my business worth” and while that answer differs for everyone, we put together a business valuation calculator to help you get started.
The M&A Auction Process
Step 7: Hold Management Meetings With Finalists
Once we have received and reviewed the IOIs, there are typically 3-4 offers that stand apart from the rest based on the business buyers track record, the offer price and structure and their plans for the business moving forward.
You and your m&a advisor then meet in person with these finalists to conduct management meetings, share more information on the company with them and give them everything they need to write a letter of intent (LOI).
Step 8: Receive Letters of Intent
Finally, it’s been 5+ months of hard work, and while the deal is still far from closed, offers have been received!
The LOIs will include everything that was in their IOI, plus a number of other terms that may be important to understand before proceeding. Additionally, we look for the final price and payment terms that they are proposing, not a range that we accepted at IOI stage.
LOI’s always require exclusivity as after they are signed the buyer will spend significant time and money performing diligence on the business in order to get to a close. Because the LOIs are always exclusive, it is important that we negotiate any items that could cause the deal to fall apart before the LOI is signed.
