Preparing for a merger or acquisition can be a lengthy process that involves lots of documents, meetings, and, as you might expect, lawyers. If you aren’t entirely sure how to navigate the process, it’s always advisable to retain the services Mergers and Acquisitions (M&A) advisory team. Otherwise, this article will examine the 11 documents that are most commonly prepared during the M&A process from a sell-side perspective.
What is M&A?
Mergers and Acquisitions (M&A) are transactions where the ownership of a company – including all assets and liabilities – is transferred to another entity. M&A transactions can take plenty of different forms.
However, regardless of the specifics of the deal, there are a few documents that the sellers will always want to prepare for potential buyers.
1. A Detailed List of Investors
This document provides a comprehensive list of potential investors or buyers who have shown interest in acquiring the company. This list typically includes contact information, background, investment agenda and the level of interest from each investor. It is often used as a starting point for the company’s owners to determine who might be most interested in acquiring their company.
In the world of M&A transactions, two primary types of investors play prominent roles: strategic buyers and financial buyers.
- Strategic buyers are typically existing companies or corporations looking to acquire another business to enhance their own operations, expand into new markets, or gain synergies. They often focus on long-term value creation and are willing to pay a premium for assets that align with their strategic objectives.
- Financial buyers, such as private equity firms, invest with the primary goal of generating a return on their investment. They may acquire businesses, optimize operations, and sell them for a profit. Financial buyers tend to be more focused on short to medium-term gains and often use leverage to enhance returns.
2. Teaser
A teaser is a concise document that provides a high-level overview of your company, highlighting its key strengths and value propositions. This document is intended to build interest in potential buyers or investors without revealing sensitive information about the company.
In most cases, the teaser will highlight the most attractive aspects of the company. This could be things like specific technology, historical revenue growth, market opportunities, etc.
3. Non-Disclosure Agreement (NDA)
A Non-Disclosure Agreement (NDA) is a legal contract that creates a confidential relationship between a person who has sensitive information and a person who will gain access to that information. When going through the M&A process, potential buyers or investors must sign before gaining access to sensitive information about your company.
This ensures that they will not disclose or misuse the confidential information provided during the sale process.
4. Information Memorandum
An information memorandum is a comprehensive document that provides a detailed and in-depth overview of your company, including its history, operations, financials, market analysis, and growth prospects. Information memorandums are intended for serious buyers who are considering making an offer. They typically include:
- Executive Summary: A high-level overview of the company, its history, current financial prospects, and projections for the future.
- Market Overview: A summary of the current state of the company’s market, including any major head/tailwinds, competitors, and projected growth of the market.
- Business Model Overview: A summary of how the business makes money, key product lines, financial margins, and more.
- Organizational Overview: A summary of the company’s management team. Keep in mind that this part of the information memorandum may change, depending on whether or not the new buyer plans to retain the existing management team.
- Technology Overview: A look into any proprietary software, technology, or patents that the company may have in place. If the company does not own any proprietary software then the company owners can also reference specific systems.
- Financial & Operational Performance: A detailed overview of the company’s financial statements, including profit/loss, balance sheets, assets/liabilities, projections, etc.
- Development Strategy: The management’s plan for developing the business beyond its existing form. Providing this information could play a crucial role in fetching a higher value for the company. It is the owners’ job to paint a picture not only of what the company currently is but also what it could be down the road.
5. Financial Model
A financial model is a detailed projection of your company’s financial performance, including revenue, expenses, and cash flows. This document typically includes previous years’ financial data, current financial data, as well as projections for the future. This helps potential buyers assess the future financial potential of the business.
Financial models are key when it comes to assigning a value to your business and supporting that value during negotiations.
Keep in mind that financial projections are often subjective. It is the company owners’ job to create draft projections that paint the company in a positive light but are also grounded in reality and will hold up to scrutiny. Oftentimes, this means emphasizing the value of all the company’s assets and assigning a value to the company’s potential. As this is a crucial part of the M&A process, it is often a good idea to retain the help of a Mergers and Acquisitions (M&A) advisory team. Doing so can help ensure that you fetch the largest possible valuation for your company.
6. Management Presentation
A management presentation is a formal presentation given by the company’s management team to potential buyers. It allows the management team to showcase the company’s strengths, future plans, and answer questions from potential buyers.
Usually, this presentation provides the company’s base facts so that the owners can present them to potential buyers. However, it also gives the company owners room to expand and “sell” the company to potential buyers.
7. Non-Binding Offers (NBO)
Non-binding offers are preliminary offers from interested buyers that outline the general terms and conditions of their proposed acquisition. Since these offers are “non-binding”, there is no legal commitment to continue the deal and these offers are usually subject to further negotiation.
8. Due Diligence Report
The due diligence process is when potential buyers investigate your company thoroughly to assess its assets, liabilities, contracts, legal issues, and other aspects. The due diligence report – which is prepared by the buyers – summarizes their findings and helps them make informed decisions about the acquisition. Report is often prepared by qualified advisors and is separately covers financial, tax, legal and IT areas.
9. Binding Offers
Binding offers are formal and legally binding offers from potential buyers that specify the terms and conditions of the acquisition, including the purchase price, payment structure, and any contingencies. In comparison to non-binding offers, these offers create a legal obligation of the buyer to move forward in accordance with the terms of the offer. Binding offers are submitted after the due diligence is completed and on their basis, the sellers decide which investors they want to enter into the negotiation phase with.
10. Shares Purchase Agreement (SPA)
A shares purchase agreement (also known as a stock purchase agreement) is the final legal contract that outlines the full terms of the sale and purchase of the shares of a company. According to UpCounsel, a shares purchase agreement outlines the following areas:
- Name of company,
- Par value of shares,
- Name of purchaser,
- Warranties and representations made by the seller and purchaser,
- Possible employee issues such as benefits and bonuses,
- How many shares are being sold,
- Where and when the transaction takes place,
- Indemnification agreement over costs that are unforeseen.
This agreement is a legally binding agreement once both parties sign it.
11. Shareholders Agreement
In some cases, a shareholders’ agreement may be required if the company has multiple shareholders or investors, particularly a minority shareholder. In this scenario, this document outlines the rights, obligations, and responsibilities of each shareholder and may include provisions related to the sale of the company.
We hope that you’ve found this article valuable when it comes to learning the 11 most common documents that are prepared during the M&A process. However, please keep in mind that each deal is unique and not all deals will require all 11 of these documents.
If you need personalized advice on navigating a merger or acquisition then please reach out to our team to learn more.
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