Musings on business value, sale preparation, sale negotiations, sale structure.

Posts Tagged ‘executive summary’

Pitch Deck 02 Suppliers

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Risky business The ultimate sale of your business is a risky thing for that business. Sellers either realise this and react accordingly, or they give it no thought at all and blunder into a mass dissemination of previously guarded intellectual property – a course which will damage the business in the future, for whoever owns it.

You need to be wary of how you present the information given to potential buyers, some of whom are not as honest as we would like them to be. Consider two different businesses:

  • The owner of a small supermarket on the one hand, with his very wide range of suppliers, all well known in the market place; and on the other hand
  • A niche manufacturer of specialized components to the mine drilling fraternity who purchases wear components to fit to his patented head.

The sensitivity of the latter is much higher. In a meeting with the former, and the owner of another supermarket who is looking to invest in other ventures, the conversation might sound like this: “Do you buy direct from Liger Brands, or do you go through the DC? When you deal with Liger, you should ask to speak to the new guy Louis – much more helpful than Joe.”

The niche manufacturer will be far more guarded in even telling the prospect that he imports his components from China, let alone the name of the supplier. These details are more likely to come out through a due diligence process after the deal is signed.

Open up and die

An example: We were involved in the sale of a motorcycle parts wholesaler which had run into cash flow problems associated with rapid growth and a depreciating currency. (At one time they were selling older inventory at the same price as the new replacement goods were costing them – how’s that for a business model? But that’s another story.) The business had sole agencies for a number of lines, and general agencies for others. They had prepared tables of information on gross margins, sales trends and flow through profits. The prospective purchasers were appreciative, and through the process there was a short tussle between two buyers to become the new shareholder of the business. Eventually it was sold to the higher bidder.

But midway through the process a very well established motorcycle wholesaler entered the fray. The so called “ideal purchaser”. This was very exciting for our client. Then I calmed the waters by asking if it would be usual to supply this information to other competitors. Would it be okay for us to tell Biglad Biker Bloke (BBB) what the margins were on a product we supplied to them; but more than that, to tell them what our sales on that product had been for the past three years? Well of course not. Imagine how upset would another prospect be once the sale had gone through, and he discovers that BBB has had access to the same data he had, and is now using it to force prices down.

Would you normally supply market sensitive data to a competitor?

The situation resolved itself when BBB told us that they were only interested in some of the brands (the most profitable, no doubt) and would be retrenching all the staff in the transfer.  That was the end of that negotiation. More on this in a later instalment.

Non disclosure agreement (NDA)

An important question: If the prospective purchaser picks up the telephone and calls your supplier; how much damage will be done when the supplier discovers your business is for sale? This is an issue which needs to be dealt with by the M&A practitioner guiding you in the sale of your business, and should be dealt with in the non disclosure agreement signed by prospective purchasers prior to even the name of your business being supplied.

In the meantime, the advice here is to limit your output of supplier information in your Pitch Deck to fairly innocuous generic information to start with. Wait until you have a better idea of who you are dealing with, and what their intentions are. A lot of this information can be provided in subsequent handouts, and even as a generic “promise” to be proven with the due diligence.

Pitch Deck 01

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Background

Sometimes known by other names such as the “executive summary”, the pitch deck as we shall call it, is the first real contact that your prospective purchaser is going to have with your business, apart from the somewhat frivolous “business nets R1000’s per month, asking the bargain basement price of RMillions. Please call Frank…” advertisement that you may place in the local classifieds.

Your pitch deck is a document which will lay out the basics of the business, and show what you are able to offer the purchaser. The aim of the pitch deck is to give your prospect enough information to make a decision as to whether or not she wants to move to second base, and come visit you at your place. At the same time you do not want to give away so much information that you find yourself with an extra competitor, or worse, with an existing competitor with more information than he had before.

So we won’t be giving away any strategic information that will compromise us later, and will leave us regretting our honesty and forthrightness. We want to leave her with the need to know more about something she wants, and if she wants to see ours, she’s going to have to shows us hers first, so to say.

Apart from ultimately using the pitch deck as stage one in eventually selling your business, there are other usefulnesses which should not be ignored.

As we continue through this series, your pitch deck will unfold as I ask you to answer the sorts of questions which buyers will ask. Some of these questions may stretch you a bit, but may open your eyes to various aspects of your business. Obviously that will help you to evaluate your business and its value to both yourself and a prospective purchaser.

Through that exercise, it will also help you to identify areas which can be improved with a little effort, and understand areas that will be targeted by a quality buyer. It will give you an idea of what goes through a buyer’s mind as she evaluates your business. The pitch deck is the one document that will not only capture your purchaser’s interest, but will actually sell your business for you. More than that though, your pitch deck can become the basis for an operations manual, which we will learn more of later. For the time being, I want you to give some thought as to how you would describe your business.

Start by expanding on the type of business you are selling. Remember that this paragraph is the very first interaction which your prospective purchaser will be having with your business, and for some business – prospect combinations this start can kill the deal for you. It is one thing to say “pizza takeaway”; we all understand that. But perhaps you run an engineering shop. Most prospective buyers will not understand “plant automation, simulation, optimisation and information systems”. But then this type of business will be aimed at those that do understand, and are not looking at any type of takeaway, anyway. So consider your opening very carefully, to be aimed at your target market.

  • How long has the business been running?
  • How long has the present owner been in control?
  • What is the owner’s background?
  • Is it important that the new owner has a similar background?

Give a brief idea of how the business is run on a daily basis, by the owner and by the management, and describe the level of interaction between owner and management. This is very important. Many years ago we were selling a bakery which to our thinking was a brilliant deal. Very little response was received when we targeted our database of buyers. That was both surprising and disappointing. However, once we amended the report to show that the owner left the bakery to be run by management until 11am in the morning, we were swamped with interest. Potential buyers had seen “bakery” and assumed “opens at 4am”.

Describe the products and services of the business. In particular, if the business has some type of proprietary machinery, process, service or product; scream about it. Many buyers are looking to be involved in something different to the mundane.