Article in Brookz, Dec. 29, 2022
During a sales process, all kinds of information exchange takes place between the various stakeholders in the process. In this, important considerations must be made. When, how and why do you share what information with potential buyers? Phased and controlled information sharing ensures that enough interest is generated while approaching the market, without releasing commercially sensitive information too early.
At the start of a sales process, it is important to think about how you want to present the company and what kind of sales story (or "equity story") can best be communicated to the market. Such a story tells why the company is interesting to invest in. The foundation of this story is based on important information about the company, the market, (historical) financial figures and forecasts and often provides a glimpse of a possible growth strategy. Here it is important to remain realistic. The glass may be half full but too high expectations often lead to disappointing results during the negotiation process.
In addition, information sharing between the seller and her corporate finance advisor is important. The better the advisor is aware of the strengths, as well as the weaknesses, of the company, the better the advisor can make trade-offs about communicating to the market.
Understanding, analyzing and valuing the company is what potential buyers do based on the information provided. The translation of this information into a compelling sales document and its design, therefore, is equally important. How do you communicate and structure this information effectively in a world where we are inundated with new information daily and the availability to new information is unlimited?
The first approach to the market is usually through the wide distribution of a Teaser, a profile of your company in which the sales pitch is succinctly highlighted. The purpose of such a Teaser is to arouse interest in the market. The form, layout and style of the sales documentation is very important in this regard. The document should look attractive and at a glance it should be clear what is interesting about the company and why you would want to invest in it. The use of little text, a summary header, concise and persuasive language, high quality images, numbering, color highlighting and highlighting the most important phrases or figures ensure effective communication. The same is actually true of the Information Memorandum. This document tells the sales story in a more comprehensive way. Again, it is important that each page has a clear message, that the structure is logical and that the storyline is easy to follow. The executive summary at the beginning of this document is then a summary of these key messages for each page.
The stage in the sales process and the amount of interested parties also play an important role in sharing information. At the beginning, you prefer to communicate only the information necessary to generate initial interest. A Teaser can easily end up with competitors, which is why it is sometimes even chosen to make the document anonymous. After that, an Information Memorandum is often shared under NDA (Non-disclosure agreement). This document already contains more commercially sensitive information and should allow potential buyers to make an initial offer (Non-binding offer). At this stage, for both the entrepreneur and the advisor, a lot of time goes into gathering the necessary information and answering questions, especially with a broader market approach. Entrepreneurs are sometimes reluctant to share information or underestimate the time and effort required to gather it.
Finally, there follows a phase in the sales process where the company has to bare its bottom. Form plays a smaller role here. This is the phase in which Due Diligence is carried out by an external party and all financial, commercial, legal and fiscal information must be provided. This is collected in a secure environment so that the potential buyer can conduct further research. This is often an intensive process, which is why some companies choose to give a party exclusive access to this environment for a certain period of time.
In short, think carefully (with your advisor) about the timing and degree of disclosure at the various stages of a sales process and avoid releasing commercially sensitive information too early.