Mergers and Acquisitions For Dummies (44 page)

Presenting the Company's Background

After the executive summary provides the rationale for seeking a deal and provides some rough ideas on what a deal would look like (see “Compiling the Executive Summary” earlier in the chapter), the next section of the offering document provides basic information about the company: past, present, and future.

I call this section the
B and B section:
the basics and the bragging. Learning the basics helps Buyer understand the company and whether it's a right fit. It's much like dating.

As for the bragging, Seller's touting the company's achievements gives Buyer something to brag about post-sale. Perhaps more importantly, the representative for Buyer may need to get final approval from someone higher up the food chain, and being able to brag about the great accomplishments of a target helps with that internal sales pitch.

When I say “bragging,” I'm not suggesting you take license and devolve into full-blown Seller hyperbole! Subjective comments aren't readily provable and more often than not make you sound like a huckster. Instead, focus on making accurate and objective comments about your business. Quiet confidence and actual results go a long way toward getting Buyer to make a deal.

The company's past and present

An accurate assessment of the company's history (good, bad, or in between) is a necessary part of the offering document. Having a solid understanding of where a company came from and how it developed can help Buyer understand the company.

Consider the following questions as you write this section of the offering document:

How was the company founded, and how did it grow? Is it still growing or has it run into some recent challenges?

What are the great successes and the problems, and how did the company overcome those problems?

What is the company's current situation?

Providing a timeline is a great visual tool and a quick way to point out key events in a company's history: new products, financial milestones, past acquisitions, and so on.

Ownership and legal entity

Who are the owners, what do they own, and how much does each owner own? Okay, that sounds like a tongue twister, but furnishing ownership information to Buyer is extremely important because most offers actually reference the ownership.

Another important consideration is what type of entity the company is. Is it an LLC, S-corp, or C-corp? Should any other affiliated or related entities be a part of an offer (or should they not)?

If Buyer is buying the stock of Seller's company, Buyer needs to understand what entity owns what assets. For varying (often tax-related) reasons, a company may be comprised of two or more related entities. Buyer needs to make sure the stock he is buying actually has title to the assets of Seller's business.

Employee info and benefits

A company with products and customers isn't a company unless it can sell, service, account for, and otherwise take care of those customers and run the business. Because droids and clones are still a few years away, most companies have to use this creature called people. Perhaps you've heard of it.

For many (if not most) companies, the largest, single expense is personnel, so not surprisingly, a discussion of people, pay, and job duties is mandatory in the book. A book should list the total number of employees, the headcount per department, and provide a salary and wage ranges per employee, department, or employee type. It should also include bios for the key employees, which typically includes the executives, key managers, and perhaps certain other employees (such as sales and product development).

Including an organization chart is often a good idea. Specific names don't need to be divulged in the offering document. Instead, listing the employee's title is sufficient.

An offering document should provide detail on the health plans, retirement plants (401k and the like), and vacation, sick day, and holiday policies. These plans may or may not match with Buyer's company, so Buyer needs time to plan accordingly and make adjustments if warranted.

Vacation can be a small but serious sticking point when buying a company. If Seller owes employees a certain amount of vacation time, Buyer may insist that the value of that vacation time be deducted from the sale price. The logic is if the employees used that vacation time prior to the close of the sale, Seller would have to pay for that time off. You can find the value of this vacation time lurking on the balance sheet in the liabilities section, most often called “accrued vacation” or something similar.

Locations of offices and facilities

The offering document needs to list all distribution and manufacturing facilities, including square footage as well as the number of employees at each location. Buyer may need this information as it considers how best to integrate the acquisition and the parent company.

Many salespeople work remotely. Seller should list any and all remote workers, the city where each person resides, and a description of the person's duties and/or sales territory.