There are two important principles to understand on this topic.
- Concise communication is more effective than large quantities of materials
- Brokers leverage this function inappropriately for money
20 years of Board of Directors reporting drilled this principle into my head and prepared me for my current M&A career.
Important people want important information (only).
In the M&A world sellers and sellers’ advisors should treat buyers reverently. Their time is valuable and they have a lot of deals to evaluate.
Buyers are extremely impressed and responsive when you provide them with crisp, clear, concise information in an impressively laid out logical format.
When I started in this business everyone was doing Confidential Information Memorandums (CIM’s). Brokers were paying CIM preparers as much as 10,000 per CIM to generate this information onslaught. A “good” CIM had to be at least 50 pages and many ranged in the 80 to 100 pages.
If I turned in an 80-to-100-page board report the board would have been looking for a new CFO. They expected me to know everything and be smart enough to know what they needed to know to do their job effectively.
It is the exact same with buyers. They fully expect the seller and advisor to know everything, but they do not want everything. They want what they need to know to do their job effectively.
A savvy advisor knows what that information profile looks like and creates a concise informational document to achieve that purpose.
I immediately moved from a CIM to an Executive Summary. This document is between 6 and 10 pages maximum. It contains seller and business history, three-year financial portrayal, key operating metrics, narrative on future potential and photographs.
The purpose of this document is to capture attention and interest with the buyers first review.
If they can see what they need to see in 15 minutes you have earned their interest AND their respect. They will quickly surmise that you will be a pleasure to work with.
Point 2. Brokers leverage this function inappropriately.
Almost all brokers charge an upfront fee as discussed in a prior topic. How do they justify this unjustifiable fee? Most are still stuck in the CIM culture where it did take a lot of time, effort and money to create an unreadable CIM.
To this day they still leverage the market document preparation as a false justification for this absurd fee. Be smarter than that. You do not want to pay the upfront fee and you do not want the marketing documents that they will produce on your behalf.
There is a very large brokerage firm here in Dallas. They are now charging 55,000 as an upfront fee as a separate fee. They then have a separate representation agreement with a fee schedule that offers their representation services. They make it crystal clear (to block recourse) that all you are getting for your 55,000 is the marketing documents.
I bet you could hire an author to write an entire book for 55,000. Instead, you are getting a low-level clerk with a boilerplate document to populate with your company information.
The last client of that firm that I spoke to called them “frauds” and he was furious that he was dumb enough to pay them. He also listed with them and they failed him BUT he is now locked up under a tail provision. I had to tell him that he is indentured under the tail.
Be savvy and do not fall for any of this nonsense.
Find a real M&A advisor that will represent you on a success fee basis only.
That advisor will prepare all of your market representation documents for free because they believe in you and your company!