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M&A Management Presentation: 5 Ways to Prepare  

By   Jack

Selling your business is a monumental decision, and if you’ve made the decision to sell, you want to ensure you do everything in your power to maximize the value you receive.

Your management presentation can make or break a deal and is a key part of the bidding process. But what is it exactly? And how can you create a presentation that will make a prospective buyer clamor to acquire your company?

In this post, I’ll walk through everything you need to know for a successful M&A management presentation.

What is an M&A management presentation?

An M&A management presentation is a comprehensive, engaging, and persuasive pitch that provides potential buyers with an in-depth understanding of your business. It showcases your company’s strengths, opportunities, and the management team’s expertise, demonstrating why your business is an attractive acquisition target .

Why is it called a “management” presentation? Because your management team is your company’s backbone. This presentation will highlight their prowess, proving they have the skills, knowledge, and passion to drive your business to new heights.

Keep in mind some of this info will have already been created in your Confidential Information Memorandum .

Why is a management presentation critical when selling your business?

Imagine you’re a potential buyer, sifting through dozens of acquisition opportunities. What would make a business stand out ? You guessed it – a compelling management presentation! It’s not only about the numbers; it’s about telling the story of your business, emphasizing the value you’ve created and the potential that awaits.

A well-crafted management presentation:

• Sets your business apart from the competition
• Showcases your company’s unique strengths and opportunities
• Provides an opportunity for your management team to shine
• Builds credibility and trust with potential buyers
• Opens the door for productive negotiation and higher valuations

What should be included in your management presentation?

Creating a persuasive management presentation requires a delicate balance of storytelling, data analysis, and showcasing your management team’s expertise. Here are the key points to include:

• Company overview : Introduce your business, its history, vision, mission, and core values. Paint a vivid picture of your company’s unique identity and culture. Include your product / service offerings, organization structure, target customers, and geographic reach.
• Market and industry analysis : Demonstrate your understanding of the market, including trends, opportunities, and threats. Establish your company’s position within the industry, and outline your competitive advantages . Include a SWOT analysis to further emphasize your company’s strengths and opportunities.
• Financial performance : Present historical and projected financial information, emphasizing growth, operating expenses, profitability , and value creation. Include key performance indicators, milestones, and any other relevant financial data. Be transparent about your financial performance to build credibility.
• Operations and processes : Describe your company’s core operations, processes, and systems , showcasing their efficiency and scalability. Detail your supply chain , manufacturing capabilities, and any intellectual property or proprietary technology you possess.
• Management team : Highlight the experience, skills, and achievements of your management team, proving they have the ability to lead and grow the business. Include their background, areas of expertise, and any industry recognition or awards they have received.
• Growth strategy and opportunities: Present a clear and achievable growth strategy, detailing specific initiatives, timelines, and expected results. Include market expansion plans, new product development, or potential mergers and acquisitions.

How do you prepare for a management presentation?

The key to a successful management presentation is preparation. Here’s how to get started:

The best management presentations all have these pieces:

• Gather data and insights : Collect all relevant financial, operational, and market data to analyze and present in a compelling manner. This includes conducting thorough market research and competitive analysis to showcase your company’s position in the industry.
• Assemble your team : Involve your management team in the process, ensuring they are comfortable with the presentation’s content and can speak confidently about their areas of expertise. Encourage collaboration and open communication to create a cohesive and engaging presentation.
• Tell your story: Craft a narrative that captures your company’s unique value proposition, weaving it throughout the presentation to create a memorable and persuasive document. Use anecdotes, examples, and case studies to illustrate your points and bring your story to life.
• Design an appealing presentation: Prioritize visual appeal by using a clean and professional design, incorporating visuals like graphs, charts, and images to enhance your presentation. Keep text to a minimum, using bullet points and concise language to convey your message effectively.
• Practice, practice, practice : Conduct rehearsals with your management team to refine the presentation and ensure everyone is confident in their delivery. Encourage feedback and make any necessary adjustments to improve the overall impact of the presentation.

Biggest mistakes in management presentations

• Overloading with information : While it’s important to provide a comprehensive view of your business, avoid overwhelming potential buyers with excessive detail. Focus on the most relevant and persuasive information to keep your audience engaged.
• Neglecting storytelling : Data alone won’t win the hearts of potential buyers. Weave a compelling narrative that brings your business to life, demonstrating its unique value proposition and potential for growth.
• Underestimating the importance of visuals : A picture is worth a thousand words. Use visuals like graphs, charts, and images to enhance your presentation, making it more memorable and impactful.
• Ignoring your management team : Your management team is a key selling point. Make sure they are involved in the process, well-prepared, and ready to shine in front of potential buyers.
• Failing to address potential concerns : Anticipate the questions and concerns potential buyers may have, and address them proactively in your presentation.

Frequently asked questions

How long should a management presentation be.

Aim for 30-40 slides, striking a balance between providing comprehensive information and maintaining your audience’s attention. Remember, less is often more.

Should I customize the presentation for each potential buyer?

Absolutely! Tailoring your presentation to the interests and priorities of each potential buyer can make a significant difference in the perceived value of your business .

Consider conducting research on each buyer’s past acquisitions, investment criteria, and strategic objectives to tailor your presentation accordingly.

How can I make my presentation stand out from the competition?

Focus on storytelling, create visually engaging slides, and showcase the unique aspects of your business, such as your management team, innovative processes, or untapped growth opportunities. It should look professionally designed.

Additionally, consider incorporating multimedia elements like video testimonials, customer success stories, or product demonstrations to further engage potential buyers. If possible, I’d say an in person meeting is far preferable to a Zoom equivalent.

Should I seek professional help in creating a management presentation?

If you’re unsure about your ability to create a persuasive and comprehensive presentation, consider engaging the services of an M&A advisor, consultant, or even a professional designer to guide you through the process and ensure your presentation effectively communicates your business’s value.

When should I start preparing my management presentation?

Ideally, begin preparing your management presentation several months before you plan to engage with potential buyers. This will give you ample time to gather data at a detailed level, involve your management team, and craft a compelling narrative that showcases your business’s strengths and opportunities.

How do I handle confidential information in my management presentation?

When sharing sensitive information, it’s crucial to maintain a balance between transparency and confidentiality. Consider providing potential buyers with a high-level overview of your business, reserving more detailed confidential information for subsequent discussions or after signing a non-disclosure agreement ( NDA ).

How do I handle questions or concerns during the presentation?

Encourage an open dialogue with potential buyers and address their questions or concerns as they arise. If you don’t have an immediate answer, assure the buyer that you will follow up with the information they need.

Demonstrating your willingness to engage in conversation and address concerns can help build trust and credibility with potential buyers.

What if I have limited experience with public speaking or presenting?

If you or your management team lack experience with public speaking, consider engaging a presentation coach or enrolling in a public speaking course (like Toastmasters ) to improve your skills.

Practice is also essential – rehearse your presentation multiple times to gain confidence in your delivery and become more comfortable with the content.

How can I gauge the effectiveness of my management presentation?

To assess the effectiveness of your management presentation, consider soliciting feedback from trusted M&A advisors or colleagues.

Analyze the level of engagement, interest, and questions from potential buyers during and after your presentation to identify areas that may need improvement or further clarification.

As we wrap, remember that a well-prepared and persuasive management meeting can be the key to unlocking the true value of your business when it’s time to sell.

By showcasing your company’s strengths, opportunities, and the expertise of your management team, you’ll be well on your way to securing the best possible outcome during the final bidding process.

Now, it’s time to tell your company’s story and make potential buyers believe in your vision.

Investor & Mentor

related posts:

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Write a Winning M&A Management Presentation

February 13, 2023

Are you looking for a new owner, scale-up funding or new financing for your business? If so, you need to invest in creating the best M&A management presentation your prospective investor has seen.

Really effective management presentations are like great cvs. they won’t get you the job, but they make the right impression to get you through the door, into the board room and onto the agenda . great management presentations do this by making your audience want to find out more., every management team and business is different. that means there’s no simple template or formula that you can copy for your management presentation.   don’t believe people who tell you there is.

We’ve pulled these seven tips from the 15+ years’ experience of the team at Benjamin Ball Associates. Our management presentation coaching specialists have reviewed thousands of management presentations, and we know that small changes make a big difference . Incorporating these tips can make the difference between getting relegated to the ‘no’ pile, or having an investor take the next step to investing with you.

How to write a winning management presentation 7 Top Tips

Best management presentation tip #1: sell the investment, not the product.

Investors are selfish. Your product may well change the world, but the investor is primarily thinking about their own risk and reward. This means that when they listen to you, they are subconsciously asking the question: ‘what does this mean for me’?

The best management presentations present everything in an investor-first context.

• So instead of slides that talk about your plans and ambitions, frame the information in terms of how those plans and ambitions will impact your investor’s returns.
• Instead of listing your team’s background, demonstrate how that background makes you a safe pair of hands for a new owner.
• Got great sales forecasts? Show how those forecasts will translate into rewards for investors.

Grab and hold their attention by using the language of M&A and investment and focusing on the things that matter most to potential buyers.  Read how to create a great pitch document.

Learn how we can help – schedule a free consultation now

Best presentations tip #2: Keep it simple

Investors don’t put their cash into opportunities they don’t understand. If you present a concept in a difficult or complicated way , the mental exertion feels painful or makes them uneasy. Investors associate this with a negative gut instinct about you or your opportunity. That road leads to a ‘no’.

Instead, make the investment proposition easy to grasp . Clarity and ease of mental digestion feels good – That means investors will associate positive feelings with you and your opportunity .

So how do you transform a complex business into a simple management presentation?

When Steve Jobs was trying in 1990 to explain the impact that computers would have on the world, he spoke about bicycles. He described how humans are inefficient movers compared to many other animals on the planet. A human on a bicycle, though, can move even more efficiently than a condor. And a computer is like a bicycle for the human mind.

This analogy used a familiar concept (bicycles) to make an unfamiliar concept (computers in 1990) relatable. Analogies are one of several tools that help communicate complex ideas more effectively. Others are metaphors, similes and stories. No matter how complicated or abstract your product is, there is a way of presenting it in a simple, visual and engaging way. Use these ideas in your management presentations.

Best M&A presentations tip #3: Be clear what makes you special

We find senior executives are frequently too close to their business to uncover the red thread that needs to run through their management presentation to make it exciting for investors. This is especially true for people wanting to sell their business . That’s where we help them discover their red thread and turn in into a seam of gold. What is the secret sauce that drives your success? Perhaps it’s your team, your IP, your connections or your track record?  

The best M&A management presentations focus relentlessly on their unique advantage. They demonstrate why it will contribute to the business’s success and how the team will leverage it.

One of our clients, a London-based block chain developer, used this idea to their advantage. Their original pitch had confused what they had done, the market, their technology, their products and the potential of the business. In all, it was unclear what the business did and why investors should be excited. For their management presentation, we helped them identify the red thread and then turn it into a few clear messages that ran through the presentation. The result was a compelling investment story that has taken them to the next level.  

Learn how to create a powerful equity story.

How to create a killer pitch deck

Best management pitch tip #4: don’t be boring.

• Crowded slides?
• Long blocks of text?
• Lists of bullet points?
• Bland headings?
• Weak design?

If your management presentation pitch deck looks as boring as everyone else’s, then investors will not get excited about meeting you. The best management presentation pitch decks are easy to read . They grab interest from the start, avoid jargon and use engaging language. They arouse interest through compelling headlines .

Investors should be able to flick through your management presentation pitch deck and understand your key points just from reading your slide headings. But those headings should also be different and intriguing enough that investors want to find out more. For example, instead of naming one of your slides ‘ About Us’ or ‘Our Team’ , choose a headline that reinforces your key message.

If your business is about running rock festivals, your headline for the team section of your deck could be ‘Ten Years’ Combined Experience of Running Profitable Events’. If you manufacture widgets that draw on your experience working with the inventor of the leading vacuum cleaner, your headline could be ‘James Dyson’s Protégé’. Finally, the best management presentations are often professionally designed with plenty of white space and relevant visuals. Don’t let amateur design let you down.

Best pitch tip #5: Appeal to the heart as well as the head

Stories are an incredibly effective way to bypass investors’ heads and reach straight for their hearts. Instead of delivering plain facts in your management presentation (which are quickly forgotten), provide them within the context of a story.

• Identify the problem (the ‘villain’ of your story) and then
• Introduce your solution (the ‘hero’ of your story).
• Show what happens after the hero takes action, and
• Lay out the consequences of that action (or the consequences if that action doesn’t happen).

Perhaps your product is a small security device that alerts friends and family when you need help. Your presentation could focus on the software behind the invention. You could talk about how easy it is to set up. You can list the features and benefits. Or you could share what it’s like to feel safe and connected. You could show a video of someone whose life was saved, and how he or she felt when help came running – thanks to your device. That’s what great management presentations feel like.

When you trigger your buyer’s emotions, they become invested in your business and in you. Your management presentation becomes memorable and shareable. Remember: “People will forget what you said, people will forget what you did, but people will never forget how you made them feel.”

Best M&A presentation tip #6: Be honest

The best management presentations are from senior executives who don’t pretend to be perfect. Teams admit their mistakes, but also what they’ve learnt from them. They don’t hide their strategy changes, but instead share why and how they changed their approach, and the impact this has had. They have the confidence and self-awareness to be honest. As a result, investors see them as being trustworthy and having integrity and credibility.

Investors know there’s no perfect opportunity, there’s no perfect team, there’s no risk-free reward . So they are – rightly – wary of management teams that claim to offer any of these. Equally, if it appears that you’re trying to hide or mislead them, the investor will start to question everything else about you. To avoid this, be explicit about the data backing up your track record and the methodology used for your forecasts. Address doubts in your management presentation instead of creating them.

How to prepare an investor pitch deck

Best management pitch tip #7: show, don’t tell.

In your management presentation, Instead of describing how your product works, embed (or link to) a short film or screen-capture showing how it works. Instead of stating that your product changes people’s lives, include screenshots of customer reviews in which people say they will never be the same again. You could say that your product or service is different, but it’s much more powerful to show it, with mock-ups, testimonials and clippings from your industry’s trade press.  

A few years ago we helped a diamond mining company raise money from investors in London. To back up the powerful pitch deck that we helped them create, for their management presentation we suggested they bring a raw diamond into their meeting. Why? Firstly, few investors will have ever handled a raw diamond. Secondly, it allowed the management team to bring the business to life with stories: How often a diamond of that size was found, How many tons of rock they had to move to find that diamond, At what depth they found it, and What they did about safely and security. This one small prop transformed the quality of their presentation and made it much easier for the team to raise the money they needed to expand the business.

Transform your M&A presentation

Call us, you’ll get  practical, easy-to-implement advice that will help you to grab investors’ attention , impress them and get you invited in for that vital face-to-face management presentation. we can write your investor pitch deck and help with presentation training ., you’ll benefit from our 15+ years experience transforming presentations. then, ahead of   the meeting, we help you rehearse the management meeting so that you come across as just the right team to help the investors achieve their investment objectives., we do this every day for scale-ups, quoted companies and private equity firms.  , call louise today on +44 (0)20 7018 0922 or email [email protected] to discuss how we can best help you., transform your presentation skills with tailored coaching.

We can help you present brilliantly. Thousands of people have benefitted from our tailored in-house coaching and advice – and we can help you too .

“I honestly thought it was the most valuable 3 hours I’ve spent with anyone in a long time.” Mick May, CEO, Blue Sky

For 15+ years we’ve been the trusted choice of leading businesses and executives throughout the UK, Europe and the Middle East to improve corporate presentations through presentation coaching, public speaking training and expert advice on pitching to investors.

Unlock your full potential and take your presentations to the next level with Benjamin Ball Associates.

Speak to Louise on +44 20 7018 0922 or email [email protected] to transform your speeches, pitches and presentations.

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M&A Management Meetings: Key Considerations in Discussion & Negotiation

As your M&A deal gets closer to the Letter of Intent stage, your investment banker is likely to start scheduling Management Meetings with all the likely and interested suitors for your deal. Such Management Meetings are typically held on or off-site of the would be seller. On-site meetings are preferred as strategic and financial buyers likely will have a desire to see facilities and ask key questions related to operations. Off-site meetings may be desired by the seller so as not to disrupt operations or alert employees of a potential sale. The Management Meeting phase is a critical step in the business sale process .

In a disciplined and structured sell-side process, your investment banker is likely to scheduled back-to-back Management Meetings with multiple would-be acquirers during a very short window. If your deal represents a high-value target and the investment banker has done his/her job, you will likely have a large number of suitors with which to discuss the business in a face-to-face setting.  It is not uncommon to schedule two separate buyer Management Meetings in a single day and have several days of such meetings back-to-back. Scheduling meetings in this way, does several things:

• It helps the buyers know they are not the only game in town. It helps to spike competition and demand for the business, which in investment banking vernacular = valuation boosting.
• It provides a setting for the seller to quickly gauge–in an apples-to-apples format–the various qualitative and quantitative aspects presented by various buyers and investors.
• It helps prevent the deal from getting stale, by keeping deal momentum–an oft overlooked component of good deal making.
• It can save travel and accommodation costs for the investment banker who may be flying out of town for the meetings and may stay for a week or more to be there to assist and advise his client while in the meetings.

Such meetings generally last several hours each and may be followed by meals and drinks. Most bankers are likely to structure the actual meeting time to last no more than four to five hours. This is long enough for a quick “speed date” for both sides to get to know one another and see if there is a general match among the parties. Items up for typical discussion during M&A Management Meetings could include the following:

• History of the company, including stories of the founders and a brief walk down memory lane.
• Quantitative and qualitative motives for a transaction.
• Key financial data metrics, including P&L and balance sheet details and questions.
• Operational questions and discussion surrounding the day-to-day of the business.
• Company strengths, weaknesses, opportunities and threats, including areas for improvement
• Potential areas for cost savings, including synergies between buyer and seller.
• Potential areas for revenue generating opportunities, including synergies between buyer and seller.
• Deal structure points, including anything from valuation to cash at close and everything in between.

While Management Meetings of this kind can get into the weeds, they are often no where near the level of detail the full proctological exam of complete due diligence requires, nor will they typically include “gotchas” unless a buyer is attempting to be disingenuous. In fact, to prevent many of the potential “gotchas” that could occur during Management Meetings, the most prepared investment bankers typically will ask the buyers for their own list of Management Meeting questions that are the most likely to be asked during the meeting. This not only helps the seller prepare for the meeting with confidence, but it also ensures the buyer that s/he is able to extract the detail out of the meeting that is most relevant to them without having to dig later for additional questions that may have been lost in translation.

While the meetings are organized to be as structured as possible, they can often veer down rabbit holes where superfluous and unnecessary detail requests may arise. These often occur naturally as buyers are looking to know as much as they can about the nuances and risks of the business. However, an investment banker can help steer the discussion back on track during such meetings, most often with statements like, “that’s a very deep dive question that can probably wait until due diligence.” Another key take away from being in dozens of such meetings is that Management Meetings are a chance to “bear the soul” of the business. That is, suitors should see the good, the bad and the ugly. While owners will want to paint the prettiest picture for the business, experienced buyers understand that no business is perfect. Candor is a preference to the cagey in a seller’s description of history. Buyers will ultimately be able to see through the facade-like attempts to paint too rosey of a picture. Genuineness and reality are your ally.

Lastly, and perhaps most importantly, Management Meetings are great places to get to know both sides of the transaction, but they are not necessarily the time to start in-depth negotiations for deal terms, especially if the investment banker is running a broad auction and five other buyer meetings are scheduled for the same week. Things like deal valuation and overall structure of the payouts should necessarily be discussed, but such terms should mostly be gleaned from the buyer, not the seller. At this juncture–and if the investment banker has performed his job well enough–the seller is simply assessing a single buyer among many options. In such M&A auction scenarios , it is best to first information gather and get into the details once a more holistic view of all potential and available options.

When it comes time for your business to be auctioned-off to the highest bidder, your investment banker will likely schedule Management Meetings within a window of one to two weeks, either on or off-site, near or at the physical location of your business. These meetings are a great way to break the ice between buyer and seller and provide both parties a chance to familiarize themselves with the opportunity. Buyers often require such personal meetings in order to get comfortable making a more definitive offer for the business. If you are a seller, your investment banker will work with you to create your own buyer question list, answer buyer questions and prepare for the overall experience of M&A Management Meetings.

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Management Presentations & Site Visits

Once the CIM has been sent to all prospective buyers, those interested will submit a letter of intent or expression of interest. A letter of intent is very specific about the proposed transaction while an expression of interest merely sets out the price range in terms of a multiple of cash flow, and perhaps the general terms and method of financing the deal.

Meetings should take place in the M&A advisor’s offices. During this time, the buyers will have the opportunity to ask your client questions and clarify information that has been provided in written form. This is also your client’s opportunity to demonstrate the capabilities of management to successfully run the business, and to learn more about the buyers so your client can:

• Decide if they will be a good fit for the company
• Learn more about their objectives and strategy for operating the business
• Find out what’s important to them so that the discussion can be focused on specific aspects of the opportunity

Site visits can be problematic if your client doesn’t regularly have people tour the business. If there are concerns about taking buyers through the operation, the M&A advisor should arrange these visits outside of business hours.

That said, showing a business while it’s operating can have advantages as the buyer can get an idea of how things are done. If your client chooses to go this route, the advisor should ask visiting buyers to avoid speaking with employees and customers.

Buyer/seller meetings and site visits are a chance to build excitement in buyers. By scheduling these events close to the date that letters of intent are due, your advisor builds on that momentum to help ensure that the buyers’ eagerness to own the business is reflected in their offers.

Preparations

It is important that your client is thoroughly prepared for these meetings. The M&A advisor should advise the client and his management team on:

• What should and should not be disclosed
• The format for presentation
• Referring questions related to the sale process, especially about price, to the advisor
• The M&A advisor will then stage dress rehearsals to review the presentation, ask participants to answer some probable questions, and coach each participant on how to respond to those questions

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Sell-Side Finance: Building an M&A Management Presentation

Let's cover how to put together the finance section of the management presentation.

In sell-side finance, a management presentation usually represents the first in-person meeting between the seller’s management team and a group of prospective buyers who have been selected to participate in the final bidding process. It allows the management team to present a detailed view of the company and answer any questions the potential buyers may have, with the seller’s end goal being to receive Letter(s) of Intent (LOI) from the potential buyers to purchase the company.

In this blog, let’s cover how to put together the finance section of the management presentation.

Historical Financials

The finance section of the management presentation builds on the financial data that the potential buyer has already seen in the Confidential Information Memorandum (CIM). It generally starts with a recap of the historical financials as well as any updates that have occurred in the time between the completion of the CIM and the management presentation. Updates should focus on showing the impact of any new actualized financials on trended financials and the key performance indicators for the company and may point out how actuals compared to the forecast and what drove any variances, if any, at a high level.

During this section, the CFO will need to speak to the Company’s historical financial performance, the evolution of the key performance metrics and point out significant financial/strategic initiatives that occurred during this time and discuss their impact on results. This will allow potential bidders to become more comfortable with the seller’s business model.

The Forecast

The forecast, generally a 5-year outlook, is by far the most scrutinized part of the management presentation and the bidding process as a whole. The forecast must come from a detailed financial model that contains three financial statements (Income statement, Balance Sheet and Cash flow statement) and forecasts revenue and COGs at a granular level – whether it be by product type, business segment or line of business – depending on the nature of the company. The model should also forecast out operating expenses and headcount at a detailed level. These forecasts must also be accompanied by a list of assumptions used for the key drivers/ metrics and rationale for the use of such assumptions.

While it is tempting to be overly aggressive with your forecast/assumptions in an attempt to maximize your valuation, there is a fine line between being overly aggressive and unrealistic.

A good rule of thumb is: The more backup you can have for your assumptions, the better.

Whether it be a historical figure or an industry average, you want to be able to substantiate your assumptions. If you’re unable to show logical rationale for your assumptions, you run the risk of a lower valuation or having the potential buyer lose confidence in your understanding of the business and drop out of the bidding process completely.

• Know your historical financials.  Answers to questions regarding your historical financials should come as second nature and should rarely require follow up.
• Have a forecast that is backed up by a detailed model. Your model should contain a granular build-up of all key forecasted P&L items, contain a forecasted income statement and balance sheet and be the source for all key sub analyses required as part of the sale process.
• Justifiable assumptions. Be optimistic in your outlook to the point where you can intelligently defend the rationale for your assumptions.

The management presentation is a time-consuming process that requires the Seller’s management to exhibit a strong understanding of their company and its outlook going forward. The finance section, in particular, tends to be subject to the most intense scrutiny. While the CFO and other executives won’t be the ones building the forecast model, they need to understand, agree with and be comfortable explaining not only the numbers but the details behind the numbers and the assumptions that underlie these figures. An inability to do this can have serious adverse effects on the potential sale of the company.

Our Insights area offers a wide range of perspectives from our finance and accounting consultants. To keep up and receive updates when we post new content, subscribe to our CFO Insights . You can learn about a host of topics including sell-side due diligence best practices .

You can also download our free resource below, or visit our M&A finance consulting services page to learn more about our work.

About the Author

Mike has more than 15 years of experience in roles requiring expertise in strategic planning, forecasting, budgeting, business valuation, financial modeling and both buy-side and sell-side M&A transaction support. He has worked with clients across several industries, including entertainment, e-commerce and subscription, real estate and consumer products. Prior to 8020, he served as Finance Manager at Elements Behavioral Health, where his responsibilities included leading the budgeting and forecasting processes as well as acquisition transaction support. Additionally, he served as a Sr. Associate in the Private Capital group at Union Bank, where he focused on executing middle-market acquisition opportunities across various sectors. Mike holds an MBA from the Graziadio School at Pepperdine University, a B.A. in Economics from Brock University and is a CFA Charter holder.

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• Due Diligence

How to Prepare for M&A Management Presentations

Management Presentations in M&A Due Diligence

The banker said to block my calendar for management presentations.  Excuse me, what are management presentations?  And for two weeks?

Yes, and this is only the halfway point.  The real “fun” in due diligence comes after the management presentations.  However, before we get too far, let’s break down what happens at management presentations and how you can prepare your company and leadership team.

What are Management Presentations?

Management presentations are an opportunity for your leadership team to showcase your company to a handful of potential buyers that you have invited to participate in the final bidding process.  You’ll meet with one bidder per day and present a complete overview of your business.

All presentations have a different flavor, but you’ll generally cover the following topics in your 50-plus slide CIM, or Confidential Information Memoranda.

• Quick facts about your company
• Market overview and total addressable market (TAM)
• Areas for revenue growth
• Your products
• Your services
• People/organization structure
• And last, but definitely not least, finance

Financials, Financials, Financials

There is a reason that I saved the last bullet for finance.  Although it’s just one of many important bullets, your CFO, financials, and forecast will be stress tested during the bidding process.

From junior analysts to partners to CEO’s, all eyes will be on your historical AND forecasted financials.  Laptops and calculators will be out, and they’ll be re-crunching your numbers.

It goes without saying that this is a little nerve-wracking.  It’s like having your very own final exam graded, out loud, by your classmates and professor.

Tim McCormick, CEO at SaaSOptics, puts it this way, “on the tactical front, an automated order-to-payment and renewal process is vitally important to investors and acquirers. If these processes are disconnected or, or worse, tied to spreadsheets, you open yourself up to errors and risk. That’s a recipe for inaccurate historical and projected data. You will not want potential investors or acquirers uncover this during due diligence, so be prepared ahead of time.”

The “Model”

During the process, you and your bankers will work on the “model,” a detailed long-term financial forecast of your business.  I will not sugar coat this.  This will be painful if you have not been regularly forecasting your financials prior to running a process.

You’ll have to forecast your revenue lines, COGS, operating expenses, and headcount to a detailed level.  For example, you’ll want to forecast your revenue by product line and itemize your assumptions for churn, expansion, migrations, and so on.

The more backup behind your assumptions, the better.  Meaning, I can point to this historical number or metric to substantiate why I am forecasting 25% growth.

And, of course, you will be asked about the metrics.  What’s your CAC payback period?  How’s your sales and marketing efficiency?

“We’ve worked with hundreds of B2B SaaS businesses who have pitched their business to investors and acquirers,” says McCormick. “The right metrics and analytics not only provide insight into performance and growth, they are now table steaks. Being financially prepared to have these conversations is crucial – and that means having bullet proof GAAP financials and subscription performance metrics. If you don’t, you run the risk of a lower valuation or having your business overlooked completely.”

SaaS Metrics

I am a big believer in the philosophy that you can’t forecast your business accurately if you don’t know where you’ve been.  Before you enter a sell-side process, you need to establish your baseline SaaS metrics (CAC , CAC payback period , LTV , etc.) to be able to speak intelligently about your business and help bidders become more comfortable with your business model.

These answers should be at the tip of your tongue – ready to fire off answers as soon as their asked.  What’s your CAC Payback Period?  Twelve months.  Next question.

You will not have an answer for everything, but preparation is key.

The time is now to invest in improving your financial processes and financial data.  Even if you are not thinking about taking on an investment, it takes time to improve your technology, reporting, and processes.  And, yes, you’ll need GAAP recurring revenue by customer for the previous three to five years.  If that scares you, start planning today for the time when you are sitting in your own management presentation.

Doing your homework now will save you 2x the time and headache during the process.  The better technology and data you have prior to entering, the smoother the process will go and your numbers will be more believable.

Thank you for the added comments, Tim.  Tim McCormick is CEO of SaaSOptics , a cloud-based subscription management platform that enables emerging and growth B2B subscription businesses the ability to eliminate their dependency on spreadsheets and streamline their financial operations, reporting and performance metrics.

I have worked in finance and accounting for 25+ years.  I’ve been a SaaS CFO for 9+ years and began my career in the FP&A function.  I hold an active Tennessee CPA license and earned my undergraduate degree from the University of Colorado at Boulder and MBA from the University of Iowa.  I offer coaching, fractional CFO services, and SaaS finance courses.

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Northeast Ohio

Executing an effective m&a management presentation.

• By:Mark A. Filippell
• April 30, 2024

When a company is being sold, the investment banker will solicit indications of interest from prospective purchasers. Those submitting the most attractive IOIs will be invited to meet the management team and tour the facilities. After this, each buyer will submit a formal letter of intent, from which the finalist will be selected.

The matter in which these meetings and tours are handled is critical. Besides comparing the management team’s answers against the confidential information memorandum and online data room, the buyer will be judging whether the individuals seem committed, trustworthy, upbeat and collaborative. It all has to click.

We suggest a buyer-seller dinner the night before the management presentation. Set in a restaurant or club’s private room, this allows everybody to get acquainted on an informal basis. A few tips:

1. Turn off the music in the room.

2. Set up the hors d’oeuvres and wine/beverages ahead of time.

3. Pre-order the meals or have the attendees order as soon as they arrive.

4. Arrange the seats around a single large table.

5. Seat the “right” people next to each other.

6. Instruct the wait staff to keep things moving briskly and quietly.

Once everybody is seated, the investment banker or seller’s CEO should formally welcome the buyer and introduce everybody. Likewise, the IB or CEO should wrap up and thank everybody at the conclusion of the dinner.

If there is a facility tour, it should happen before the management presentation takes place because what the prospective buyer sees will spark informed questions. To avoid disruptive rumors, sometimes we hold the facility tours after hours. If the tour must happen during the day, the visitors should not overdress or interact with employees. They should be identified as customers, lenders, insurance brokers or other likely candidates for a tour.

The management presentation should then be held in a nearby hotel or club. The materials should closely follow the CIM, boiling it down to presentation format. The manager who will run the business going forward should lead the presentation. Unless absolutely necessary, nobody (IB, controlling shareholder or past CEO) should interrupt or contradict the management team, as this could undermine their credibility. Lastly, the buyer should be encouraged to ask questions as the presentation proceeds, rather than waiting until the end. If management does not know the answer to a question, they should just promise to respond after the fact … and then do so.

The management team’s members are specialized at engineering, manufacturing, software, accounting, etc., not at giving management presentations. That is why they, coached by the IB and/or a consultant, should recall Jack Benny’s joke about the person who asked, “How do you get to Carnegie Hall?” Jack’s response, “Practice, practice, practice!” There is no substitute for management practice to make these presentations successful. 

One final tip: The management presentations should be structured in a way in which the first visiting buyers are the ones least likely to be the eventual winner. That way the management team will be able to “practice” with the low-priority buyers. Buyers know this tactic, so never inform them where they fit in the schedule.

Mark A. Filippell is Managing director at Citizens Capital Markets.

Mark A. Filippell

[email protected]

www.citizensbank.com

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Presenting to Management? Be Prepared for the Tough Questions.

by Sabina Nawaz

Summary .   

We’ve often spent hours rehearsing before presenting to upper management, only to freeze when confronted with a tough question from our bosses. All our preparation and carefully curated slides go unacknowledged. It’s our botched responses in the moment that stick.

If you’re presenting to an executive audience, you clearly have credibility, expertise, and a successful track record. You know how to tackle live questions because you can fall back on your knowledge and experience. But how do you field the tough questions from management — the ones you don’t have an answer to?

Consider these tips: First, don’t be too quick to respond after an executive grills you. Pause before you speak to collect yourself. Second, have an abundance mindset to overcome any anxiety you may feel. Once you do speak, provide the bottom line first, not the steps you took to arrive at it. Then, adhere to a word diet. Budgeting your words forces you to be clear and direct.

I don’t understand. How can your numbers be so off?

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The M&A Management Meeting Agenda

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The M&A Seller should circulate a written agenda. Keep it simple: roughly five to eight items. Although specific agendas vary from deal to deal, a management meeting should generally include the following aspects:

Introductions: The whole point is to get to know the other side, right?

Buyer’s discussion: Buyer introduces himself, talks about his company or fund, his investment strategy, and his reasons for pursuing this particular Seller.

Seller recap: Seller provides a simple reminder of what she’s seeking to do (sell 100 percent or some other amount of the company), whether she’s amenable to structuring (including an earn-out, note, and so on), and whether she prefers cash at closing. If a selling owner is interested in staying on board after the sale, she should communicate that at this time as well.

Seller-owned real estate isn’t part of an offering document, so if Seller is open to selling the real estate, she should mention that at this juncture.

Opportunities for the buyer: This section represents the thesis from Seller’s offering document, updated if necessary or appropriate. Listing some of Seller’s key strengths — recognizable brand name, revenues, profits — isn’t a bad idea.

Recent improvements or changes: Think of this section as Seller’s brag-and-tout section, where she can discuss any pertinent updates, such as new systems that have improved margins, changes in the inventory techniques, new customers, better terms with vendors, or anything that’s an improvement or change from the offering document.

Financial update and forecast: In this part of the meeting, Seller provides Buyer with updated post-offering document financials and gives guidance on future financial results.

In other words, are the projections in the offering document holding firm, does Seller think the company will actually be more profitable, or is the company failing to achieve the projected results? If the company isn’t achieving its projections, Seller should be able to discuss why the company’s financials are falling short of plan.

Additional opportunities for Buyer: Typically, these items are post-sale opportunities for Buyer. Although convincing Buyer to pay for improvements he’ll bring to the company is difficult, showing him how the benefits that may accrue after closing helps him understand that the future prospects of the company are solid. After all, if Buyer believes the future is bleak, he probably won’t proceed with a transaction.

Q and A: A good meeting should allow at least two hours for a question and answer session. During the Q and A, Buyer usually takes the lead and asks Seller a lot of very difficult questions, although Seller can certainly return the favor as well.

Notice the flow of this agenda. The meeting starts with the basics, segues into the benefits Seller can offer Buyer, provides updated information and a forecast, and then addresses where Buyer will be able take the business. In other words, the meeting gets the basics out of the way first, thus clearing the table for where you want the discussion to go: doing a deal.

Seller should maintain strict control over the interaction between Seller’s staff and Buyer. The employees may not know about the pending deal, and if Buyer starts calling employees to ask questions, the cat will be out of the bag. Also, Seller’s employees don’t work for Buyer yet, so Seller needs to guard against Buyer wasting the employees’ time with question after question.

About This Article

This article is from the book:.

• Mergers & Acquisitions For Dummies ,

About the book author:

Bill Snow is an authority on mergers and acquisitions. He has held leadership roles in public companies, venture-backed dotcoms, and angel funded start-ups. His perspective on corporate development gives him insight into the needs of business owners aiming to create value by selling or acquiring companies.

This article can be found in the category:

• Mergers & Acquisitions ,
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• Keys to Successfully Completing an M&A Deal
• How to Integrate an Acquisition
• Steps of the M&A Process
• Know Your Company’s Market Position before Embarking on M&A Activity
• View All Articles From Book

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Mergers and acquisitions: what management teams want to know from a prospective m&a acquirer.

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By Richard D. Harroch and Richard V. Smith

In any merger and acquisition (M&A) transaction, the seller’s senior management team is charged with maximizing the price and terms available to the shareholders of the selling company. Taking their direction from the Board of Directors—and with the assistance of the selling company’s legal and financial advisors—the senior management team is instrumental in landing and negotiating a deal that’s in the best interests of the company and its shareholders.

The management team should be aware of the key issues that will arise in attempting to get to a successful completion of an M&A deal.

In any M&A transaction, the seller’s senior management team has an important role to play.

If they are to continue on with the buyer, the members of the management team will also naturally have a number of questions as to how the buyer will treat the team post-closing with respect to compensation and employment incentive arrangements. Some of these questions will vary if the buyer is a private equity fund versus a strategic buyer. However, in order to avoid a potential conflict of interest claim, members of the management should be sensitive to the issue of when to ask some of their questions.

The following is a list of the key questions that the management team of a seller should consider in connection with a sale of their company.

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The management team will want to understand the strategic plans the buyer is envisioning for the company, including:

• What is your overall strategic reason for the acquisition?
• How do you plan to support and grow the business?
• How do you plan to integrate the business with your other businesses?
• Do you envision any acquisitions to grow the business?
• What synergies do you see with your existing lines of business?
• How do you like to work with your management teams?
• What existing or new lines of the business do you see as ripe for growth?
• What areas of the business do you envision cutting back or eliminating?
• How long do you plan to hold the business before contemplating reselling it or taking it public?
• What layoffs do you envision, if any?
• What additions to the management team do you envision?
• Will you allow us to speak with the management teams of companies you previously acquired?

2. M&A Deal Issues

Senior members of management teams of selling companies want to obtain an early understanding of the deal dynamics and key issues involved in a potential acquisition. Some of the key questions that management will likely be interested in include:

• What acquisition structure are you contemplating? (Stock acquisition, merger, asset purchase? There will be differing tax consequences)
• What is the range of acquisition price you are considering?
• How do you determine valuation for your acquisitions?
• Are you envisioning any working capital or other adjustments to the purchase price? Debt-free/cash-free deal?
• What will be the consideration? (Cash, stock, note, or earnout?)
• Are you envisioning any escrow or holdback from the purchase price, or will you instead rely on M&A Representations and Warranties Insurance?
• What are the key due diligence steps you will need to undertake?
• How long will you need to complete your due diligence?
• What are the key conditions to closing that you envision?
• What employee interviews do you envision?
• Do you envision any customer calls?
• When do you anticipate issuing a letter of intent?
• How long do you expect it to take between signing a definitive acquisition agreement and closing?
• Will there be any particularly sensitive provisions to our shareholders in your acquisition agreement?
• What will be the key steps for integration post-closing?
• How will our employee workforce be treated? Will comparable compensation and benefits be available to them post-closing?
• Do you have any key intellectual property or technology issues you will be focusing on?

3. Equity Incentive Arrangements

Smart strategic or private equity buyers know they have to put in place equity incentive arrangements for the management team and employees. The key questions management teams will have in this regard include:

• What kind of equity incentive plans do you envision? Stock options? RSUs? Stock appreciation rights? Profits interests? Or something else? How will the plan work?
• If the acquirer is a private equity fund, will the acquirer require a management rollover investment of a portion or all of the equity the management team holds in the selling company? Will the rollover be tax free? Will any of the rolled-over equity be subject to forfeiture?
• In such a rollover, how will the new investment vehicle be governed? What type of rights will the rollover holders have with respect to important actions and transactions which affect their interests in the new investment vehicle?
• If the equity grant consists of stock options, what will be the exercise price? How can this be as low as possible to give more upside to the option holder?
• If there will be stock options, will the holder be able to exercise the options pursuant to a “cashless exercise” and avoid the need to come up with cash to exercise the option?
• What percentage of the fully diluted capitalization of the company will be available for the equity incentive plan? (10% to 15% is typical)
• What specific percentages of the equity incentive plan do you envision being allocated to individual key team members? Which key team members will be allocated equity?
• How will vesting of the equity work? Over what period of time? (Three- or four-year vesting is typical, but performance vesting for a portion may also be built in).
• Will the vesting be accelerated partially or in full on a change of control of the business?
• Will the vesting be accelerated for some or all of the grant on termination of employment of an executive without cause?
• What dilution to the team’s equity could occur over time?
• What tax treatment will be expected for the management team of the equity grant upon a sale? Can it be structured to get capital gains treatment, such as via a profits interest in an LLC?
• How long does the executive have to exercise options after termination of employment? (The typical period is 90 days, but this is negotiable and can vary depending on whether the termination is for cause, not for cause, or voluntary quitting by the executive to accept another job.)
• Are the shares obtained upon exercise of an option subject to repurchase on termination of employment? If so, at what price?
• Are the shares obtained upon exercise of an option subject to a right of first refusal? If so, on what terms?
• How can the executive get liquidity on the equity in the future, without necessarily waiting for an M&A exit? Will the executive have a right to “put” his or her shares at fair market value to the company for purchase, and, if so, when? How will the fair market value purchase price be determined? (The fair market value is often determined by an outside appraiser who is required to ignore any discount on fair market value because of lack of control, liquidity, or transferability for the shares.)
• Will there be “drag-along” provisions forcing the executive to sell his or her shares in a subsequent M&A event? Will those shares be treated fairly along with other shares being sold?

4. Employment Agreement Issues

The buyer may want to put in place an employment agreement for the CEO and some members of the senior management team. From the perspective of such an executive, here are the key issues to be addressed. (It’s beneficial for these executives to request to see the form of employment agreement early, and then have experienced employment counsel review and negotiate the agreement on their behalf.):

Scope of employment provisions

The scope of the employment and responsibilities raise a number of issues:

• What is the title of the executive’s job?
• What are the executive’s responsibilities?
• Can the executive be demoted? Can the executive’s responsibilities be substantially modified, decreased, or increased?
• Is the executive guaranteed a seat on the Board of Directors while an executive? (Typically, this only applies to the CEO.)
• Where is the place of employment?
• Can the executive be relocated unilaterally to another city more than 25 miles away, or only with the executive’s consent?
• Is the executive allowed to be involved in other activities (e.g., a directorship on other Boards, involvement in community activities or non-profits)?

Compensation issues

• What is the base salary?
• Does the base salary increase each year of the contract?
• What quarterly or annual bonus is available? Is the bonus guaranteed, dependent on achievement of milestones, or wholly discretionary with the Board of Directors?
• Under what circumstances, if any, can the executive’s base salary be reduced?

Benefits issues

The various employee benefits available to an executive can raise a number of issues, including:

• Will the executive participate in all of the benefit plans of the company?
• Which of these plans should be in place for the executive? Are all of the payments for the benefits the responsibility of the company?

(a) Health and medical (including spouse and dependent coverage)

(b) Disability

(d) Pension

(e) Cafeteria Plan

(f) Life insurance

(g) Stock option/stock grant

(j) Executive financial counseling

• How much vacation per year is the executive entitled to? Does unused vacation continue to accrue for the benefit of the executive and is payable on termination of employment?
• How much accrued vacation can carry over to subsequent years?
• Are there any special loans or forgiveness arrangements?
• Are some of the benefits taxable to the executive? Should the executive be reimbursed for the tax?  

Term and termination issues

The circumstances in which the executive’s employment can be terminated and the resulting consequences will raise the following issues:

• How long is the employment term or is the employment “at will”?
• What are the grounds on which the company can terminate the executive?
• What are the circumstances that the executive can be fired “for cause,” and how is “cause” defined? It is in the executive’s best interest to have a narrow definition of “cause,” such as:

- Felony conviction or any act involving moral turpitude;

- Material breach of the employment agreement after an opportunity to cure has been given

• Is the executive entitled to severance pay on termination without cause? How much? Is it a lump sum or payable over time? (The typical arrangement for a senior executive is at least one year of severance, payable in a lump sum upon termination.)
• If terminated without cause, is the company required to continue paying for benefits or COBRA benefits for some period of time?
• May the executive terminate his or her employment (and receive severance payments) for “good reason,” such as change in responsibilities, compensation, or location of employment?
• If the executive is to receive a severance payment, the executive will typically be required to sign a release of liability for the benefit of the company, but the executive will want to negotiate this to be a mutual release.

Reimbursement of expenses

The issues regarding the right of the executive getting reimbursement of expenses include:

• Will the executive’s business expenses be reimbursed within a set time period?
• Is there a car or car allowance, cell phone provided, or other such amenities?
• Is there a relocation package available for the executive should relocation be necessary?
• Will the executive be reimbursed for any attorney’s fees incurred in negotiating the employment agreement, or will the company pay those fees directly?

Liability protection for the executive

The executive may want to negotiate certain liability protection mechanisms, covering the executive performing services within the scope of employment:

• Will the company have Directors’ and Officers’ (“D&O”) insurance coverage?
• Will the company Bylaws provide for indemnification protection for officers and executives?
• Will the company’s corporate charter limit the liability of officers and directors to the maximum extent permitted by law?
• Will there be an Indemnification Agreement that protects the executive, covering:

(a) Indemnification protection for claims

(b) Automatic advancement of legal expenses

(c) Protection even if the executive is no longer employed by the company? (Note statutory limitations on indemnification.)

Confidentiality restrictions

The employer will want confidentiality provisions in the Employment Agreement:

• Many companies have a separate form of employer Confidentiality and Invention Assignment Agreement that can be incorporated by reference.
• The executive must be careful not to use or divulge confidential information of a prior employer—the new employer will often want a covenant from the executive prohibiting such use or disclosure.
• If there are confidentiality restrictions on the executive, are the following excluded from the definition of “confidential information”?:

(a) Information that is or was publicly known, or which becomes publicly known through no fault of executive

(b) Information that is or was obtained from a third party who had the right to disclose the information without restriction

(c) Information independently derived by the executive without reference to the confidential information

(d) Information that was already lawfully in executive’s possession or knowledge prior to the disclosure of the confidential information

Invention Assignment issues

Companies expect that any inventions or business ideas developed by the executive related to the company’s business during the employment period will be owned by the company:

• What is the scope of the company’s rights to the executive’s development of new inventions, trade secrets, and ideas?
• Do the invention assignment provisions comply with applicable laws?  

Disability and death issues

Various issues arise on the death or disability of the executive:

• What is defined as a disability event?
• What happens on disability? Does the executive continue to receive salary and benefits for some period of time?
• What happens on death? Can medical and other benefits continue for some period for any spouse or children?

Post-employment limitations

The Employment Agreement can address various limitations on the executive after termination of employment:

• Are there limitations on the executive soliciting company executives? For what period?
• Is there a covenant not to compete after termination of employment? Many executives will strongly object to such a provision, on the theory that it adversely affects their future livelihood. If there is such an agreement, the terms are key, and executives should attempt to narrow the terms on the following issues:

(a) For what geographic regions?

(b) For what period?

(c) What is the scope of the covenant?

(d) Are the restrictions enforceable under applicable law? (Generally not permitted in California, but usually enforceable to the extent reasonable under the laws of certain other states such as New York and Delaware.)

Tax issues can materially impact the compensation and benefits available to an executive. Key questions to ask include:

• How can tax consequences be minimized?
• How can IRS 280G golden parachute issues be minimized?
• Is there some appropriate tax-deferred compensation scheme that can be implemented?

Dispute resolution

Most Employment Agreements have provisions dealing with disputes between the company and the executive:

• How are disputes resolved?
• Should confidential binding arbitration be the exclusive way to resolve disputes? (This is the preferred mechanism from the executive’s standpoint.)
• In what city must disputes be brought if litigated or arbitrated?
• What is the governing law?

Related Articles:

• 13 Key Employment Issues for Startup and Emerging Companies
• 14 Key Issues in Negotiating Employment Agreements
• 25 Key Lessons Learned From Merger and Acquisition Transactions
• 16 Key Issues in Negotiating an Employment Severance Package

Copyright © by Richard D. Harroch. All Rights Reserved.

About the Authors

Richard D. Harroch is a Managing Director and Global Head of M&A at VantagePoint Capital Partners, a large venture capital fund in the San Francisco area. His focus is on Internet, digital media, and software companies, and he was the founder of several Internet companies. His articles have appeared online in Forbes, Fortune, MSN, Yahoo, FoxBusiness, and AllBusiness.com. Richard is the author of several books on startups and entrepreneurship as well as the co-author of Poker for Dummies and a Wall Street Journal-bestselling book on small business. He is the co-author of the recently published 1,500-page book by Bloomberg, Mergers and Acquisitions of Privately Held Companies: Analysis, Forms and Agreements. He was also a corporate and M&A partner at the law firm of Orrick, Herrington & Sutcliffe, with experience in startups, mergers and acquisitions, and venture capital. He has been involved in over 200 M&A transactions and 250 startup financings. He can be reached through LinkedIn .

Richard V. Smith is a partner in the Silicon Valley and San Francisco offices of Orrick, Herrington & Sutcliffe LLP, and a member of its Global Mergers & Acquisitions and Private Equity Group. He specializes in the areas of mergers and acquisitions, corporate governance and activist and takeover defense. Richard has advised on more than 500 M&A transactions and has represented clients in all aspects of mergers and acquisitions transactions involving public and private companies, corporate governance, and activist and takeover defense. He is the co-author of the recently published 1,500-page book by Bloomberg, Mergers and Acquisitions of Privately Held Companies: Analysis, Forms and Agreements and numerous articles on mergers and acquisitions and corporate governance matters. He can be reached through LinkedIn.

This article was originally published on AllBusiness . See all articles by Richard Harroch .

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M&A Essentials: The Sale Process Part II — The Key Stages

by Jim Lisy

In this installment of our “M&A Essentials” series — offering a fundamental understanding of the concepts, issues and processes every business owner should be familiar with when considering and conducting the sale of a business — we focus on the nuts and bolts of each stage in the sale process.

Now that we understand the players involved in an M&A deal , let’s focus on the process. There is a common progression of stages that characterizes most acquisitions, as shown below.

Even before the deal team is established, it is critical to define the expectations of the shareholders. Their expectations should drive the objectives of the process and keep the team in focus. Among the topics to address early on are: 

• Value expectations,
• Liabilities retained by sellers and acceptable indemnifications,
• Expectations for the post-divestiture roles of management, and
• Potential deal structures (asset versus stock sale, and full sale versus partial or leveraged recapitalization).

The development of the marketing strategy for the sale of a company is also a crucial theme that cuts across the entire process. The most important question that must be answered is: Why would someone be interested in buying the company? Other questions include:

• What messages will entice strategic or financial buyers?
• What are the elements of value?
• Is the company a good stand-alone investment or is it an element in a buyer’s larger strategy?
• Does the company’s value depend on a competitor’s willingness to gain market share through the purchase of the company?

Once this thesis, or multiple variations of the thesis, is developed, it is important to carry that theme through the entire marketing process.   Finally, planning should include establishing deal procedures, including assigning responsibilities, gathering contact information and establishing communications procedures. Detailed planning is important and helps ensure confidentiality of the process by eliminating the risk of careless mistakes.

Document Preparation

Next, it’s important to develop the materials used to communicate information to potential buyers. The first task is to create a “teaser,” which is used to stir up interest in the deal without disclosing either the company’s name or information that might allow potential buyers to guess the identity of the seller.   Next, draft a confidential information memorandum (CIM); this will be revised numerous times before it’s distributed. This document describes the company’s:

• Competitors,
• Industry, and
• Historical financial information and projections.

The CIM must effectively communicate the marketing themes of the deal. The first few pages of the memorandum, composed of the executive summary and the key investment considerations, provide an opportunity to communicate what is special about the company and why it would make a great acquisition.   The work of constructing a data room begins at this early stage. A data room is a collection of documents that contains more detailed information than what is included in the CIM. Such documents include audit reports, employee information, contracts and environmental studies. Honest and accurate disclosure should be the guiding rule in assembling the data room — holding back negative information will result in lower values before closing and legal issues afterwards. Initially, only the CIM is available in the data room and access to other documents is provided as the deal progresses. The data room is an excellent tool for tracking interest in the deal as an audit trail is created, which provides data on which documents buyers are looking at and how often.

Marketing and Auction

Prior to distributing the memorandum, a significant amount of research is applied to developing the target list of potential buyers. Who are the logical buyers? Who has been making acquisitions in the industry? Which private equity groups are looking for deals of this size in this industry? Investment bankers maintain and subscribe to comprehensive databases used to help ensure the deal is shown to the right buyers and that no stone is left unturned in the process.   Once the documents and the target list are complete and accurate, marketing can begin. It starts with a phone call to potential buyers or a broader distribution of the teaser. After a confidentiality agreement (or nondisclosure agreement - NDA) is negotiated and signed, the memorandum is then distributed via data room access. A tracking list of targets is used to communicate information on the marketing process to other team members. This report typically contains contact information, milestones (such as NDA sent or data room access granted), and includes notes on discussions requiring communication to the client or other team members.   As the process of book distribution continues, the number of parties on the tracking list grows as the investment banker uses his or her network to expand the target list of acquirers. A skilled banker will add value to the process by finding potential acquirers that might not have seemed intuitive to others, or by pitching the deal to other potential buyers as an idea they might not have otherwise considered.   Once the memorandum is distributed to the list of potential buyers, they begin evaluating the deal. Follow-up questions and discussions between the banker and the buyers lead up to a target date when potential buyers are asked to submit a letter called an indication of interest (IOI), a non-binding document that identifies a value, or range of values, the buyer proposes paying for the company. Other elements of the letter may include deal structures and offer an opportunity for the buyer to make a case for considering them in pursuing the acquisition.

The client and the M&A team sift through these letters to determine which potential buyers are chosen to advance to the next stage. This is the point when the market value of the company begins to crystallize. Clues as to how the market assigns values to different aspects of the deal and where there are weaknesses in the company’s value thesis become apparent at this stage.   The process of marketing a company is analogous to a funnel. If the target list begins with 100 potential buyers, perhaps 60 receive a book. If 10 submit indications of interest, perhaps only five are chosen to meet management and conduct additional due diligence in the data room.   Once a smaller group is chosen, a management presentation provides buyers with the opportunity to assess the management team, discuss strategic issues and tour the facilities. Often the buyers will bring their bankers. The goal at this stage is to move the buyers’ range of valuations even further above those originally submitted.   Just as buyers can perceive more value than they assumed when they submitted indications of interest, there are things that can push valuations in the opposite direction. Such developments include earnings deterioration, inaccurate or unfavorable information that was not properly disclosed, or a stale management presentation.   Once the presentations are finished and the data room has been fully updated, the next task is to choose the best buyer. Potential acquirers are given a couple weeks to refine their value calculations and line up their financing sources. The investment banker then asks the bidders to submit their final offers. These offers are structured as a letter of intent (LOI) that addresses how much they propose paying, the structure of the payment (cash, seller note, earnouts, etc.), conditions of closing and timing. The letters, although non-binding for the most part, provide the basis for choosing the final bidder. Often the bidders are provided with a draft purchase agreement that they are asked to “mark up.” This can often provide the attorney on the deal team with a sense for the key legal issues that the buyer has identified. Choosing the final buyer based solely on value without considering legal structures is a mistake many sellers come to regret later.   If all has gone well and there is a sense of excitement among the bidders, this is when the clout of the seller is at its peak. Although many negotiations lie ahead in the process, the time immediately before final bids are submitted is when an auction process lets the best buyer come to the forefront.

Negotiations and Closing

At this point the deal is progressing to the closing process. Once the buyer is chosen, the push and pull of the final negotiations begins. The LOI is signed and final negotiations and due diligence commence. This is the stage when the investment banker moves to the background, passing the lead role of process manager to the deal attorney. Following execution of the final purchase agreement, ownership changes hands and funds are transferred.

It is critical to construct a carefully managed and organized process, one that is designed to reap the benefits of the competitive auction and maximize the value shareholders realize through the sale. The company may have tremendous perceived value in the marketplace, but if the sale process is not well thought out, that value will not be realized. Worse yet, the business could suffer if, for example, trade secrets make their way to competitors or if employees, frightened by the prospects of a sale, choose to seek employment elsewhere.   Selling a company using a hit and miss approach without a road map and a professional deal team will rarely result in the realization of the potential value of a company in the marketplace. A well-executed process that unlocks a company’s value should be comprehensive so that once the deal is completed the seller can rest assured that all potential buyers were involved. Careful execution of these elements remains the best way to find the best buyer and cultivate the best deal.   Contact Jim Lisy at [email protected] for further discussion.   Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.

About the Author

Jim lisy, cfa, mba.

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Ace Your M&A Case Study Using These 5 Key Steps

• Last Updated November, 2022

Mergers and acquisitions (M&A) are high-stakes strategic decisions where a firm(s) decides to acquire or merge with another firm. As M&A transactions can have a huge impact on the financials of a business, consulting firms play a pivotal role in helping to identify M&A opportunities and to project the impact of these decisions. 

M&A cases are common case types used in interviews at McKinsey, Bain, BCG, and other top management consulting firms. A typical M&A case study interview would start something like this:

The president of a national drugstore chain is considering acquiring a large, national health insurance provider. The merger would combine one company’s network of pharmacies and pharmacy management business with the health insurance operations of the other, vertically integrating the companies. He would like our help analyzing the potential benefits to customers and shareholders.

M&A cases are easy to tackle once you understand the framework and have practiced good cases. Keep reading for insights to help you ace your next M&A case study interview.

In this article, we’ll discuss:

• Why mergers & acquisitions happen.
• Real-world M&A examples and their implications.
• How to approach an M&A case study interview.
• An end-to-end M&A case study example.

Let’s get started!

Why Do Mergers & Acquisitions Happen?

There are many reasons for corporations to enter M&A transactions. They will vary based on each side of the table. 

For the buyer, the reasons can be:

• Driving revenue growth. As companies mature and their organic revenue growth (i.e., from their own business) slows, M&A becomes a key way to increase market share and enter new markets.
• Strengthening market position. With a larger market share, companies can capture more of an industry’s profits through higher sales volumes and/or greater pricing power, while vertical integration (e.g., buying a supplier) allows for faster responses to changes in customer demand.
• Capturing cost synergies. Large businesses can drive down input costs with scale economics as well as consolidate back-office operations to lower overhead costs. (Example of scale economies: larger corporations can negotiate higher discounts on the products and services they buy. Example of consolidated back-office operations: each organization may have 50 people in their finance department, but the combined organization might only need 70, eliminating 30 salaries.)
• Undertaking PE deals. Private equity firms will buy a majority stake in a company to take control and transform the operations of the business (e.g., bring in new top management or fund growth to increase profitability).
• Accessing new technology and top talent. This is especially common in highly competitive and innovation-driven industries such as technology and biotech. 

For the seller, the reasons can be: 

• Accessing resources. A smaller business can benefit from the capabilities (e.g., product distribution or knowledge) of a larger business in driving growth.
• Gaining needed liquidity. Businesses facing financial difficulties may look for a well-capitalized business to acquire them, alleviating the stress.
• Creating shareholder exit opportunities . This is very common for startups where founders and investors want to liquidate their shares.

There are many other variables in the complex process of merging two companies. That’s why advisors are always needed to help management to make the best long-term decision.

Real-world Merger and Acquisition Examples and Their Implications

Let’s go through a couple recent merger and acquisition examples and briefly explain how they will impact the companies.

Nail the case & fit interview with strategies from former MBB Interviewers that have helped 89.6% of our clients pass the case interview.

KKR Acquisition of Ocean Yield

KKR, one of the largest private equity firms in the world, bought a 60% stake worth over $800 million in Ocean Yield, a Norwegian company operating in the ship leasing industry. KKR is expected to drive revenue growth (e.g., add-on acquisitions) and improve operational efficiency (e.g., reduce costs by moving some business operations to lower-cost countries) by leveraging its capital, network, and expertise. KKR will ultimately seek to profit from this investment by selling Ocean Yield or selling shares through an IPO.

ConocoPhillips Acquisition of Concho Resources

ConocoPhillips, one of the largest oil and gas companies in the world with a current market cap of $150 billion, acquired Concho Resources which also operates in oil and gas exploration and production in North America. The combination of the companies is expected to generate financial and operational benefits such as:

• Provide access to low-cost oil and gas reserves which should improve investment returns.
• Strengthen the balance sheet (cash position) to improve resilience through economic downturns.
• Generate annual cost savings of $500 million.
• Combine know-how and best practices in oil exploration and production operations and improve focus on ESG commitments (environmental, social, and governance).

How to Approach an M&A Case Study Interview

Like any other case interview, you want to spend the first few moments thinking through all the elements of the problem and structuring your approach. Also, there is no one right way to approach an M&A case but it should include the following: 

• Breakdown of value drivers (revenue growth and cost synergies) 
• Understanding of the investment cost
• Understanding of the risks. (For example, if the newly formed company would be too large relative to its industry competitors, regulators might block a merger as anti-competitive.) 

Example issue tree for an M&A case study: 

• Will the deal allow them to expand into new geographies or product categories?
• Will each of the companies be able to cross-sell the others’ products? 
• Will they have more leverage over prices? 
• Will it lower input costs? 
• Decrease overhead costs? 
• How much will the investment cost? 
• Will the value of incremental revenues and/or cost savings generate incremental profit? 
• What is the payback period or IRR (internal rate of return)? 
• What are the regulatory risks that could prevent the transaction from occurring? 
• How will competitors react to the transaction?
• What will be the impact on the morale of the employees? Is the deal going to impact the turnover rate? 

An End-to-end BCG M&A Case Study Example

Case prompt:

Your client is the CEO of a major English soccer team. He’s called you while brimming with excitement after receiving news that Lionel Messi is looking for a new team. Players of Messi’s quality rarely become available and would surely improve any team. However, with COVID-19 restricting budgets, money is tight and the team needs to generate a return. He’d like you to figure out what the right amount of money to offer is.

First, you’ll need to ensure you understand the problem you need to solve in this M&A case by repeating it back to your interviewer. If you need a refresher on the 4 Steps to Solving a Consulting Case Interview , check out our guide.

Second, you’ll outline your approach to the case. Stop reading and consider how you’d structure your analysis of this case. After you outline your approach, read on and see what issues you addressed, and which you didn’t consider. Remember that you want your structure to be MECE and to have a couple of levels in your Issue Tree .

Example M&A Case Study Issue Tree

• Revenue: What are the incremental ticket sales? Jersey sales? TV/ad revenues?
• Costs: What are the acquisition fees and salary costs? 
• How will the competitors respond? Will this start a talent arms race?  
• Will his goal contribution (the core success metric for a soccer forward) stay high?
• Age / Career Arc? – How many more years will he be able to play?
• Will he want to come to this team?
• Are there cheaper alternatives to recruiting Messi?
• Language barriers?
• Injury risk (could increase with age)
• Could he ask to leave our club in a few years?
• Style of play – Will he work well with the rest of the team?

Analysis of an M&A Case Study

After you outline the structure you’ll use to solve this case, your interviewer hands you an exhibit with information on recent transfers of top forwards.

In soccer transfers, the acquiring team must pay the player’s current team a transfer fee. They then negotiate a contract with the player.

From this exhibit, you see that the average transfer fee for forwards is multiple is about $5 million times the player’s goal contributions. You should also note that older players will trade at lower multiples because they will not continue playing for as long. 

Based on this data, you’ll want to ask your interviewer how old Messi is and you’ll find out that he’s 35. We can say that Messi should be trading at 2-3x last season’s goal contributions. Ask for Messi’s goal contribution and will find out that it is 55 goals. We can conclude that Messi should trade at about $140 million. 

Now that you understand the up-front costs of bringing Messi onto the team, you need to analyze the incremental revenue the team will gain.

Calculating Incremental Revenue in an M&A Case Example

In your conversation with your interviewer on the value Messi will bring to the team, you learn the following: 

• The team plays 25 home matches per year, with an average ticket price of $50. The stadium has 60,000 seats and is 83.33% full.
• Each fan typically spends $10 on food and beverages.
• TV rights are assigned based on popularity – the team currently receives $150 million per year in revenue.
• Sponsors currently pay $50 million a year.
• In the past, the team has sold 1 million jerseys for $100 each, but only receives a 25% margin.

Current Revenue Calculation:

• Ticket revenues: 60,000 seats * 83.33% (5/6) fill rate * $50 ticket * 25 games = $62.5 million.
• Food & beverage revenues: 60,000 seats * 83.33% * $10 food and beverage * 25 games = $12.5 million.
• TV, streaming broadcast, and sponsorship revenues: Broadcast ($150 million) + Sponsorship ($50 million) = $200 million.
• Jersey and merchandise revenues: 1 million jerseys * $100 jersey * 25% margin = $25 million.
• Total revenues = $300 million.

You’ll need to ask questions about how acquiring Messi will change the team’s revenues. When you do, you’ll learn the following: 

• Given Messi’s significant commercial draw, the team would expect to sell out every home game, and charge $15 more per ticket.
• Broadcast revenue would increase by 10% and sponsorship would double.
• Last year, Messi had the highest-selling jersey in the world, selling 2 million units. The team expects to sell that many each year of his contract, but it would cannibalize 50% of their current jersey sales. Pricing and margins would remain the same.
• Messi is the second highest-paid player in the world, with a salary of $100 million per year. His agents take a 10% fee annually.

Future Revenue Calculation:

• 60,000 seats * 100% fill rate * $65 ticket * 25 games = $97.5 million.
• 60,000 seats * 100% * $10 food and beverage * 25 games = $15 million.
• Broadcast ($150 million*110% = $165 million) + Sponsorship ($100 million) = $265 million.
• 2 million new jerseys + 1 million old jerseys * (50% cannibalization rate) = 2.5 million total jerseys * $100 * 25% margin = $62.5 million.
• Total revenues = $440 million.

This leads to incremental revenue of $140 million per year. 

• Next, we need to know the incremental annual profits. Messi will have a very high salary which is expected to be $110 million per year. This leads to incremental annual profits of $30 million.
• With an upfront cost of $140 million and incremental annual profits of $30 million, the payback period for acquiring Messi is just under 5 years.

Presenting Your Recommendation in an M&A Case

• Messi will require a transfer fee of approximately $140 million. The breakeven period is a little less than 5 years. 
• There are probably other financial opportunities that would pay back faster, but a player of the quality of Messi will boost the morale of the club and improve the quality of play, which should build the long-term value of the brand.
• Further due diligence on incremental revenue potential.
• Messi’s ability to play at the highest level for more than 5 years.
• Potential for winning additional sponsorship deals.

5 Tips for Solving M&A Case Study Interviews

In this article, we’ve covered:

• The rationale for M&A.
• Recent M&A transactions and their implications.
• The framework for solving M&A case interviews.
• AnM&A case study example.

Still have questions?

If you have more questions about M&A case study interviews, leave them in the comments below. One of My Consulting Offer’s case coaches will answer them.

Other people prepping for mergers and acquisition cases found the following pages helpful:

• Our Ultimate Guide to Case Interview Prep
• Types of Case Interviews
• Consulting Case Interview Examples
• Market Entry Case Framework
• Consulting Behavioral Interviews

Help with Case Study Interview Prep

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What is a cim.

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What is a CIM and how is it used in the Mergers and Acquisitions (M&A) Process?

If you’re considering a sale of your business, it’s helpful to first understand the merger and acquisition (M&A) process and how an investment bank can help you navigate through the complicated buyer universe. One essential document in this process is the Confidential Information Memorandum (CIM) or increasingly a Confidential Information Presentation (CIP). For background on the M&A process and where the CIM falls on the deal timeline, check out this article: Step-by-Step Guide to the M&A Process .

Simply put, a CIM is a comprehensive presentation that serves as a marketing document during an M&A process . It is crafted by your advisor, in close conjunction with you and your management team, and outlines nearly everything a potential buyer would need to know before submitting an initial offer. In summary, the CIM should answer the question: “Why should a buyer be interested in your company?”

CIM Preparation as Part of the M&A Process

Source: Capstone Partners Research

Who creates the cim.

Creating a thoughtful, well-organized, and detailed CIM is a critical element of a successful sell-side effort. While time-consuming to create, the CIM engages and educates buyers and limits the need for detailed, individual discussions at the beginning of the process. A trusted M&A advisor with industry experience can be a significant asset and can help streamline the CIM writing process. Part of the investment banker’s role is to be in tune with the unique subsector trends of your business. The deal team can make or break a transaction in many cases, so you’ll want to surround yourself with experts that have a successful track record in your sector.

Part due diligence document, and part marketing collateral, the CIM is central to positioning the client for maximum market receptiveness. John Ferrara Founder & President, Capstone Partners

Why are CIM’s Important?

Your advisor will know how to optimally position your company to drive up the valuation through experience and knowledge of the buyer universe. Additionally, a veteran banker has the skills to effectively market your business to their vast network of qualified buyers in the space, further increasing your chances of receiving a competitive offer through a bidding war.

The investment banker prepares the CIM not just to sell, but to maximize value for their client by generating qualified interest from as many potential buyers as possible. An offer is only valuable if it comes from a buyer who truly understands your business and is willing to close on their proposed terms. A comprehensive CIM ensures that the buyer understands everything from the relevant experience of the management team, the company’s business model, the product or service differentiation, and the competitive dynamics of the sector. In addition to the granular detail and financial data that appears in a CIM, it also depicts the growth story of the company. The presentation provides details on the company’s history and ongoing initiatives.

What is Included in a CIM?

Every CIM is uniquely tailored to the unique differentiators that make the company a valuable and attractive asset. The CIM is custom-built to highlight the strengths and growth opportunities for the company. That said, there are a few common elements of a CIM that will help provide an all-encompassing presentation to effectively market your company:

• Executive Summary: Similar to an executive summary in a financial statement, this section provides a high-level sample of what’s to come. The executive summary includes the transaction overview, which showcases the target company’s transaction goals, management’s forward-looking plans, and most importantly the rationale for selling.
• Key Investment Considerations: The key investment considerations outline the unique aspects of a business that a potential buyer would find attractive and how it differentiates from the competition. This section will provide five-to-ten leading characteristics of the target company and will depend solely on the individual company and the industry they operate in. This should be thought of as the positioning portion of the CIM.
• Growth Opportunities: This section communicates major growth opportunities including expanding online presence, geographical expansion, or potential M&A opportunities. These points are derived from management’s input and depend on the individual company’s trajectory and should typically generate the most excitement (and scrutiny) from potential buyers.
• Company Overview: This section provides an opportunity to tell the story of the target company. In addition to the firm’s history, it offers specific details such as the company’s timeline, product differentiation, value-added capabilities, marketing strategy, and an introduction to the management team.
• Industry Overview: The industry overview provides a holistic view of the target company’s industry and highlights the size of the addressable market, industry growth trends, and competitive dynamics. Ideally, this section demonstrates that the industry is profitable and is forecast for substantial growth in the coming years.
• Financial Overview: The final section serves three main purposes:
•  To provide the target company’s historical financials which demonstrates the financial health of the company and is presented using  Generally Accepted Accounting Principles (GAAP).
• To provide a future forecast, ideally a five-year plan.
• To detail key performance indicators (KPIs) such as an adjusted EBITDA that the business is measured against.

Keep in mind that some sellers will choose to hire an outside financial consultancy firm, such as our Financial Advisory Services (FAS) Group , to make sure all financial statements are in order before they are publicly presented. This is often referred to as a sell-side quality of earnings (QoE) report which can serve as an impactful supplement to a CIM.

Planning Ahead

Although the majority of the workload for a CIM falls on the shoulders of the deal team, it’s important to be ready to fill in the gaps with information specific to your company. Making sure all the information is uploaded to a Data room, a file-sharing software, so that it is readily available for your advisors will save time and headache. Taking these steps earlier rather than later, will not only lead to a more complete CIM, but an expedited M&A process. By combining your personal experience as a business owner with your advisor’s knowledge of the buyer universe, you will be able to create a one-of-a-kind CIM for the buyers and achieve uncommon results.

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How to Answer M&A Case Questions in Management Consulting Interviews?

Learn how to ace M&A case questions in management consulting interviews with our comprehensive guide.

Posted May 11, 2023

Featuring Nick V.

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Table of Contents

If you're preparing for a management consulting interview and have been asked to answer M&A case questions, you may be feeling a bit intimidated. But fear not, as there is a way to approach these types of questions that can help you to demonstrate your skills and knowledge. By researching the company and industry, developing a framework to approach M&A cases, and assessing the financials and strategic rationale for the merger or acquisition, you can impress your interviewer with your insights and ability to think critically. In this article, we'll be providing you with a comprehensive guide on how to answer M&A case questions in management consulting interviews.

Understanding the Structure of M&A Case Questions

Before we delve into how to answer M&A case questions, it's important to understand the structure of these types of questions. M&A case questions are commonly used in management consulting interviews to test an applicant's ability to think analytically and solve complex problems. These types of questions usually involve a scenario in which a company is considering an acquisition or merger. As an applicant, you're expected to evaluate all the options and make recommendations based on the available information. Your ability to provide structured and well-organized solutions to these types of questions is what is being evaluated in your interview.

It's important to note that M&A case questions can vary in complexity and scope. Some questions may involve a simple acquisition of a small company, while others may involve a complex merger of two large corporations. Additionally, the available information may be limited or incomplete, requiring you to make assumptions and fill in the gaps with logical reasoning. Therefore, it's crucial to approach each question with a clear and systematic thought process, and to communicate your reasoning effectively to the interviewer.

The Importance of Researching the Company and Industry

When presented with an M&A case question, your first step should be to research the companies involved in the acquisition or merger as well as the industry in question. Conducting thorough research can help you to understand the business dynamics that are driving the transaction and to identify the major players in the market. This information can provide valuable insights into the strategic rationale for the merger or acquisition and can help you to frame your analysis and recommendations.

Furthermore, researching the company and industry can also help you to identify potential risks and challenges that may arise during the merger or acquisition process. By understanding the competitive landscape and market trends, you can anticipate any obstacles that may impact the success of the transaction and develop strategies to mitigate these risks. Additionally, researching the company's financial performance and management team can provide valuable information on the company's strengths and weaknesses, which can inform your analysis and recommendations.

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Developing a Framework to Approach M&A Cases

To answer M&A case questions in a structured and organized manner, it's important to develop a framework that you can follow. This can help to ensure that you don't miss any important points and that your analysis is well-organized. A common framework for M&A case questions includes the following steps:

• Defining the objective of the transaction
• Identifying potential targets or acquirers
• Analyzing the strategic fit of the target or acquirer
• Evaluating the financials of the target or acquirer
• Assessing the potential risks and synergies
• Making a recommendation

It's important to note that while this framework provides a general structure for approaching M&A cases, it's not a one-size-fits-all solution. Depending on the specific case, you may need to adjust or add steps to the framework to ensure that you're addressing all relevant factors. Additionally, it's important to consider the industry and market conditions when analyzing M&A cases, as these can have a significant impact on the success of the transaction.

Assessing the Financials and Valuations of Companies Involved

When evaluating M&A case questions, it's important to assess the financials of the companies involved. This can include reviewing the financial statements, calculating ratios, and assessing valuations. For example, you may want to evaluate the target or acquirer's revenue growth and profitability, debt levels, and cash flow. Additionally, it's important to consider valuation metrics such as price to earnings ratio, enterprise value to sales ratio, and discounted cash flow analysis. These metrics can help you to determine whether the potential transaction makes financial sense.

Another important factor to consider when assessing the financials of companies involved in M&A is their historical performance. By analyzing past financial data, you can identify trends and patterns that may impact the success of the potential transaction. For instance, if a company has a history of declining revenue or profitability, it may not be a wise investment. On the other hand, if a company has a track record of consistent growth, it may be a good candidate for acquisition.

It's also crucial to evaluate the industry and market conditions in which the companies operate. This can include analyzing market trends, competitive landscape, and regulatory environment. For example, if the industry is experiencing a downturn or facing increased competition, it may not be the best time to pursue an acquisition. Similarly, if there are regulatory hurdles that could impact the transaction, it's important to factor those into your analysis.

Analyzing the Strategic Rationale for the Merger or Acquisition

The strategic rationale behind an M&A transaction is often the most critical factor to consider when evaluating an M&A case question. It's important to consider the strategic fit between the target and the acquirer, such as whether the companies' products or services complement each other, or if the merger or acquisition will give the acquirer access to new markets or technologies. You should also evaluate the competitive landscape and market trends, as well as potential regulatory or legal hurdles. These factors can help you to provide a well-reasoned analysis that demonstrates your strategic thinking skills.

Another important factor to consider when analyzing the strategic rationale for an M&A transaction is the financial implications. This includes evaluating the potential cost savings and revenue synergies that could result from the merger or acquisition. It's also important to consider the financing structure of the deal, such as whether it will be funded through cash, debt, or equity.

Additionally, cultural fit is a crucial aspect to consider when evaluating an M&A transaction. The success of the merger or acquisition often depends on how well the two companies' cultures align and whether there is a shared vision for the future. It's important to evaluate the leadership styles, communication styles, and overall company values to determine if there is a good cultural fit between the two organizations.

Identifying Potential Risks and Synergies in M&A Cases

Another critical factor to consider when evaluating M&A case questions is identifying potential risks and identifying potential synergies. Risks can include potential cultural clashes, financial risks, or regulatory risks. You should assess all potential risks involved in the transaction and provide recommendations on how to mitigate them. On the other hand, potential synergies include cost savings, revenue growth, and operational efficiencies that could arise from the merger or acquisition. Identifying synergies and their magnitude can provide valuable insights into the potential value of the transaction.

It is also important to consider the timing of the merger or acquisition. If the transaction is taking place during a period of economic uncertainty, it may be more difficult to realize potential synergies and the risks may be greater. Additionally, the timing of the transaction can impact the valuation of the companies involved. It is important to carefully evaluate the timing of the transaction and consider any external factors that may impact its success.

Crafting a Compelling Presentation to Communicate Findings

In management consulting interviews, it's not just what you say, it's also how you say it. It's important to craft a compelling and concise presentation that communicates your findings in a well-organized manner. Your presentation should include a clear and concise executive summary, a well-structured analysis of the issues, and sound, fact-based recommendations. Additionally, your presentation should include key financial metrics such as return on investment and cash flow projections to demonstrate the financial feasibility of your recommendations.

Another important aspect of crafting a compelling presentation is to tailor it to your audience. You should consider the level of knowledge and expertise of your audience and adjust your language and tone accordingly. It's also important to anticipate potential questions or objections and address them in your presentation.

Finally, don't forget about the visual aspect of your presentation. Use graphs, charts, and other visual aids to help illustrate your points and make your presentation more engaging. However, be careful not to overload your presentation with too many visuals, as this can be overwhelming and detract from your message.

Preparing for Behavioral Interview Questions Related to M&A Cases

In addition to M&A case questions, you may also be asked behavioral interview questions related to M&A cases, such as how you would handle difficult stakeholders or how you would prioritize competing objectives. To prepare for these types of questions, think about real-life scenarios in which you have encountered similar situations, and prepare clear, concise answers that demonstrate your ability to handle complex situations.

It is important to remember that behavioral interview questions related to M&A cases are designed to assess not only your technical skills, but also your soft skills, such as communication, problem-solving, and leadership. Therefore, it is crucial to not only provide a clear answer, but also to explain your thought process and the reasoning behind your actions. Additionally, be sure to highlight any successful outcomes or lessons learned from the situation, as this can demonstrate your ability to learn and grow from challenging experiences.

Tips for Managing Nerves and Demonstrating Confidence in Interviews

Finally, it's important to manage your nerves and demonstrate confidence in your management consulting interview. Some tips for doing so include arriving early, dressing appropriately, and practicing your presentation ahead of time. Additionally, try to stay calm and composed, even if you're feeling nervous. Remember that the interviewer is not trying to trip you up but rather to evaluate your skills, so try to stay focused and confident.

By following these guidelines, you can increase your chances of success in your management consulting interview and demonstrate your ability to answer M&A case questions effectively.

Another important tip for managing nerves and demonstrating confidence in interviews is to maintain good eye contact with the interviewer. This shows that you are engaged and interested in the conversation. Additionally, try to speak clearly and confidently, and avoid using filler words such as "um" or "like". Remember to listen carefully to the interviewer's questions and take a moment to gather your thoughts before answering. By practicing these techniques, you can improve your overall interview performance and make a positive impression on the interviewer.

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M&A Due Diligence Management Presentations

Another very important aspect in a M&A process. Top management (nowadays very often includes the founder/s of the target company, the masterminds behind the successful business venture) may sell the company (at a premium) or deter potential investors.

Generally, management presentations to investors and their advisers will be considered disclosures (disclosed facts) against the representations and warranties set out in the transaction agreement. Subject to the applicable standards of disclosure e.g. completeness, fairness, clarity, specificity etc. It is thus in the best interest of the vendors/sellers and the management, each management presentation to address adequately (in sufficient detail, without volunteering additional information, advice or opinions such as analysis of potential implications and suggestions for solutions – that’s the job of the bidders’ advisers!) potential red flag issues that may serve as grounds for warranty claims.

Naturally, prior to a presentation, the management will have been prescreened and assessed by the potential investors by various means: publicly available information (social networks, publications, industry awareness and reputation etc.), informal feedback from peers, customers, consultants and other connections…

Additionally, an appearance of structure, clarity and neatness will matter a lot: how the relationship between a manager and the company has been structured, managed and documented? Are there management agreements in place (containing the market standard terms plus sector/company specific terms)? Are the incentives (bonusses, option plans etc.) clearly stated and subject to measurable objectives and key results? Are there other side agreements between the manager and the company e.g. loans, security for loans, consultancy, services agreements, agreements relating to IPRs – copyrights, trademarks, etc.?

And then comes the presentation or a series of presentations. The objectives of the presenting management essentially include: (a) reinforce or introduce disclosures and (b) respond to the bidder’s satisfaction to concerns identified and raised during the meeting. Asking for additional time to respond is totally acceptable (but must be followed up in a timely manner). But avoiding questions and failing to commit to provide an answer within a reasonable term will likely be viewed as red flags. Hence may delay conclusion of due diligence until the issue(s) has been further investigated and factored in the final offer. Participation, guidance and support by the seller’s legal counsel will often be good value for money. Bidders’ lawyers will certainly be present and ask questions with potential legal implications. It is a part of the ritual and at the end of the day will contribute to the overall post-presentation impression in the minds of the investors present at the meeting.

There is often a third objective: (c) demonstrate the top management’s competence and excellence – clearly the target business has been thriving under the leadership and vision of those managers/founders. In all likelihood they will have the knowledge, experience and expertise to find and implement the best market solutions possible and their statements made at the presentation would be considered authoritative and reliable. The investors may well consider retaining the services of the top management to ensure an efficient and timely integration and the continued growth.

The portfolio management imperative and its M&A implications

While portfolio management has always been high on many executive agendas, companies could achieve solid returns without rigorous portfolio management when capital was readily available, and the economy was booming. But now, as capital becomes more constrained, many companies need to sharpen their portfolio management capabilities and rethink their approach to M&A accordingly.

Explore the full collection of articles from our Top M&A trends in 2024 report >

Thinking like a portfolio manager

The pandemic brought record levels of M&A activity and freed companies to explore diverse opportunities. Today, four trends are creating a new imperative to manage the portfolio of businesses more tightly.

Trend 1. Central banks’ battles against inflation raise the cost and limit the availability of capital. Especially in the US and Europe, inflation hit levels not seen for years, increasing uncertainty and volatility and leading central banks to tighten their policies. While those policies are beginning to curb inflation, the average global cost of capital across industries nevertheless jumped 2.5 percentage points—from 5.7 percent in 2021 to 8.2 percent in 2023, only slightly below its recent peak of 9.5 percent in 2022. 1 Based on global data from Damodaran uploaded in January 2024.

Trend 2. Challenging macroeconomic conditions demand local responsiveness by globally integrated multinational companies. The center of economic gravity has been shifting for more than a decade. Over the last 15 years, China and India have accounted for almost two-thirds of global GDP growth and more than half of new consumption. The pandemic and rising tensions among nations have created some of the most challenging macroeconomic conditions in recent memory.

Trend 3. New technologies disrupt business models more rapidly. The pace of digital disruption has been increasing for decades. Two life-changing inventions—the telephone and the mobile phone—required 75 years and 16 years, respectively, to reach 100 million users worldwide. TikTok hit that milestone in nine months, and ChatGPT in just two months. The pace of AI disruption remains to be seen but seems likely to set a new record.

Trend 4. Investors increasingly prefer pure players and differentiated portfolios. In recent years, investors have pushed companies hard to focus on a single industry or business to enhance the creation and crystallization of value. Many corporations with portfolio businesses that are much more homogeneous than earlier conglomerates have streamlined their portfolios through splits or sales. But they still have to set clear synergy aspirations across the portfolio, and that requires portfolio management skills and experience that can handle a cross-enterprise perspective.

Acting like a portfolio manager

These trends put a high premium on having the right capabilities to build and manage a company’s portfolio of businesses. Empirical evidence and our experience in advising companies suggest six core capabilities that portfolio managers need to succeed in today’s challenging environment.

Capability 1: Reviewing the portfolio with brutal honesty. Effective portfolio management starts with understanding the current portfolio. Developing a holistic, unbiased perspective requires reviewing the portfolio from the perspective of an external investor or capital markets analyst. The review should challenge the company’s current industry selection and exposure and analyze the strategy and performance of each portfolio company.

Peer insights can enrich this review. Benchmarking the strategy, performance, and recent moves of each portfolio company against selected peers can deepen understanding of the current state, show what great means, and locate white spots and opportunities to improve.

This understanding can then inform decisions on how aggressive a portfolio strategy should be.

Portfolio managers need six core capabilities to succeed in today’s challenging environment.

Research has found that companies in the lowest quintile of performance improved significantly by making faster, broader portfolio adjustments. Global packaging company Amcor, for example, did just that—turning its performance around by acquiring Alcan’s packaging businesses during the financial crisis.

But, often impeded by political factors or legacy thinking, brutal honesty can be challenging. Tough discussions can be especially difficult for companies that enjoyed easy growth in the recently favorable macroenvironment, which often reduced the need to make tough decisions.

Capability 2: Locating the most promising playing fields to create value. Headwinds and tailwinds matter in selecting the right playing fields. Portfolio managers should leverage the insights gleaned from the portfolio review, consider how the winds are shifting, and predict where the greatest opportunities for value creation lie.

Because growth rates and momentum vary across industries, the portfolio momentum of a company (the sum of its moves for each business unit) looms large in TSR. We see companies that start the analysis period strong and sustain positive industry momentum doing very well. Riding the right tailwinds, they achieve annual excess TSR of 4.4 percent. 2 Sandra Andersen, Chris Bradley, Sri Swaminathan, and Andy West, “ Why you’ve got to put your portfolio on the move ,” McKinsey Quarterly , July 22, 2020.

But a slow start does not preclude success. Some companies whose portfolio momentum starts slowly succeed—to a reasonable extent—by moving into higher-momentum industries. They achieve excess TSR growth of 1.7 percent. Consider Apple shifting from the negative momentum of desktop computing into mobile phones or global investment holding company SoftBank reducing its telco exposure while building its software footprint.

Other companies stay in their industry, still exposed to its headwinds. Without corrective action, these companies struggle, and their average excess TSR remains negative.

Predicting wind shifts is not easy. It requires deep market understanding to spot trends, openness to both emerging opportunities and potential disruptions, willingness to communicate often uncomfortable truths, and the courage to act on those truths expeditiously, whatever action is required. But making predictions is essential to selecting the right playing fields, and that is especially important as fewer playing fields still enjoy the growth rates of the recent past.

Portfolio managers must also manage uncertainties and potential risks. Scenarios can help. Defining scenarios that employ different critical drivers supports making fact-based decisions on the right playing fields, despite uncertainty.

Capability 3: Defining the right portfolio composition to maximize value. The effort to define the right portfolio composition builds on the assessment of the current portfolio and the selection of the playing field.

The target composition should maximize the value of the overall portfolio. Every business included should have a clear rationale, such as creating synergies, gaining access to an attractive adjacent profit pool, ensuring a supply of critical inputs, or reducing risk across the portfolio. The rationale should focus on tangible and proven value creation, not intangibles and promises.

Every business should also sit at the right distance from the company’s core. Statistically speaking, acquisitions at the outer edge of the portfolio (for example, to shore up existing secondary businesses) achieve the best results. They average excess TSR of 1.6 percent.

Defining the right composition requires willingness to let a business go when it loses its rationale or the prevailing winds shift, making the business less attractive. Just securing consensus on plans to let a business go (never mind actually letting it go) can prove difficult.

While we offer no single blueprint for composing a winning portfolio, we have identified five approaches to creating value that can help companies build a strong portfolio (Exhibit 1).

Core centricity. Core-centric companies build and manage a portfolio anchored in their core business or operations. They gravitate toward businesses with similar value propositions, key success factors, customers, and suppliers. This similarity supports creating and then capitalizing on the scale of the portfolio and its synergies by tapping dimensions that have financial impact, such as procurement, and less tangible dimensions, such as industry and competitive insights. Think Unilever’s evolving portfolio of consumer products.

Vertical integration. Companies that have a vertically integrated portfolio move up and down the industry value chain, often to acquire attractive profit pools they already know as a customer or supplier. Upward moves typically seek to secure the supply of critical inputs, while downward moves seek to gain or protect direct access to end-customers.

A vertically integrated portfolio positions a company to capture synergies along the value chain. Some large corporations have moved so far vertically that they developed a new business that proved more attractive than their core business and evolved into a stand-alone business. Think Amazon Web Services, Amazon’s subsidiary that provides on-demand cloud computing services.

Diversification. A diversified portfolio consists of only loosely connected businesses. The typical goal is to leverage the company’s financial firepower in order to win attractive markets outside its core or to mitigate the cyclicality of its core business.

Many conglomerates attempt to manage each different business directly. Their success varies. Because investors increasingly expect synergies within a portfolio and prefer pure players focused on a single industry, more companies work to position their central organizations as “holdings” focused on selected, overarching synergy drivers and let each individual business operate independently. Capital allocation can become a major bone of contention, but success is possible. While failures are more widely known, Siemens, Virgin, and Google offer success stories.

Transformation. Most companies bring new businesses into the portfolio on top of their core operations. Even if the additions become more attractive than the core, the core usually remains.

But a few companies have boldly built a portfolio distinct from their core, planning to divest the core over time to strategically refocus or turn around the business. Perceiving the core as unattractive or even headed for extinction, they pursue profit pools with greater long-term promise, as dsm-firmenich (formerly Dutch State Mines) refocused from mining to nutrition and well-being.

Venture capital investment. Unlike typical corporate venture capital activities, this approach plays a central role in a company’s strategy. Companies make (equity) investments to develop a portfolio of (often minority) investments in and beyond the core. These companies are betting on and gaining insights into potential targets for acquisition in the medium to long term, or they are finding ways to support strategic interests, such as new customers or new capabilities.

This remains an emerging portfolio management approach, used primarily by tech players like Palantir, UiPath, and Coinbase. Its broader, long-term potential remains to be seen.

Capability 4: Rotating the portfolio toward its target composition. Evolving a portfolio from its current state to its target state requires adding and subtracting businesses, either organically or inorganically. Both approaches require making changes to overcome obstacles, such as the inertia that often perpetuates the status quo.

Research, based on prepandemic data (to exclude the impact of pandemic-related factors), found an optimal rate for rotating industries and companies. Portfolio managers should aim for a rotation that is balanced—neither too low nor too high. In a ten-year review, companies with static portfolios (having a refresh rate—also known as changing the revenue mix of the company—below ten percentage points) did not achieve meaningful excess TSR. Companies with significantly refreshed portfolios (more than 30 percentage points) achieved slightly negative excess TSR. Companies that hit the sweet spot between ten and 30 percentage points outperformed peers, with excess TSR of 5.2 percent (Exhibit 2).

M&A transactions provide a powerful tool for rotating the portfolio rapidly. Research has shown that companies focused primarily on organic strategies and related portfolio moves, on average, underperform their peers.

But just doing deals to refresh the portfolio is inadequate. Different approaches to dealmaking produce different results. In our research, programmatic acquirers outperformed their peers who also hit the refresh sweet spot (Exhibit 3). Programmatic acquirers do at least two small and midsize deals a year and secure meaningful total market capitalization over a ten-year period. The research companies that coupled a portfolio refresh rate of ten to 30 percentage points with a programmatic approach to M&A achieved, on average, excess TSR of 6.2 percent (Exhibit 3).

During the analysis period, Boeing led the pack (excess TSR of 7.4 percent), thanks to several technology-related acquisitions (such as n2d3 Sensing, AerData, and Miro). Luxury goods company LVMH followed closely (excess TSR of 6.9 percent), thanks to its acquisitions of Loro Piana, Rimowa, and Bulgari, among others.

The research further found that companies taking a programmatic approach to M&A when moving into industries blessed with favorable tailwinds outperformed peers, with excess TSR of 3.7 percent. Their steady cadence of transactions offers continuous opportunities to strengthen their transaction and integration capabilities and update their market insights.

Rotating the portfolio to maximize its value requires looking beyond acquisitions to consider other ownership models, like partnerships that reduce financial commitments, while maintaining some control and exposure to a playing field, or divestments for those able to meet the challenges of letting go.

Telecom and energy companies, for example, sell shares in their infrastructure subsidiaries to financial investors in order to free up capital for higher-growth opportunities while maintaining control. German utility EnBW recently sold a 24.95 percent share in its high-voltage transmission grid, TransnetBW, to a consortium led by a savings bank and an additional 24.95 percent share to the German government via the KfW bank.

Divestments demand deep understanding of each business’s operations to determine the right time to trigger the divestment process. This requires looking beyond changes in general market trends to consider such triggers as a natural inflection point in the lifecycle of an asset or a looming need to make significant investments.

Capability 5: Steering the portfolio based on rigorous return logic and tailored KPIs. Effective resource allocation assigns resources to the highest-value opportunities across the portfolio, ensuring that the portfolio achieves maximum return on invested capital (ROIC), while supporting current business objectives and future growth. But many companies rely on profit instead—often because that is common practice in their industry and much simpler to calculate. They need to see that ROIC represents value added more accurately and is more relevant to valuation. Admittedly, calculating ROIC, especially below the Group level, can be challenging because it requires knowledge of each segment’s asset base, which companies do not always track. But the effort adds significant value.

Consider Microsoft. Despite entering cloud computing late, Microsoft built a cloud business worth $35 billion in 2018 that boasted market share of 17 percent (versus less than 1 percent in 2012). How did Microsoft do it? By committing significant resources—unlike IBM, which enjoyed market share of 5 percent in 2012 but grew that share to only 7 percent in 2018. Failure to commit sufficient resources likely played a large role in limiting IBM’s growth.

Effective financial steering helps every portfolio company reach its full potential by setting appropriate, ambitious KPIs and using them to measure and monitor performance. Success requires understanding the true value drivers of each company and the company’s potential (defining what good means as a basis for setting targets).

Automotive manufacturer Stellantis is a poster child for rigorous, KPI-based financial management. Its KPIs focus on net cash flow—the guiding metric for a holistic efficiency program across cost categories and a key factor in management and executive compensation decisions.

Financial steering may use KPIs like ROIC across the portfolio but should complement those metrics with KPIs tailored to each business. High-growth businesses often require metrics that reflect their value drivers and maturity, such as user/subscriber growth.

Capability 6: Deploying the operational steering model that best fits the portfolio. Effective operational steering does not require portfolio managers to participate directly in day-to-day operations. Instead, they set a framework that both captures synergies and scale across portfolio companies and maintains speed and accountability in each business.

Too much attention to either half of the equation can undermine value creation. Excessive focus on synergies can reduce the speed and agility of decision making, leaving the company more vulnerable to fast-moving competitors. Excessive freedom in managing each business can put scale benefits at risk.

Holding companies can play a key role in effective operational management. Some companies, including Samsung and Unilever, treat holding companies as active “operators” deeply involved in technology, M&A, and the strategy of each portfolio business. This model works best for setting up similar or almost identical businesses, where synergies drive significant value.

Toward the other end of the spectrum, companies like TATA and A.P.M Møller treat holding companies as a “strategic holding.” They play a coordinating role while each business retains significant autonomy. This model best fits portfolios that have moderate synergy potential as their more diverse businesses benefit from autonomy.

Getting started

Now, more than ever in the last decade, companies must get serious about portfolio management. Leaders need to understand the trends that are stoking a more volatile environment and the new imperative these trends create. Leaders can then ensure that their company has the capabilities required to manage the portfolio holistically.

Explore articles from the report

Top M&A trends in 2024: Blueprint for success in the next wave of deals

Chemicals: Success through timely, tailored action

Thoughtful M&A strategies are key to growth in tech, media, and telecom

Life sciences M&A shows new signs of life

Rebound of financial services M&A: Focus on growth and capabilities

Consumer goods: A changing landscape for successful M&A

The shifting sands of M&A in transportation and logistics

Creating value from green M&A

Leading through uncertainty: Navigating delays in M&A deals

The culture compass: Using early insights to guide integration planning

When a transaction forges a transformation

Creating value with M&A in Asia’s diverse marketplace

Jens Giersberg is a partner in McKinsey’s Cologne office; Hannes Herrmann is an associate partner in the Vienna office; Alexander Maier is a consultant in the Zurich office; and Marc Augustin is a consultant in the Frankfurt office.

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Top Questions Buyers Should Ask during Management Meetings When Acquiring a Company

As anyone who has ever done it before will tell you, buying a company is a process. It can take anywhere from a few months to a couple of years to complete. To reduce uncertainties and understand the business as much as possible, buyers must conduct thorough due diligence and ask the right questions. Finances, potential synergy, liabilities, customer relationships, and key employees are just a few areas that the buyer should consider.

Here are five essential questions buyers should ask during management meetings when acquiring a company.

1. Why is now the best time for you to sell your business?

• There can be a variety of reasons why a business is started. Someone may believe they can improve a process or make a product cheaper. Or they may have just wanted to escape the 9-to-5.
• Regardless of why a business is started, it is essential to understand why the owner(s) is now ready to sell. Age and/or desire to retire are frequently cited reasons for a sale. The owner may be having difficulty with making the financials work and needs a capital infusion or believes he can’t take the business to the next level on his own.
• Sometimes the business is family-owned in which the current owner grew up, but they are not as passionate about the line of work as the founders. (Alternatively, family-owned businesses could have multiple family members who don't get along and want to get rid of it.)

The question behind the question: “Is this a good company to buy?”

2. Which employees are bringing in revenue and which have established relationships with the key customers of the business?

Is it the owner, someone from the management team, or someone else?  Are there strong non-compete/non-solicitation agreements in place should these people leave?

It will be critical to know the answers to these and other questions relating to the major customers of a business. A large part of a company’s value is its customers. Ensuring the customers are retained through and beyond an ownership transition should be one of the number one things a buyer should focus on.

If the owner has critical customer relationships, buyers should consider including an earn-out component to the offer that pays over several years based on meeting specific mutually-agreed performance targets.

The question behind the question: “Are the key customers going to leave when the owner sells?”

3. Who are the key employees? Are they committed to staying with the company after a sale is completed?

Most business owners we represent are extremely proud of what they've built. Generally, the owners are concerned with what becomes of the company and its people after it is sold.   Often one or more of the owners will be interested in remaining with the company after the transition period. This can be a good sign that the business is worth the investment.

In any business, some employees will be more key to its success than others. Identifying and utilizing those key people will help facilitate a smoother ownership transfer. These individuals, often in leadership roles, can have long-term relationships with the firm’s customers/suppliers and be well-respected within the company. Other employees will frequently take their clues on how to react to a company’s sale from these people.

Building relationships with these key employees who have operational and institutional knowledge of the company is an essential aspect of buying a business. A common practice for sellers to help ease potential buyers' concerns is to pay a bonus to key employees if they stay for a certain amount of time after a sale.

The question behind the question: “Will the people who made this company successful still be here in a year?”

4. Why do your customers prefer you rather than others?

Customers come to expect a certain level of service or value in the price they pay. It will be up to the buyer to meet or exceed those expectations after a sale is completed or risk losing those customers. Buyers should also carefully read customer terms/contracts to determine if they can legally fulfill agreements already in place.

Does this business compete on price? Has it grown due to its personal relationships? How does this business differentiate itself from other companies in the marketplace? What marketing efforts have been most effective in growing the business?

These and other questions will paint a better picture for the buyer on retaining the key customers after a sale.

The question behind the question: “What are the competitive advantages?”

5. If you were in my position, what would be your top concerns with purchasing this business?

This may reveal hidden concerns of the owner and/or management down the road. It could be that the seller has a significant amount of older equipment that must be replaced in the next few years, or there have been low investments in raw materials. Pending or potential litigation could also be cause for alarm.

No business is without risk. Although there are possible upsides to risk, the possible downsides should be considered too. In an acquisition where potentially millions of dollars and future legal responsibilities are exchanging hands, buyers should enter negotiations with both eyes open to understand the asset or assets they are buying as much as possible on the front end.

Even if the seller does not reveal any deal-breakers, it may provide a glimpse of how forward-thinking the company is regarding how it anticipates external threats to the organization.

The question behind the question: “Are there any potential economic and/or legal landmines on the horizon that should be avoided?”

Buyers should attempt to dig in on their responses, so they understand what is truly motivating the seller. If the seller is presenting the company as being successful, why are they selling it? Does the owner give any red flags in their answers? Will this company operate successfully without the seller in place? Does the owner have concerns about the future viability of the company or industry?

Buyers will never eliminate all the risks associated with acquiring a company (and that shouldn't be the goal), but by asking the right questions and understanding what the answers they receive could mean, they can reach a comfort level in completing their due diligence so that an informed decision can be made.

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ABOUT BENCHMARK INTERNATIONAL:

Benchmark International is a global M&A firm that provides business owners with creative, value-maximizing solutions for growing and exiting their businesses. Benchmark International has handled over $11 billion in transaction value across various industries from offices across the world. With decades of M&A experience, Benchmark International's transaction teams have assisted business owners with achieving their objectives and ensuring the continued growth of their businesses. The firm has also been named the Investment Banking Firm of the Year by The M&A Advisor and the Global M&A Network as well as the #1 Sell-side Exclusive M&A Advisor in the World by Pitchbook's Global League Tables.

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