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Preparation shapes much of how the rest of the process goes. Buyers form their first view of the company from the materials we prepare now, and the numbers in them will be tested later in diligence. Issues found and addressed here are usually cheaper to deal with than the same issues found by a buyer.

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What happens

1

Kickoff

We agree the objectives, the timetable and who on your side should be involved, and confirm what stays confidential. If you haven’t yet reviewed your personal tax position and ownership with your own advisers, now is the time; see Personal tax and ownership planning.
2

Initial document request

We ask for the information we need to understand the company. The requests appear on the Requests page of your portal.
3

Financial analysis and normalized EBITDA

We rebuild the financial history the way a buyer will read it: revenue by customer and product, retention, margins, and earnings adjusted for owner and one-time items.
4

Sell-side quality of earnings (optional)

For some companies we recommend an independent accounting review before buyers see the numbers. It finds issues while there is still time to explain them, and gives buyers more confidence in the figures.
5

Valuation range review

We walk you through our view of value, what drives it, and which types of buyer are likely to pay the most. We assess the valuation approaches relevant to your business and likely buyers, including revenue-based and earnings-based measures where appropriate.
6

Teaser and CIM

We draft the anonymous teaser and the confidential information memorandum. You review both for accuracy before anything goes to buyers.

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What we need from you

The initial requests cover five areas. You will find each one, with a description of exactly what we need, on your Requests page.
  • Monthly profit and loss and balance sheet for the last 36 months
  • Year-end statements for three years
  • This year’s results and budget
  • Revenue by product or service line
  • Cost of sales
  • Owner and one-time expenses
  • Receivables and payables aging
  • Debt and leases
  • Capital spending
  • Revenue by customer by month for three years
  • Top suppliers
  • The sales pipeline and backlog
  • Existing company materials
  • Your main competitors
  • Federal and state tax returns for three years
  • Your tax structure
  • Any open matters
  • The organization chart
  • An employee list
  • Key employee agreements and benefits
We agree when customer and employee identities are disclosed, taking account of their sensitivity, the buyer’s diligence requirements and the stage of the process. Coded information is used where practical, with more sensitive information released through agreed access controls.

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Why normalized EBITDA matters

Most private companies run some costs through the business that a new owner wouldn’t carry, such as an owner’s above-market salary, one-time legal fees or a discontinued product. Normalized EBITDA removes these so buyers see the earnings the business will produce under new ownership. Each adjustment needs evidence behind it, because buyers will test them. The list of owner and one-time expenses in your requests is where this starts.

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Fix now, or disclose and manage

Not every issue has to be resolved before buyers are approached. Part of preparation is deciding which to fix and which to disclose with an explanation.

Usually worth fixing first

Issues that are quick to resolve and that buyers would otherwise find for themselves: customer revenue that doesn’t tie to the accounts, missing signatures on contracts or IP assignments, undocumented option grants, and accounting that isn’t on a consistent accrual basis.

Often better disclosed and managed

Issues that can’t be fixed in the time available, or would cost more to fix than to explain: a customer that has given notice, a pending dispute, a weak quarter, or customer concentration. These need a clear account of the cause, the impact and what you are doing about it, ready before buyers ask.
The judgment depends on how the issue affects value, how likely buyers are to find it, and how long it would take to resolve. We go through the list with you before outreach, so each item has a plan before buyers ask.

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What can slow this phase down

Retention and growth figures all depend on it. If billing data and the general ledger disagree, we reconcile them before anything else.
An adjustment buyers can’t verify is unlikely to be given credit. Keep the evidence for each one.
Outreach usually waits until the teaser and CIM are ready, and the CIM can only be as good as the information behind it.
Buyers compare results during the process with the forecast in the CIM. A credible forecast you can beat is worth more than an ambitious one you miss.