Selling a Business – Is your Information Memorandum bullet proof?
08 June 2023
Selling a business can be a stressful experience for a vendor, especially when the money involved is significant and will be a big part of their retirement savings.
For residential property sales, it is common to see properties “dressed” for the occasion. New furniture, rugs, linen etc may be displayed to present the property in the best possible way. The theory being this ‘wow factor” will enhance the chances of a premium being paid for the property. Real Estate firms also encourage vendors to undertake marketing campaigns to further promote the property.
Marketing a business for sale is no different. To maximise potential offers, Vendors should present the business to the market in the best possible light. Unlike residential property sales, many businesses for sale are not marketed in the public domain. They are often discrete with the marketing carefully targeted. This is due to confidentiality and sensitivity reasons.
The size and complexity of the business for sale generally influences the marketing campaign. An Information Memorandum (IM) is a really good tool to showcase the business. It enables prospective purchasers to get a good understanding of the business and the opportunity for them. IM’s include both financial and non-financial disclosures.
A prospective purchaser relies heavily on the information in the IM. Non-binding offers or conditional offers are often made based on the content in the IM. A “Due Diligence” process/period then allows the prospective purchaser to analyse the information in the IM but also to uncover information not dealt with in the IM. It is at this stage that a deal can unravel if holes are found in the information.
One of the worst things that can happen for a vendor during a Due Diligence process is for the prospective purchaser to uncover something negative that the vendor is unaware of. This immediately raises concerns about the quality of the other information and puts the purchaser on high alert. Credibility and trust can be lost. If significant enough, it can scupper the deal.
It is vital to be sale-ready. The IM should be checked and crossed referenced. Financial summaries must be accurate and supported by underlying financial reports. If holes are found in the data, you and the prospective purchaser have wasted time and money. A legitimate purchaser will either walk away or significantly reduce the offer price. It pays to do it right first time.
The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Findex Advice Services NZ Limited.