To help entrepreneurs, mergers & acquisitions advisors and investment bankers be better prepared in presenting a business for sale, I am sharing some advice. I guess I could have titled this article “A Dummies Guide to Pitching Buyers.”
The main purpose of a pitch book is to provide a realistic overview of a business being marketed for sale. Additionally, a pitch book needs to communicate some insight into the personality and culture of the business being pitched. Both parties need to get to know each other and determine if they can work together, because the goal is a long-term relationship.
Remember the reader of your pitch book reads hundreds of them each year. They’ll lose interest very quickly if your pitch book isn’t well organized, doesn’t get to the point, or puts “lipstick on a pig.” The reader is looking for only one thing; “show me the money,” or at least some very strong potential for real money.
In my review of numerous pitch books from M&A advisors and investment bankers I have compiled a list of the most common mistakes and some tips for crafting the prefect pitch book.
Things to Avoid
1. Lack of clarity
The executive summary should communicate clearly what the company does in 60 seconds. The pitch book presentation should take no longer than 30 minutes to read.
2. Arrogance and boastfulness
The tone should be professional in documenting the accomplishments of the company. No one wants to deal with a dazzling sales team. Present information realistically and genuinely.
3. No competition
Don’t down play the business’ competition. Present market shares with verifiable facts.
4. Not understanding the market
Market-sizing should be top-down and bottoms up. Be very realistic with projections. Simply stating, “the company just needs 0.1% of the Spanish speaking population of to grow its business by 200%” ignores the importance of identifying and describing the target customer.
5. Not knowing the numbers
Don’t say the company plans to drive 500% revenue growth in its second year but not have enough details to support this projection, or an execution plan in place.
Things to consider
Pricing
It’s important not to indicate a specific asking price or an expectation of price range for a business in the pitch book. You may have a valuation or a number in mind, but for negotiation purposes it’s best to have prospective buyers bid on the business.
There’s no doubt a true synergistic and/or strategic buyer will pay a premium for the business. If such buyers are told an asking price upfront, there goes the premium!
Accurate numbers & realistic projections
When financials are presented, they need to be fully verifiable during due diligence. So make sure that they are very accurate! Nothing can kill a deal faster than a buyer learning that the projected earnings of a target are actually much lower, or that the historic numbers are no longer valid because of errors.
Provide a detailed history of the company focusing on the most recent years and going back to the last five years. Be honest in presenting a very realistic and truthful view. Buyers want to know the truth. Don’t ignore or gloss over key issues, such as the impact of the recession or the impact of any internal or external events. Any negatives can be turned into positives by describing how problems were solved, or highlighting the effectiveness of the management team to recover and succeed.
Make the information as realistic as possible
Be prepared to support and defend projected revenue and earnings. In addition to showing details of the projections, it’s also important to show execution plans that will make the revenue and earnings projections become a reality. The more detail you can provide the better. Use caution here though. Make sure the projections are achievable.
By Brian Mazar, CBI, MBA