The Importance of Quality M&A Documentation

By Generational Equity


One of the major advantages of using a skilled, experienced M&A advisor is the quality of the presentation that they will make on your behalf to buyers. If you use an M&A firm to represent you, their demonstration of your opportunity will typically be found in two critical documents:

  • A Confidential Business Profile (CBP)
  • An Offering Memorandum (OM)

Each of these documents plays a key role in marketing efforts on your behalf. The CBP is a 1- to 2-page teaser that highlights the key areas of your business that buyers will find attractive. Most CBPs include a summary of your historical and projected income statement, typically three years of history and five years of projections. A paragraph or two describing your business is also included, along with a brief description of your future growth possibilities. In addition, most dealmakers will also briefly highlight the important off-balances sheet assets your company has that specific buyers will find attractive – without disclosing the name of the business obviously.

The goal of the CBP? To grab the attention of professional buyers, folks that look at 500-1,000 opportunities each year and have a limited time frame to analyze prospects and possibilities.

These individuals like to see information presented in a standard format so that they can literally, within a few minutes, decide if your business is something that they want to look at in more depth. The creation of the CBP is a real challenge because taking reams and reams of information that you have provided and distilling it down to something that highlights the most important facts takes skill and experience.

What Does an OM Contain?

The second document, the OM, is only sent to prospects who have reviewed the CBP, indicated an interest in looking at more information, are approved by you, and sign a Confidentiality Agreement (CA). This last point cannot be over-emphasized.

If you are NOT using professionals to negotiate with buyers, then you need to have an attorney familiar with M&A draft an ironclad CA on your behalf. Do not send detailed information about your business to any buyer who is not willing to sign your CA. Even if you know the prospect well and trust him/her, protect your business from confidentiality breaches by having all interested parties sign your CA.

Once your dealmaker has the CA in hand and you have approved the target, the OM is sent. It is a fairly lengthy detailed document and is usually comprised of the following key segments:

  • Three years of historical financials
  • Five years of projected financials (based on recast numbers)
  • A full description of the company that should include a complete history of the business, its current operations, and future growth opportunities
  • A SWOT analysis on the business (strength, weakness, opportunities and threats)
  • An analysis of the projected growth of your industry
  • A discussion of the key end markets you serve and their projected growth
  • An examination of key clients
  • An analysis of vital suppliers
  • Full disclosure of significant contractual relationships with suppliers/customers
  • An organizational chart with a focus on critical employees and their relationship with the company
  • A full list of off-balance sheet assets that make the company unique and successful

The length of this document can vary from 40-60 pages or more depending on how complex your business is and the level of documentation needed in order to alleviate buyer concerns regarding the risk of your opportunity. And that is why the OM needs to be absolutely accurate in its detail. The OM is used as the backbone to start the eventual due diligence process and any inaccuracies, especially relating to your financials, can have a huge impact on your transaction both in terms of valuation and deal structure.

An Important Year

One of the key aspects of this transparency is the “base year.” This generally is the 12-month period your business is in whilst you are in market. It is perhaps the most important year of your entire financials because it is this number that buyers will most closely scrutinize during due diligence. If you are projecting revenue growth of 10% and gross margin improvement by 5% during the base year, it is vital that you be on track to do so during due diligence.

There is nothing more damaging to a deal than for your deal maker to have to disclose to a buyer that not only are you not on track to reach your projected revenue target in the base year but your margins are not in line as well. This issue calls into question your entire five-year forecast and obviously is a determining factor in what the buyer will ultimately pay for your business (and how the structure of the deal is determined as well).

Quite often if the base year projections are being missed (even if the “miss” can be explained), many buyers will structure the transaction to include an “earn-out” whereby key metrics in terms of revenue and/or earnings are met over a 1- to 3-year time frame (or even longer) and where you are often required to stay with the new company and ensure that these benchmarks are reached. Obviously if they are not achieved, even if the reasons are beyond your control, the ultimate dollar value paid to you for your business could be drastically reduced.

So avoid this situation if possible by projecting a realistic base year for the company. Doing so will save you potential headaches and heartaches later. All too often we have to counsel a client to balance their base year expectations with the reality that if the company has been growing at a compound annual rate of 5% over the past many years, that suddenly projecting 20% growth in the base year will probably do more harm than good for the transaction value. Realism is the key and reflects again, the importance of creating a very accurate OM and CBP.

This also points out how critical it is to listen to the advice of your M&A advisor. Unless you have sold a business before, you will have no idea of how buyers will look at your company and how that view will impact the offers you receive. Your dealmaker knows what to expect because, assuming if they are like Generational Equity dealmakers, they have dozens of years of experience dealing with and negotiating with professional buyers. Heeding their input on the process, especially as it relates to the quality of your documentation, is vital.

Ultimately this is why buyers we deal with really like looking at Generational Equity clients: Our process ensures that by the time an OM gets to them, it is fully vetted, accurate, and complete. Before we approach any buyers, we conduct a full business valuation on all clients, which feeds directly into our OM creation and also ensures that the client has realistic expectations of the business’ value.

To learn more about the services that we offer business owners, please call me at 972-342-0968 or email me at

By Carl Doerksen, Director of Corporate Development at Generational Equity.

© 2021 Generational Equity, LLC. All Rights Reserved.