the legal jungle
of an Offering
by Paul Rianda
When you are trying to sell your entire business or even a large portfolio of merchants, one of the most important ways to maximize the potential sales price is by preparing a well-written, informative and compelling offering memorandum. Below, I will describe what an offering memorandum is, the importance of the document and the various components of that document.
What is an Offering Memorandum?
An offering memorandum (“OM”) is a booklet, usually neatly bound, that is prepared in order to try to sell a valuable asset, usually an entire company or in the case of the bankcard industry, a large portfolio of merchants. The OM is the document that is sent to potential purchasers when they express interest in purchasing the company or merchant portfolio. As the first glimpse the buyer has of the company, the OM has to be compelling or the purchaser will never make an offer for the company. For that reason, great care must be taken to ensure the OM grabs the reader’s interest and presents a well thought out case as to why the buyer should purchase the company.
The Executive Summary
The executive summary is arguably the most important part of the OM.
This is the first thing most buyers will read about the company.
Unless the executive summary grabs the reader’s attention, it is unlikely the potential buyer will bother to read any more of the document.
The next section of the OM typically provides an overview of the seller’s industry and information about competitors. The importance of this section is to give the reader information about the potential size of the market that can be captured in the industry. Buyers like to invest in industries with a lot of potential for growth. For instance, an industry with a potential market of $1 billion in sales is better, for the most part, than a market where the whole industry is only expected to sell $100 million. The bigger the industry, the more potential the seller has to make more money and the easier it is, all things being equal, for the buyer to get a better return on its investment. Another portion of this section is usually reserved to profile the main companies in the industry. (the seller’s competitors).
This section of the OM gives the seller an opportunity to describe why it is a great company, why its people are a notch above the rest and why the company will be able to beat out its competitors. As to the company, one of the main questions most buyers have is why will it win over its competitors? This usually has to do with superior or unique marketing efforts or products/services. Buyers want to know how the company is currently obtaining business. In addition, they want to know what innovative ways the company has planned to increase its market share. Of course, there must be an explanation of how these marketing efforts or products/services are better than those of the competition and that they are not easily duplicated.
Arguably the most important part of the OM is the company’s financials. A buyer wants to see that the company is doing well and making money as reflected by the historical income statement and balance sheet. But the main way the financial statements can increase the value of the company is by showing how well the company can perform in the future.
The information contained herein is for informational purposes only and should not be relied upon in reaching a conclusion in a particular area. The legal principles discussed herein were accurate at the time this article was authored but are subject to change. Please consult an attorney before making a decision using only the information provided in this article.
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