We have written previously about the four phases of a company sale: Phase I: the Diligence Phase, Phase II: the Marketing Phase, Phase III: the Management Presentation Phase, and Phase IV: the Buyer Due Diligence and Documentation Phase. In this article, we will continue dissecting the various phases of the sale timeline and do a deeper dive into Phase III: the Management Presentation Phase. The Management Presentation Phase includes both the literal management presentation as well as the submission of Letters of Intent (“LOI”) by the buyer candidates and the negotiation/execution of a LOI. In this post, we will address the Management Presentation: what is the management presentation, and what is its role in the sale process?
For starters, the management presentation is a key part of the sale process. It slots after the seller has received Indications of Interest (“IOIs”) from prospective buyers. In addition, the management presentation is the critical preamble before buyer candidates are asked to submit a Letter of Intent. Based on the strength of the submitted IOIs, the seller, via their investment banker, will typically invite a number of buyer candidates to attend the management presentation.
Often, the seller and would-be buyers meet in person for the first time at the management presentation. The management presentation is also the first time that a would-be buyer hears the acquisition pitch directly from the seller. No one can do justice to the pitch like the seller. The management presentation is that prime opportunity for interested buyers to hear directly the owner’s passion for the company, which can make a powerful impression on the buyers.
The meeting itself can last from a few hours to a full day. It can also include a social dinner followed by the formal presentation the next morning. The primary goal of the management presentation is to pitch the company in the best possible light to buyer candidates, and to entice prospective buyers to submit a LOI that meets or exceeds the upper range of their IOI. Management presentations are typically conducted with one buyer candidate at a time, which makes the process more personal and gives the parties adequate time to get to know one another.
The management presentation includes a “deeper dive” into the information that the seller previously provided to buyer candidates in the Confidential Information Memorandum (“CIM”) during the Marketing phase (Phase II). The seller and their management team provide a comprehensive overview of the company, including its values, its history, key accomplishments, and how it operates. In addition, the management presentation is an opportunity to provide a financial update, an outlook for the remainder of the year, and an updated forecast (together with a deeper level of support), all as appropriate. Further, the management presentation provides the opportunity to disclose new business developments that may have occurred since the CIM was prepared. Finally, the management presentation is an opportunity for the seller to highlight potential synergies that may be unique to the company and each buyer candidate such as cross selling opportunities, the sharing of technology across the combined company, and/or opportunities to leverage the relationship between common vendors. As the so-called synergies will likely be unique to each buyer, the seller and their team may choose to prepare a presentation that is slightly tailored to each buyer. It should be noted that in preparing the management presentation and in considering the different buyers, the seller should always be cautious not to disclose to strategic buyers too much information or highly sensitive information in the event that the buyer candidate ultimately does not purchase the company.
We liken the sale process, and particularly the management presentation, to switching on a light bulb. When the buyer first starts to learn about an acquisition opportunity, the light bulb may be rather dim. However, as their understanding grows and they begin to understand why a particular company has interesting characteristics (i.e., the buyer reads the CIM and it piques their interest enough to persuade them to submit an IOI) the light bulb starts to glow brighter. Then, by the time a prospective buyer attends the management presentation, meets the seller and their team, and hears the pitch, the light bulb becomes brighter and brighter until it is blindingly bright. Simply put, as the acquisition opportunity becomes less abstract in a buyer’s eyes and as the seller brings the company to life through the management presentation, the buyer’s interest in and excitement for acquiring the company should increase dramatically. Put another way, “If the buyer likes a company in 2D on paper, they should like it even more in 3D when they get to meet the seller and management.”
With all of the discussion about “pitching” the buyer, the management presentation is a two-way street: the buyer also has to sell themselves to the seller. If the buyer offers the highest price and best terms, why does the buyer have to sell themselves to the seller? Price and terms are important, of course; however, most sellers want assurances that there are common values, that the buyer will perpetuate the seller’s legacy, that the buyer will take care of the employees and the company will continue to be a good place for the employees to work post-closing, and the seller and their management team will be able to work with the buyer post-closing. As such, the management presentation is a “litmus test” to determine if there is a good fit between the seller and a prospective buyer. In addition, the management presentation is a good time to understand the buyer’s acquisition and decision-making process, their source of capital, their philosophy on capitalizing acquisitions, their ability to close the sale within a reasonable timeframe, and other deal-specific matters.
In addition to the foregoing, the seller should evaluate how each buyer candidate handles themselves during the management presentation. Did the decision makers attend the meeting? Were they engaged in the discussion or were they checking their email every five minutes? Did they come prepared with informed questions? Were they prepared to address obvious questions that the seller would ask? All of these questions provide insight into the buyer’s actual level of interest in the acquisition opportunity.
Even if each meeting goes well, sellers should not feel bad if a few buyers drop out along the way. Buyers do not necessarily drop out because they do not like the acquisition opportunity; other opportunities may arise that are a better fit or a higher priority. In short, sellers should not be offended if a buyer with whom they have invested considerable time does not submit an LOI. That just suggests that they were not the right buyer.
At the end of the day, the management presentation is about building rapport between the seller and buyer candidates, increasing the buyer’s knowledge of the company, and creating the case for each buyer to submit an aggressive LOI. In sum, the management presentation is a great forum to break the ice between the seller and potential buyers and enable both parties to make an informed decision about their interest in moving forward with the transaction.
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