When a company is being sold, the investment banker will solicit indications of interest from prospective purchasers. Those submitting the most attractive IOIs will be invited to meet the management team and tour the facilities. After this, each buyer will submit a formal letter of intent, from which the finalist will be selected.
The matter in which these meetings and tours are handled is critical. Besides comparing the management team’s answers against the confidential information memorandum and online data room, the buyer will be judging whether the individuals seem committed, trustworthy, upbeat and collaborative. It all has to click.
We suggest a buyer-seller dinner the night before the management presentation. Set in a restaurant or club’s private room, this allows everybody to get acquainted on an informal basis. A few tips:
1. Turn off the music in the room.
2. Set up the hors d’oeuvres and wine/beverages ahead of time.
3. Pre-order the meals or have the attendees order as soon as they arrive.
4. Arrange the seats around a single large table.
5. Seat the “right” people next to each other.
6. Instruct the wait staff to keep things moving briskly and quietly.
Once everybody is seated, the investment banker or seller’s CEO should formally welcome the buyer and introduce everybody. Likewise, the IB or CEO should wrap up and thank everybody at the conclusion of the dinner.
If there is a facility tour, it should happen before the management presentation takes place because what the prospective buyer sees will spark informed questions. To avoid disruptive rumors, sometimes we hold the facility tours after hours. If the tour must happen during the day, the visitors should not overdress or interact with employees. They should be identified as customers, lenders, insurance brokers or other likely candidates for a tour.
The management presentation should then be held in a nearby hotel or club. The materials should closely follow the CIM, boiling it down to presentation format. The manager who will run the business going forward should lead the presentation. Unless absolutely necessary, nobody (IB, controlling shareholder or past CEO) should interrupt or contradict the management team, as this could undermine their credibility. Lastly, the buyer should be encouraged to ask questions as the presentation proceeds, rather than waiting until the end. If management does not know the answer to a question, they should just promise to respond after the fact … and then do so.
The management team’s members are specialized at engineering, manufacturing, software, accounting, etc., not at giving management presentations. That is why they, coached by the IB and/or a consultant, should recall Jack Benny’s joke about the person who asked, “How do you get to Carnegie Hall?” Jack’s response, “Practice, practice, practice!” There is no substitute for management practice to make these presentations successful.
One final tip: The management presentations should be structured in a way in which the first visiting buyers are the ones least likely to be the eventual winner. That way the management team will be able to “practice” with the low-priority buyers. Buyers know this tactic, so never inform them where they fit in the schedule.
Mark A. Filippell is Managing director at Citizens Capital Markets.
