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Creating the ideal IM – Or securing a buyer’s interest with the story of your business

Are you considering your options for a sale or looking for investors? To attract the ideal buyer you’ll need to tell your business’s story in a way that arrests their attention and fuels their interest. Firebird Director, Safia Bhutta, shares her tips to create maximum appeal through your Information Memorandum (IM).

"Every business has a story of its own"

When you’re an owner – and passionate about your company – it can be hard to step back and clearly see what’s attractive about your business to outsiders. One helpful way to find focus is to think about your business’s story. This is the approach that growth specialists like Firebird take when preparing a business for a sale or investment, and it’s an approach that has found our clients a lot of success.

Profit and loss: the skeleton of the narrative

Every business has a story of its own and it’s this story which will ultimately become your Information Memorandum, otherwise known as an IM; the key document that buyers want to see – based on which they will ultimately decide whether to made an offer, and for how much.

The numbers behind your business are the skeleton of this narrative, with profit and loss (P&L) being your underlying structure or plot. Go back three to four years, and P&L alone can tell you a lot about the nature of that business, and how it has changed over time. It can illustrate whether or not a company is high-growth, low margin; whether the overheads are lean or heavy. You can then build commentary around the numbers to highlight strengths and opportunities of the business. (A large staffing overhead might mean you are already primed for growth; low margin suggests opportunities for potential buyers.)

External factors will also show themselves in P&L, the Covid-19 pandemic being an obvious one. Similarly, other one-off events will have impacts that can be read in the figures, allowing outsiders to better understand the company’s recent history.

Working alone vs. working with others

"Most business owners are unlikely to have time for such an intricate, in-depth task"

Combine this “hard” data with “soft” information – such as customer feedback, the products being sold, your general ambitions for the business, etc – and the story will begin to come to life for those who want to read it.

The process of telling this story – and putting an IM together – can in theory be done by owners themselves. In reality, (a) most business owners are unlikely to have the time for such an intricate, in-depth task, and (b) a fresh pair of eyes is always invaluable. Even Charles Dickens sought editors, after all.

If you are a business owner and feel you do have time to take this on, I recommend at least speaking with a friend or someone you can trust with confidential information; someone who is not otherwise involved or invested in your business. A more tried and tested option would be finding an expert adviser who fully knows the ins and outs of IM-writing and pitching – and who, through their connections and insider knowledge, is likely to earn you more money in the long-run than it would cost to engage them.

The chapters of IM creation

"Right at the start, your adviser should set expectations"

If you choose to use an expert consultancy like Firebird to shape your business story, the following process is what you can expect an IM to involve:

  1. Talking with your adviser. Right at the start, your adviser should set expectations for the sale/merger/acquisition, give you a good sense of who they are – and whether their approach is compatible with your business. When you’re happy, they can then set wheels in motion for…

  2. Making an information request. This will come from your adviser or their wider team and will be a detailed request to consult your records on every aspect of the business, including financial data, marketing data, demographic data, commercial data, and so on. There will perhaps be 50-100 points of information that they will want to upload to a data room to enable in-depth reviews and analysis.

  3. Considering the data: first look. Before all the detailed data comes back, your adviser should want to meet for an initial conversation once they have had a first look at the fundamentals. They will want to make sure what they understand from that foundational data is in line with your understanding.

  4. Drawing up a model. Alongside your adviser, and working off the numbers, an accountant will begin independently working on the IM. They will draw up a fool-proof financial forecast of how the business is likely to grow depending on certain parameters, and assumptions gleaned from discussions with you as the owner. This model could be detailed or very simple; it depends on how complex your business is.

  5. Creating the IM and presentation. It is time for your adviser to start shaping the IM document itself, as well as a presentation that can be shared in meetings with prospective buyers. Both elements will ultimately be highly polished, with engaging graphics and a structure that smoothly tells the business’s story – from the founding stages to where it is now, and what is likely to come next. It will encompass information about product, marketing, demographics, competition, and the market you are in. It will also discuss strategic opportunities, challenges, and other specific details unique to your business that need explanation.

  6. Refining the IM and presentation: final review. At this point owners should be invited to review and comment on the IM so far. A slimmed-down version might also be created at this stage, for use as a quick pitch in meetings.

More than just words

"Businesses must be able to prove what they're claiming"

In my experience, and that of my fellow Directors at Firebird, the most effective IMs tell a story that presents all the key details without going overboard. One that highlights what is relevant, without weighing down its readers with extraneous information. Conversely, we sometimes see IMs with almost nothing to them; they are so light as to be pointless. Potential investors will want something solid; a document of substance that reassures them your business is viable.

On which note, an important point around the data itself – a subject that Firebird Founder Stewart Lambert has written extensively about in previous blogs. Writing an IM without comprehensive financial data – without the nuts and bolts of P&L – will not give you a story that investors want to buy in to. Imagine a physicist producing a brilliant hypothesis. If they don’t have the maths to back that up, all they have are words.

Or, to put it another way, businesses must be able to prove what they’re claiming.

Preparing for the next chapter

"A business does not need to be perfect in order to be saleable"

Another important concept to grasp – and one which can save owners a lot of anguish – is that a business does not need to be perfect in order to be saleable. In fact, perfection might even work against you. Obviously your story should be attractive, but that does not necessarily mean that everything is working in the best way it possibly can.

Your buyers will want room to take the business in the direction they envisage for it. They will want to see space for more growth, or to take dividends; to find the low-hanging fruit that you have left. After all, if all the opportunities for a business have been exhausted, it may stagnate.

Instead, the job of an IM is partly to shine a light on the potential that the next owners can unlock. Show them with your story that your exit will not be the end. Far from it. Instead, you are making room for a new author; the right person ready to write your business’s next exciting chapter.

Safia Bhutta is a Director of the Firebird Partnership, specialising in marketing, sales and commercial strategy – from pricing to product planning, margin analysis and yield management. Since joining Firebird, she has also become involved in M&A: working with companies to formulate and present their story, and preparing them to pitch to potential buyers and/or investors.

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