M&A Offering Document: Recurring Revenue and Customer Concentration
What is an M&A Deal Book?
Valuation Range and Seller’s Debt in an M&A Indication of Interest

Income Statements in an M&A Offering Document

As a Seller, you want to present the numbers in your M&A offering document in the best light possible. Buyers don’t want to have to do any interpretation, so your numbers should be explained in the financial section of the offering document.

Losses on the books

Companies with losses sometimes keep those losses on the books, applying those net-operating losses (NOLs) against future earnings and thus reducing a future tax liability. Be sure to mention any NOLs in your offering document.

In years past, Buyers were able to acquire entities with NOLs and use those losses to reduce their tax burdens. However, Congress has greatly restricted that ability, so Buyers will want to know of any NOLs upfront.

If you’re selling a business or attempting to buy a business with NOLs, speak with your tax advisor immediately.

Accounts receivable terms

An offering document should provide some guidance as to the selling company’s terms with accounts receivable. Specifically, does the company expect payment within 30, 45, or 60 days (or some other amount of time)? Does the company provide a discount for early payments (and if so, what)? What is the reserve policy for uncollectible accounts? How much has been written off due to bad accounts?

Fixed assets (equipment)

Fixed assets are the assets a company uses to make its product. These items run the gamut from desks, phones, and computers to vans, trucks, and delivery vehicles to heavy machinery and production equipment.

The office stuff (desk, phone, computers, and so on) probably doesn’t have much value to Buyer in terms of collateral for financing. Neither do the vehicles; they depreciate very quickly. However, the hard assets (the machinery and production equipment) often form the basis of assets that can serve as collateral to back a loan.

Inventory

Although not all companies have inventory (for example, consultancies and most business service firms), those that produce or distribute a product find that inventory is a key component for Buyer’s financing and thus an important note in the book. Inventory is considered a current asset, which means (in theory) that it should be convertible to cash within a short period of time, usually a month or less.

If you’re a Buyer, pay close attention to inventory. Is it all sellable? If the Seller has been building up inventory with unsellable or slow-moving stock, you may not be able to utilize 100 percent of the inventory to help with financing the acquisition.

Intangible assets

An offering document should have a listing of all intangible assets. Intangible assets include brand names, patents, trademarks, and Internet domain names — items whose value you can’t easily measure.

These assets don’t usually help Buyer finance the deal, but they can still be valuable: Household names such as Apple, Exxon, and Walmart (and even smaller-market companies that are less widely known but still prestigious within their market segments) all have intangible value simply because their names are so well known.

If Seller doesn’t want to include some of these intangibles in the deal (perhaps she wants to retain a certain domain name that isn’t used), she needs to specify those carve-outs in the book.

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Thesis Options for an M&A Offering Document
M&A Offering Document: Financial Projections
M&A Confidentiality Advice for Buyers
M&A Offering Document: Historical Financial Information
Sections in the M&A Letter of Intent
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