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M&A Offering Document: Description of the Market

A company exists to sell a product and/or offer a service, so the M&A offering document should reflect careful attention to the explanation of the selling company’s customers and suppliers, and sales and order processing.

Customers and suppliers

Having products and services without customers to buy them makes no sense, so as Seller, you want to give some information about customers in the offering document. Additionally, you need to provide some detail on your vendors and suppliers; you have to get those products or raw materials from somewhere! Here are some topics to consider in this section of the offering document:

  • Who buys the company’s products/services? Because a company is a pipe dream until it has actual paying customers, Seller needs to describe its customers to Buyer. Depending on its needs, Buyer may want access to new customers or to be familiar with the customers.

  • What is the demographic of the customer? Are the customers businesses or consumers? Is this demographic growing or shrinking? What sort of macroeconomic factors affect these customers?

  • Where does Seller fit in its sales channel? An offering document should describe a company’s sales channel. Is it a supplier of raw materials, a manufacturer, a distributor, or a retailer? Does it offer a service to other companies or consumers? In other words, who does the company buy from, who does it sell to, and who do those customers sell to?

  • Does the company have any customer concentration issues?

    If a customer that accounts for a big chunk of revenue is a large company (say, Fortune 500 size), you may be able break out the specific divisions and the corresponding sales to substantially lower the concentration issue.

Sales and order processing

Products and services are wonderful. Suppliers and vendors are great, too. But all of those products, services, and raw materials don’t amount to a hill of beans without the ability to sell them. Buyers want some detail on sales information, so the offering document needs to cover the following:

  • How does the company go to market? Does it utilize a direct sales force, e-mail, Internet, other social media, catalog, and/or word of mouth?

  • Who are the key salespeople? What are their backgrounds and experience?

  • How are orders taken: phone, fax, e-mail, or in person? Does the company have a dedicated customer service department?

  • What are the company’s terms of sale? How does the company get paid: credit card, cash, check, or wire transfer?

  • What is the average transaction size?

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