M&A Selling or Offering Memorandum

When selling a business, it is important to think about the best way to present the business to potential buyers.  A key step is to make sure that the presentations and documents that are used are tailored to the audience, i.e., the buyers or investors.  An M&A Selling Memorandum that goes into too many technological details, for example, will not interest potential suitors.  People who are thinking about investing money in a company will be more likely to consider a company with a document that addresses their various concerns.

The best way to inform buyers about a business that is for sale is via an M&A Selling Memorandum, which is usually called an Offering Memorandum or Confidential Information Memorandum (“CIM”).  This document should outline all of the basic information about the seller’s company, especially the unique selling points.  However, despite the fact that buyers will execute a Non-Disclosure Agreement (“NDA”) to receive the information, it is important not to give out confidential information that could be used by competitors.  Highly confidential information should be shared with the buyer during due diligence and should not be included in the selling memorandum.  At the risk of being redundant on this point, it is important to have potential buyers sign a Non-Disclosure Agreement before they receive the selling memorandum.  And, the selling memorandum should include a copyright notice, as well as a note stating that the reader is subject to the terms and conditions of the NDA.

A quality selling memorandum will answer basic questions about the company, e.g., where it’s located, who owns it, a description of the products or services, customer information, number of employees, location and cost of facilities, etc.  It will also explain why it is a good investment.  Furthermore, it will include information about the company’s history and growth potential, and explain why the business is being sold.  In conclusion, the importance of this document should not be underestimated.  It is the seller’s best chance to generate interest in the business and help buyers understand the company’s potential.

It is obviously crucial to focus on the best aspects of the business, but it is equally important not to leave out any potentially negative features.  Everything needs to be true and verifiable, and buyers will lose interest if they discover hidden problems further down the line.  Of course, there may also be benefits that are not immediately obvious from the financial information.  Revealing both the good and the bad demonstrates the benefits of purchasing the company while also demonstrating to the buyer that the seller is trustworthy and that there will not be any surprises later on.

The selling memorandum should be prepared by a well-experience M&A advisor.  This way, the seller can make sure that its selling memorandum conveys all the information a buyer will need to make an offer that will excite the seller.

Versailles Group, Ltd.

Versailles Group is a 37-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at  www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

President

617-449-3325

March 17, 2016

Importance of Due Diligence

Importance of Due Diligence

Due diligence is a critical part of any deal. However, this is not just a time for the buyer to research the seller.  It is equally important that the seller research the buyer.  If a deal falls through because of problems with the buyer performing, e.g., a lack of funding, the seller will have wasted both time and money.

Typically, due diligence is performed after a Letter of Intent (“LOI”) has been executed by both buyer and seller.  This process usually takes 30-60 days or sometimes longer if there are complicating factors.  This is a time for the buyer to ensure that the company they are buying meets the standards the seller claims it does, i.e., that it matches what is stated in the selling memorandum and subsequent management meeting(s).  If the information does not match, the buyer may negotiate a lower price, attach extra conditions to the sale, or pull out altogether.

It is in the seller’s best interest to ensure that due diligence is completed as soon as possible. Delays extend the transaction and could ruin the deal entirely.  Therefore, it is important to answer promptly any information requests from the buyer.  It is usually helpful to give the buyer access to the company’s CPA firm and attorney.  Most of the time, the selling company’s information is loaded into a virtual data room for the buyer’s review.  Sensitive documents should be coded so that they can only be reviewed, not copied or printed.  The most organized sellers set up the virtual data room before executing the LOI to save time.

Any negative information about the company should obviously not be emphasized.  At the same time, it shouldn’t be hidden.  The seller always makes a mistake when they assume the buyer won’t discover some weakness.  That’s the classical mistake of underestimating your opponent.  The seller should always assume that the buyer will discover this information during due diligence and will wonder what else the seller is hiding.  That usually slows the transaction down and results in the buyer increasing the size of the escrow or adding onerous terms to the Definitive Agreement.  Even if the information remains hidden, it will likely come out after closing, and that will cause the buyer to withhold payment of the escrow or other deferred payments based on the grounds that the business was misrepresented.  Instead, the seller should be upfront with any problems the company has and should indicate potential solutions.  A well-qualified financial advisor will know how to present this type of information.  Let’s face it, 10Ks and many other documents contain negative information that is presented in such a way that it’s not enough of a problem to dissuade someone from investing.  This is the same issue.

To avoid wasting time and before executing a LOI, it is the seller’s responsibility to make sure that the buyer has the financial wherewithal to purchase their business.  Additionally, the seller should ensure that the buyer will be able to run the business once they have purchased it.  If there are red flags, the seller should adjust the payment structure accordingly to make sure they are getting the best deal possible.  Both the buyer and the seller need to do their due diligence to make sure the transaction closes on or close to the scheduled timing.  That way, both buyer and seller achieve success, which is the ultimate goal.

Versailles Group is a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures.  Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million.  Versailles Group has closed transactions in all economic environments, literally around the world.  Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.  More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava
Founder and President
617-449-3325

March 7, 2016

M&A - Researching Potential Buyers

M&A - Researching Potential Buyers

When selling a company, it is always important to research potential buyers, even before launching the transaction.  This information can then be used to shape the seller’s strategy when preparing for the transaction.  By determining what a buyer wants to accomplish by purchasing the company, the seller can be sure to highlight the aspects of the company that will especially appeal to that buyer and other buyers.

Researching a company is not difficult and is always beneficial.  For publicly traded companies, SEC-required reports are available to the public online.  A Google search on the company, its products, and its officers will yield helpful results.  Other databases, e.g., LinkedIn and the company’s website, are also useful sources of information.

Private companies pose more of a challenge as financial data is difficult to obtain, particularly in the US.  Nevertheless, some simple research can usually give one a feel for the size of a company.  For example, if the company has three 100,000 square foot facilities, one has to reasonably assume that their revenues are substantial.  Similarly, if the company has one small location, it portrays the opposite.  But one should never ignore that type of buyer.  Frequently, these companies have investors who are more than happy to put more money into the company for acquisitions.

An M&A specialist can also ask questions of the buyer and of others in the industry.  Finding out what businesses the buyer has purchased in the past, how they purchased them, their criteria for this particular purchase decision, and what they are looking for in a potential transaction are just a few questions that can be posed to find out more about the buyer.  Besides just gaining information, this can have the added benefit of determining if the buyer would be serious in making an acquisition.  A buyer with answers to these questions is more likely to be actually looking to make an acquisition whereas a buyer who does not have answers is probably just shopping around and will be unlikely to make an offer.

Properly researching buyers has no downside; at the very least, knowing more about the buyer will make the transaction go more smoothly.  Furthermore, it may increase the chances of closing the deal and potentially even increase the valuation.  Thus, there is no such thing as knowing too much about a buyer.

Versailles Group, a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million. Versailles Group has closed transactions in all economic environments, literally around the world. Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava
Founder and President
617-449-3325

February 28, 2016

Middle market M&A activity, as measured by volume, was the lowest that it has been in 10 years.  By value, M&A activity in January was the lowest since 2009. 

There are many theories about why this is happening, for example, a volatile stock market, declining energy prices, rising interest rates, the slowing of China’s economy, and uncertainty caused by the US election process.  We would not deem this to be a trend unless we see this continue for a few months.

For sellers, multiples seem to be dodging this lower level of activity.  And, in the lower middle market, that is, companies with less than US$100 million in revenues, there seems to be plenty of interest, activity, and definitely no degradation of multiples.

As we’ve all noted, the Fed may not be able to raise interest rates, energy prices can’t fall much more, and an election won’t stop people from completing synergistic or opportunistic transactions.  Thus, there are plenty of good opportunities on both the sell and buy side.

If you’re interested in completing a transaction in 2016, either buy-side or sell-side, now is a good time to explore and develop objectives.

For over 29 years, Versailles Group's skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million.  Versailles Group has closed transactions in all economic environments, literally around the world.  

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.

If you are interested in discussing your M&A objectives, please do not hesitate to contact me. 

Sincerely yours,

Donald Grava
Founder and President
617-449-3325 (Direct)

Value And The Sale of Your Business

When considering the sale of a business, it is very easy for a business owner to be pessimistic about its value.  This is definitely a mistake, particularly because it can cause a potential seller to miss out on potential opportunities.

It may be ironic that I founded an M&A boutique firm to help people sell businesses; however, my own father, when I was young, who owned a small chain of variety stores, decided to close the business rather than sell it.  He sincerely believed that no buyers would be interested.  Mind you, he didn’t test that theory; however, he thought he was right.

A business owner should never assume that his or her business is too small to be of interest to a large company.  It is important to remember that there is a difference between the financial value as portrayed by the financial statements and the market value.  The market value includes more than just how much the company is worth monetarily.  It includes the value of intangible assets like customer base, distribution network, location, having a unique service or product, having loyal customers, and having name recognition along with steady growth and profits.  These and other factors always contribute to a company’s value but are not always easily quantifiable.

Additionally, just because a company has mediocre recent financial results does not mean it will not sell.  Buyers will look at the future of the company and make an assessment of its potential.  This is especially true when the economy is in a down cycle.  It is also important for the seller to accurately analyze the business’ true financial position, marketability, and potential.  A good M&A advisor will know how to do this quickly and accurately.

For a company with modest financial results, it is important not to oversell the company, as buyers may pull out if they feel the results are unsustainable or the revenue and profit projections are unrealistic.  When pursuing the sale of a company, one must strike a balance between underselling the company and missing out on potential buyers, and overselling it and scaring off or losing potential buyers during the sales process.  Once again, a good M&A advisor can help strike the necessary balance.  The advisor can also provide value-added by finding the “right” buyer who will understand the value and potential of the company for sale.

Versailles Group, a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million. Versailles Group has closed transactions in all economic environments, literally around the world. Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava
Founder and President
617-449-3325

The M&A Value of a Customer List

With regard to M&A, what is the value of a customer list?

The most obvious step to take when growing a company is to acquire more business by adding customers. To many, it would seem like the larger the customer base, the better your company will look to potential buyers. However, it is important not to fall into the trap of taking on any and all customers that come your way. In the long run, having too many customers could be a strain on the company’s resources and profitability. The goal is to build and maintain a customer list that will add value to your company when you sell it.

When starting a business, it seems sensible to take on any and all clients. It is critical that one not maintain that attitude, though. While this is a great way to build a large customer base, it frequently results in a situation where each customer will only be generating a small percentage of the company’s income. On top of that, marketing and servicing a diverse set of customers is expensive and could have a negative impact on the company’s profitability. At the end of the day, the best strategy is to eliminate low margin customers. It can also be tempting to do things like take on both commercial and federal contracts to broaden your customer list. Depending on the product or service, this could be a mistake. Some buyers will not want to acquire a company with multiple types of contracts and customers with divergent goals and views of the world. Usually, it is more effective to choose one type of customer and work on developing and maintaining those customer relationships. It’s also more profitable, which will drive the valuation more than just a large list of customers.

Specifically, having a large customer list is not necessarily what will make your company appealing to potential buyers. Instead, one should work on developing long-lasting, large client relationships with clients that have shared needs and characteristics. Ultimately, having a smaller number of loyal customers will give your company a higher value in the eyes of prospective buyers. To be clear, profitability per customer is important. It’s also very important to avoid customer concentration, i.e., having one customer account for more than five or ten percent of total revenues. Thus, if your company doesn’t have customer concentration, has long term customers with steady contracts, and they provide above average profits for the company, you’ll have a very marketable company that will generate a high valuation.

Versailles Group, a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million. Versailles Group has closed transactions in all economic environments, literally around the world. Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava
Founder and President
617-449-3325

Versailles Group is pleased to announce that Data Translation (www.datatranslation.com), with operations in the U.S. and Germany, has been acquired by Measurement Computing, a subsidiary of National Instruments (www.ni.com) (NasdaqGS: NATI).  Versailles Group acted as exclusive financial advisor to Data Translation.

The text of the Press Release is listed below for your convenience.

BOSTON, Nov. 13, 2015 /PRNewswire-iReach/ -- Versailles Group, Ltd. (www.versaillesgroup.com) announced today that Data Translation (www.datatranslation.com), with operations in the U.S. and Germany, has been acquired by Measurement Computing, a subsidiary of National Instruments (www.ni.com) (NasdaqGS: NATI). Versailles Group acted as exclusive financial advisor to Data Translation. Terms were not disclosed. The transaction closed on Nov. 10.

Photo - http://photos.prnewswirCome.com/prnh/20151112/286929LOGO

Versailles Group, a 28-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures, advised Data Translation on the transaction. Versailles Group works with companies in the U.S., Europe, Canada, Asia, and South America.

Data Translation ("DT"), founded in 1973 and headquartered in Marlboro, Mass., is a leading designer, manufacturer, and provider of data acquisition solutions for the test and measurement marketplace. With expertise in the design of high-accuracy, high-quality hardware and application software, DT partners with end users and OEMs to achieve their test and measurement goals. The company offers modules compatible with USB, LXI, PCI, and Ethernet and the supporting application software. Popular applications for the products include sound and vibration, temperature measurement, strain and bridge-based measurement, and voltage measurement, among others.

"The sale of DT fulfilled the primary shareholders' desire for a liquidity event." said Donald Grava, Versailles Group's founder and president.  By using Versailles Group's worldwide approach to finding the right buyer, DT was sold to Measurement Computing ("MCC"), a NI subsidiary. Fred Molinari, Founder of DT, said, "By joining MCC, our customers will benefit from an enhanced product offering, continued support of existing products, and the resources to build on over 40 years as an innovator in data acquisition."

About MCC

Measurement Computing (www.mccdaq.com) designs and manufactures data acquisition devices that are easy to use, easy to integrate, and easy to support. Included software options are extensive and provided for both programmers and non-programmers. Free technical support, limited lifetime warranties, and low cost of ownership make Measurement Computing the easiest choice for data acquisition. 

About NI

Since 1976, NI (www.ni.com) has made it possible for engineers and scientists to solve the world's greatest engineering challenges with powerful platform-based systems that accelerate productivity and drive rapid innovation. Customers from a wide variety of industries – from healthcare to automotive and from consumer electronics to particle physics – use NI's integrated hardware and software platform to improve the world we live in.

About Versailles Group, Ltd.

Versailles Group, Ltd. is a Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures. It provides its clients with a high level of personal attention, international experience, and professional execution. Since 1987, Versailles Group's skill, flexibility, and experience have enabled it to successfully close transactions, both domestically and internationally, in all economic environments. More information on Versailles Group can be found on its website, www.versaillesgroup.com.

Media Contact: Donald Grava, Versailles Group, Ltd., 617-449-3325

Why should you sell your business to an overseas buyer?

Why should you sell your business to an overseas buyer?

If you’re an entrepreneur interested in selling your business, it is now more important than ever to consider overseas buyers. Due to the progressive globalization of the world economy virtually any company interested in M&A stands to gain from participating in the international market, regardless of that company’s size.

For overseas buyers, acquiring an American business is often an attractive option because it allows them easy and strategic access into the lucrative American market. International buyers might also want to acquire an American company because they consider the United States to be a relative safe haven from more volatile foreign markets. Buyers may even be motivated by the desire to gain an investment visa through such a transaction.

The high demand among overseas buyers plays directly into the favor of the sellers. When it comes to selling your business, the more options you have, the better. For instance, you could sell your company to an overseas party if no domestic parties make a reasonable offer. In another scenario, the presence of a possible overseas buyer(s) for your company could even spur other prospective buyers to make more aggressive bids and pushing an auction to even greater heights for valuations.

This is the primary reason why all American entrepreneurs should keep overseas buyers in mind. The international market will open new doors for both you and your company. For instance, say that you’re trying to sell your company to domestic buyers, and your best offer is US $20 million. If you’ve only bothered to search domestically, you’ll have no choice but to accept that offer. However, imagine that you had searched for buyers in the international market as well. Perhaps you would’ve found a buyer in Brazil also willing to pay US $20 million, forcing your American buyer to increase its bid to $22 million. Or maybe you would’ve found a buyer in South Africa willing to pay US $30 million! It has certainly happened before, and it can certainly happen again.

Versailles Group, a 28-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million. Versailles Group has closed transactions in all economic environments, literally around the world. Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava
Founder and President
617-449-3325

Selling your business when a lease is involved

Selling your business when a lease is involved

Most businesses rent commercial space where they operate their office, warehouse, manufacturing plant, retail space, etc. Therefore, it’s important to address the issue of selling your business when a lease is involved.

If you rent space for your business and are considering an M&A transaction, you should be aware of the nuances involved because of the lease. The leased space and your relationship with the landlord may have an impact on your potential M&A transaction so it’s an important issue.

First, it’s important for the seller to review the lease terms. When does the lease expire and are there any options to renew. Those will be the first two questions that a prospective buyer will ask. Once the buyer gets really serious about purchasing the business, they’ll want to know if the lease is assignable. Most of the time, even without an assignment clause, lessors are happy to accept assignment because the buying company is usually larger and a better credit risk than the selling company. It’s important to give the landlord time to review the possible assignment. Many times, sellers ask the landlord to accept an assignment and expect an immediate answer. That’s unreasonable.

The other situation that comes up is when the buying company doesn’t want the space that the seller occupies. That can be tricky for the seller as they’re obligated to pay the lease whether they’re occupying the space or not. In this case, the lessee or seller should look to see if the lease includes a provision to sublet. Provided the space can be re-rented in this fashion, the cost to the seller may only be a few months’ rent. The seller should be aware that even if the space is sublet, the seller is still responsible for all of the lease terms. It should also be noted that it’s very unusual for a buyer to want to move the business immediately or even shortly after closing. That transition time is always valuable to a seller where they’re responsible for the lease.

The other situation is when the lease will expire soon and there is no option to renew. This can be dangerous to the seller because the buyer may want to keep the space in that location while the landlord may have other plans for the space. In this case, it’s important to talk with the landlord to determine if you can have an option to renew or if they’ll allow you to execute a short lease (or extend your current lease term) so that the company doesn’t have to move in a hurry. This is one of the reasons why it’s important to have a good relationship with your landlord.

As part of Versailles Group’s M&A advisory services, we have assisted many clients in negotiating with the landlords or the acquiring company to make the lease issue a non-issue so that our clients could have a successful closing. Selling a business when a lease is involved doesn’t have to be complex; however, it’s an important issue that has to be addressed.

Versailles Group, a 28-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million. Versailles Group has closed transactions in all economic environments, literally around the world. Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact
Donald Grava
Founder and President
617-449-3325

Versailles Group Named Global Mid-Market M&A Advisory Firm of the Year

Versailles Group Named Global Mid-Market M&A Advisory Firm of the Year

Versailles Group is pleased to announce that it was named Global Mid-Market M&A Advisory Firm of the Year by Corporate LiveWire. Last year, Versailles Group was named Financial Adviser of the Year for the successful sale of Photon Technology International to Horiba. Over the years, Versailles Group has won numerous awards for excellence in M&A advisory.

The text of the Press Release is listed below for your convenience.

BOSTON, Jul. 6, 2015 /PRNewswire-iReach/ -- Versailles Group, Ltd. has been named by Corporate LiveWire the winner of its "Global Mid-Market M&A Advisory Firm" award for 2015. The award is based on deal making over the past 12 months.

Corporate LiveWire's Mergers & Acquisitions Awards 2015 celebrates the achievements of dealmakers, management teams, financiers, and professional advisors who, over the past 12 months, have demonstrated excellence in their deal making. Versailles Group won this award due to its ability to consistently and successfully close transactions with exceptional results.

"The standard of competition has been incredibly tough this year," said Leah Jones, awards director of the 2015 M&A Awards. "Our judging panel spent countless hours deliberating before reaching its conclusion. Each chosen winner truly deserves to be presented with an award, and we wish all winners continued success over the coming years."

The judging panel at Corporate LiveWire placed each shortlisted candidate under intense scrutiny, setting its sights firmly on the most impressive performance over the past year. Each winner was chosen on merit and is set to play an important role in the continued economic growth.

"This recognition speaks to the strength of our team and our ability to close transactions in all economic environments anywhere in the world," said Don Grava, Versailles Group's founder and president.
About Corporate LiveWire

Corporate LiveWire is published by Fenice Media Ltd., an international publishing firm. Fenice Media offers a number of platforms for connecting its clients with an exclusive, global audience. Fenice Media's core products offer daily-updated content along with regular magazine publications that can be viewed on all digital platforms. More information on the awards can be found at http://www.corporatelivewire.com/Awards/MA2015/html5/index.html?&locale=ENG
About Versailles Group, Ltd.

Versailles Group, a 28-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group's skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million. Versailles Group has closed transactions in all economic environments, literally around the world. Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com

For more information, please contact

Donald Grava
Founder and President
617-449-3325