M&A Selling Memorandum

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 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 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 that 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

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.

Here is a link to the actual Press Release, Yahoo Finance.

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

Business Appraisal or Investment Bank?

Small Business Appraisals: Should You Just Hire an Investment Bank Instead?

How much is my company worth? Every business owner should be asking this question! Business owners usually plan to sell their company eventually, and understanding the business’ actual value is absolutely critical to planning a retirement strategy.

There are many valuation services that cater to small, privately-owned companies. These services can cost up to US$50,000 and will use a multitude of valuation techniques. The end product is an intricately detailed report that attempts to determine the intrinsic value of the company. Yet when it comes to selling a company, such services always overlook one important fact. At the end of the day, the most important determinant in a seller’s price is how much the buyer is actually willing to pay. Appraisals can be useful for getting a ballpark estimate of your company’s worth, but complex valuation models won’t change the fact that pricing mainly depends on the buyers, especially when the company isn’t publicly traded. This is why it is so important to have the right buyer.

The only time a business owner will ever get a completely accurate valuation of his or her company is when it is finally brought to market. Even if one chooses to get the business appraised beforehand, one would still need to find real buyers afterwards. Just because a valuation report claims that your company is worth US$20 million doesn’t mean that buyers will be willing to instantly hand you US$20 million in cash. The M&A process including painstaking negotiations are still necessary to secure a strong offer, especially if you have any specific preferences on deal structure (e.g., if you want to stay with your company after the sale). Most of the time, an auction process involving multiple bidders, will maximize the value of the business, and with the right buyer, you will receive an offer higher than the initial valuation.

That’s where a boutique investment bank like Versailles Group comes in. Versailles Group has nearly three decades of experience in searching for and negotiating with buyers from around the world. By applying its expertise and experience, Versailles Group will enable you to obtain the maximum value for your business. Hopefully, this will give the business owner some insight into the question: small business appraisal or investment bank?

Since 1987, 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, which is why it has won several M&A awards. 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 buying or selling a business, please contact us for a free consultation.

Donald Grava
Founder and President
Versailles Group, Ltd.
617-449-3325

(Photo by Don Grava)

Technology Sector M&A Activity

(Please click the chart for easier reading.)

Technology Sector M&A Activity

Across all sectors, M&A activity, for the twelve months ending May 31, 2015, has increased relative to the same time period last year. Both strategic and financial buyers are completing more acquisitions because of the recovering US economy, the impending interest rate hike, and other factors. The data above illustrates the increase in M&A deal volume in the middle market.

The technology sector has accounted for most of the increase in deal volume. In the last three months (March-May 2015), there were 526 deals completed in technology services-- more than any other sector. That number is up from 477 technology services deals completed from March-May of 2014.

The need to innovate, grow, and keep pace with the changing technological landscape is fueling M&A volume in the technology sector. Technology companies are increasing their IT capabilities via M&A strategies to scale their operations, develop domain expertise, or for growth prospects.

The rationale for acquisitions in the technology sector is strong: internet data traffic is expected to triple from 2014-2019. In addition, 50% of this internet traffic is expected to come from devices other than traditional desktops. Technology companies are acquiring businesses that enable them to ensure growth through the development of new technologies or to penetrate new markets.

Whether it's a tech company or not, if you are interested in completing an M&A transaction there is no better time than now. The looming interest rate increases, possible change of political party, world events, etc. are driving people to complete deals before it's too late.

Founded in 1987, Versailles Group is an independent, middle market boutique M&A firm and offers its clients access to buyers and sellers worldwide. The firm provides its clients with a high level of personal attention coupled with over 28 years of cross-border transaction experience. Clients benefit from world-class advice, broad expertise, and flawless execution. As one of the leading middle market investment banking firms in Boston, the firm’s focus is obtaining superior results for its clients. That’s the primary reason why Versailles Group has done more repeat business than any other middle market firm. The net result for our clients is a superior transaction, whether it is on the buy or sell-side.

If you are interested in buying or selling a business, please contact us for a free consultation.

Donald Grava
Founder and President
Versailles Group, Ltd.
617-449-3325