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What is an Offering Memorandum?

Business owners who are considering selling their businesses within the next 5 years should become acquainted with the Offering Memorandum.

The Offering Memorandum (OM), also known by other industry names, is a data rich marketing document designed to highlight your company’s positive attributes to a prospective buyer. Businesses are rarely sold without the exchange and review of the OM or a version of it.  It tends to include sensitive information and should be shared with interested parties only after a non-disclosure agreement (NDA) is signed. The OM ultimately helps prospective buyers decide whether to forgo an opportunity or pursue the purchase further.

The OM can easily range from 5 to 60+ pages depending on the company’s size and business’ complexities. It can take a considerable amount of time, focus, resources and help from your team of advisors to complete. Most Business Exit advisors and Merger & Acquisition advisors could help you complete this document. Often those advisors will also provide a thorough evaluation of your company and incorporate the most pertinent data into the OM.

The information in the Offering Memorandum can vary greatly, but generally includes the following areas:

  • Overview or Executive Summary
  • Business Description
  • Products/Services
  • Market Conditions
  • Management Teams Description and/or compensations
  • Assets
  • Customer Demographic
  • Geographic Region
  • Operations and Financial Review
  • Financial Projections

In most cases the OM includes pictures and graphs to grab the reader’s interest further. Some companies may also choose to have different versions of the OM highlighting the needs and targeting different potential buyers. Strategic buyers and Financial buyers evaluate acquisitions differently and different versions could highlight what these buyers are looking for and how the particular company can meet their needs.

Normally, the OM does not include the price tag because the parties reserve the right to discuss this when further interest in the business is confirmed. The OM is also not legally binding and serves merely as an introduction of the company to potential buyers. Once a prospective buyer reviews the OM and decides to proceed with the acquisition, a Letter or Interest (LOI) is created by him/her as the next step. This letter describes the buyers’ intentions for the purchase and includes their proposed value, the terms and any other conditions and considerations they may have.

Finally, business owners should consider creating an OM even if they do not plan on selling in the near future. Business owners receive calls or visits from prospective buyers on a regular basis. Unfortunately, most are not prepared for that conversation and posses limited information to share with them. Furthermore, in the case of emergency situations (health, family matters or finances) where owners may have to sell quickly, a prepared OM could help streamline the process and establish the business’ value proposition. The last thing you want is to rely simply on financial statements and tax returns. Most owners don’t maximize the business’ earnings on a tax return.

Once you create an OM it can also serve as a document to measure your progress towards building business value. Updating it on a regular basis can also help your team measure how they are doing with each of the value drivers. If you do nothing else, we advise creating a simple OM and updating it every couple of years. Remember, you never know when the phone is going to ring…

For an Offer Memorandum sample please check our Forms & Checklist section or click here