Qualitative Analysis
May 3, 2024
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This guide is designed to walk a seller through the process of writing a teaser. A teaser is an important document in M&A transactions and will be the “first look” that potential buyers get at your business. To begin with, here are some key takeaways about teasers in M&A:
Here is a brief introduction to teasers in M&A. To learn more about what teasers are and how they are used in M&A, we recommend this guide.
A teaser is a short, one- or two-slide document intended to “advertise” a business for sale to potential buyers. It is prepared by the seller (normally by their M&A advisor), for potential buyers.
The teaser gives potential buyers a high-level overview of your business and gets them to see the potential value in acquiring it. Teasers are designed to “show off” some highlights about your company, while keeping its identity a secret.
Confidentiality is a big issue for sellers in M&A transactions and keeping the fact that the business is for sale a secret is important.
Teasers are normally distributed by investment banks or M&A firms, acting as intermediaries between the seller and potential buyers.
This guide focuses specifically on how to write a good teaser (the seller’s perspective). To learn more about teasers and their use in the M&A process, we recommend our guide: What is a Teaser?
For most business owners, the idea of sitting down to write a teaser will seem like an intimidating task. Before you start to write, there are a few things to figure out. Here are three things to give consideration to before you start writing your teaser:
Before anything else, a business owner should get clear on their reasons for selling. This will find its way onto the teaser later on, but at this stage the point is to get clarity in your own mind. Are you looking to sell as an exit strategy? Are you looking to take on an equity partner that can help grow your business with you? Are you looking to sell part or all of your company? Try and get clear on why this makes sense for you personally as well as the business case for it.
The second thing to consider is what you are trying to accomplish with this document. The teaser is an important document in M&A deals, but it has its place. The teaser is not designed to close the deal, it comes into play early on in the M&A process and what you are trying to accomplish is simply to get the prospective buyer to want to progress to the next stage in the process. You can learn more about the M&A process here.
The purpose of a teaser is to peak the interest of a potential buyer, show them that your company is valuable, and get them to request more information.
To accomplish this, you want to think about who your company would be a good fit for. The third thing to give consideration to is what an ideal buyer may look like. In M&A transactions, buyers are typically grouped into two categories: financial and strategic buyers. Financial buyers are professional investment firms that aim to buy businesses and sell them at a profit later on (usually five to ten years later). They use a large amount of leverage (debt) to finance an M&A deal and therefore are concerned with a business’ present cash flow. Financial buyers are typically non-operators and normally look to grow a business through a capital investment, or through implementing professional management strategies. Strategic buyers are other companies that are looking to improve their core business through M&A deals. They are looking for buyout targets that help them achieve cost savings, or give them opportunities to grow revenue. To learn more about financial vs strategic buyers, we recommend this guide.
There is also another classification of buyer for small businesses. Individual investors may be interested in purchasing a business doing six or low-seven figures as an alternative to a job. If your business is small you would want to give consideration to what the new owners role would be in the day-to-day running of the business.
By thinking through who may be an ideal buyer for your business, it may strike you as obvious that your company is a perfect fit for a specific type of buyer. If so, you will want to keep this buyer’s perspective in mind when you sit down to write the teaser. If not, there is value in thinking through why a potential buyer of any type would be interested in your business. The goal of this teaser is to present your company as valuable to buyers and show it off in its best light. Understanding the perspective of potential buyers is an important element of this.
Fourth, you want the teaser to incite the prospective buyer to take action and actually request more information about your business. Remember, with this document, the purpose is to grab the attention of a prospective buyer, to get them to see the potential value in your business, and to get them to take the next step. The next step in the process for an interested buyer (after reviewing a teaser), would be to sign a non-disclosure agreement. We will cover the issue of confidentiality more below. Normally, the seller has prepared an NDA in advance, reflective of their needs. Sometimes, the prospective buyer will respond by drafting their own NDA and there will be some back and forth about what to include, handled through the intermediary. The intermediary is normally an M&A firm or an investment bank, but may also be a business broker. Most of what determines the type of intermediary used here is the size of the seller’s business.
It’s worth noting that prospective buyers don’t like signing NDA’s without good reason, as this opens them up to unnecessary litigation. So, give them a good reason to want more information.
Here, we will look at what to actually include in a teaser. Remember, a teaser should be a one- or two-slide document giving key high-level insights about your company. This is not the forum for conveying every little detail about your business. Here are five sections to include in your teaser:
Company Overview – This will be a short description of your company, letting potential buyers know what you do. Here, you should explain what products/services your company sells and what industry you are in. Acquirers should understand who your customers are and how your business makes money. You should also state where your business is geographically located. Some acquiring businesses are looking to make deals in specific regions, or in order to gain access to new/different markets. You should state when your company was founded so buyers know how long you have been around.
Financial Overview - Normally a teaser would include a chart showing revenue and EBITDA over the past several years (at least 3, but preferably 5) so that acquiring businesses can see growth trajectory. In addition to these financials, normally a business will show projections for future growth for the next two years out. This section is important because some buyers focus their search for target companies based on revenue ranges.
Investment Highlights – This part will include a few points highlighting the benefits of acquiring this company. What is the acquirer buying in this transaction? Use this section to preset your company in the best light possible. A market leader in a regional market? Patents? Cutting-edge R&D? Recurring revenue streams? An impressive number of enterprise clients? Use this section to show prospective buyers what they “get” when they buy your business.
Organizational Structure – A big reason that acquiring businesses pass on deals, or structure compensation as earnouts is that the founders are inextricably linked to the business. Use this section to highlight your team, their compensation, key management, and highlight that these people will be staying on after the transaction. Do not give team member names here. The goal in this section is to show prospective buyers that your business is run by your team, not by you exclusively.
Deal Structure – What kind of deal are you looking for. We covered part of this above, but this section should highlight what you are looking for in terms of a deal. Are you looking to sell all of your company as an exit strategy? Are you looking to sell part of your company? Explain your rationale for selling here.
Here are some additional considerations when writing a teaser. The two additional considerations we want to highlight when it comes to writing a teaser are integrity and confidentiality.
It’s important to prepare this teaser with the highest degree of integrity. There is no weaker way to start a negotiation than by willingly and knowingly deceiving the other party. There is really no upside potential to this and any savvy buyer will figure it out in the due diligence phase anyway. There is a wide, common-sense line drawn between wanting to showoff your company in the best light and trying to mislead the other party.
To better understand this, think of your resume. You design your resume to present you and your career experience in the absolute best possible way you can—but you don’t lie and say you worked at places you didn’t. The teaser is expected to present your company in the best way possible, it’s not supposed to mislead someone into thinking your business is something it isn’t.
Confidentiality is also a huge issue in M&A deals. Normally the seller is the most concerned with confidentiality during this process. You can learn more about the rationale behind wanting to keep your identity a secret in our companion guide: What is a teaser?
Here, we’ll give some practical tips for actually writing the teaser to protect your identity.
First, remember that this document will not mention your personal name, company name, brand, product/service names, website, or list your contact information. It’s designed to keep your identity anonymous.
Second, don’t take any language or copy from your company’s website. There are ways that companies can search the contents of the teaser and see if anything pops up in search engines. A simple way to do this is with any online plagiarism checker (ie. copyscape.com). This will return a match to your company’s website if you have used your exact wording in your teaser. Before you hand this document over, it is beneficial to run your text through this tool yourself, just to prove to yourself that no matches come up.
Third, while it may sound like common sense, avoid using your company name in the filename you save the teaser under. Additionally, avoid using your companies initials in the file name too, as a prospective buyer may still be able to discern your identity given information about your size, location, industry, or other information revealed in the teaser.
Fourth, another large consideration for maintaining confidentiality at this stage in the M&A process is the number of prospective buyers that learn your identity. For context, remember that when prospective buyers see this teaser, the ones that are interested will sign an NDA. Regardless of this, word still has a way of slipping out and you will want to take precautions not to reveal your identity to too many buyers.
Remember that these buyers have employees, and an entire deal team will be reviewing your company’s information. It’s not just one person at every company. From a confidentiality standpoint, there are more moving parts than that. The fine line is to show the document to enough people that you can reasonably secure a few offers, without revealing your identity to too many other prospective buyers unnecessarily. You want to make sure that you get more than one buyer to make an offer on your business because the competition will drive the price up.
The trick is not to overdo it.
This may sound like a vague statement, but the better your business is, and the more specific you can be when narrowing your list of potential buyers, the fewer you will need to show this to. If your business is growing fast, is extremely profitable, and you dominate a niche market that is part of a larger market with three large strategic buyers in it—you may only need to get those three buyers interested to get multiple offers on your business. This number will be different and unique to each business for sale, depending on many variables including the size of the business, how niched it is, how profitable it is, how channel dependent revenue is, how important the founders are, how desirable the industry is, etc. As a general rule of thumb, try to limit this to between 10 and 25 businesses that sign an NDA, max.
Business owners should always seek out professional representation to assist them with the sale of their business. In almost every case the M&A advisor or investment banker working with the seller will write this document for them.
