The IM is the key sales document for any business for sale. It should contain the answers to many of the questions you will have regarding that business once you’ve reviewed the teaser document for it.
The following 20-point checklist will help you assess the main areas you will wish to examine, as follows:
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Directors
Age, role responsibilities, shareholding percentage / any indication that they will retain equity on sale or stay with the business longer term?
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Customers
Any reliance (over 50% of turnover) on any one customer ? / Is there a good spread across a range of customers? Also, any geographic focus or reliance? / are there any long-term contracts in place for the supply of the company’s products or services?
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Suppliers
Ideally, a broad spread, possibly different ones for different products purchased.
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EBITDA
What is the trend? Any one-off poor performance years or even loss-making years?
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Add-backs to profit to derive EBITDA
Any “unusual” add-backs or any particularly large items?
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Balance sheet
What is the level of net asset value? / are stocks or debtors particularly high in relation to turnover? / is there a high cash balance?
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Reasons for sale
Retirement / ill health / other?
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Future opportunities for growth
Do these seem realistic given the position of the business now? / are there opportunities for expansion into other areas?
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Staff
How many? / what roles do the key people perform? / how long have they been in the business? /Any obvious gaps in functional areas? / do any of them own shares, and if so, will they be keen to increase their shareholding? If they don’t currently own shares, are they keen to do so given an opportunity to invest?
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Valuation
Any indication of expected value? – This is highly unlikely to be stated at this point, but there are some circumstances where it might be.
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Property
Owned or leased? If owned, is it owned by the company or by the Directors in their pension? If owned in a pension, is the rent being charged to the business at a commercial level / If owned, has a valuation been undertaken recently?
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Intellectual property
Is there any? If so, how is it protected?
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Unique Selling Points
Are there any discernible USPs? Is it protected in any way?
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E-commerce
Does the business utilise an e-commerce platform? If so, what percentage of turnover is generated from this source? / Is there potential to expand this?
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Capital equipment
Does the business utilise a high level of capital equipment? If so, does this need regular maintenance or replacement, and what are the costs associated with this?
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Location
Is this convenient for you personally?
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How long established
Over 10 years? Does the business have a commanding position in the market?
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Sales and marketing
Does the company have a dedicated person in this role?
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Financial and management information
Is this produced internally, and if so, how regularly? Or is it reliant on its external accountants?
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Systems, processes and controls
What is in place to control day-to-day operations across all functional areas?
Meeting the Owners After Reviewing the Information Memorandum
The IM is intended to be a very thorough summary of the business in question, but it is not the absolute picture.
The owners might wish to keep confidential some facets for obvious reasons, and therefore, an initial call/meeting with the owners is the next step after reviewing the IM fully.