M&A Due Diligence & Transactions

Sell-Side Finance: Building an M&A Management Presentation

In sell-side finance, a management presentation usually represents the first in-person meeting between the seller’s management team and a group of prospective buyers who have been selected to participate in the final bidding process. It allows the management team to present a detailed view of the company and answer any questions the potential buyers may have, with the seller’s end goal being to receive Letter(s) of Intent (LOI) from the potential buyers to purchase the company.

In this blog, let’s cover how to put together the finance section of the management presentation.

Historical Financials

The finance section of the management presentation builds on the financial data that the potential buyer has already seen in the Confidential Information Memorandum (CIM). It generally starts with a recap of the historical financials as well as any updates that have occurred in the time between the completion of the CIM and the management presentation. Updates should focus on showing the impact of any new actualized financials on trended financials and the key performance indicators for the company and may point out how actuals compared to the forecast and what drove any variances, if any, at a high level.

During this section, the CFO will need to speak to the Company’s historical financial performance, the evolution of the key performance metrics and point out significant financial/strategic initiatives that occurred during this time and discuss their impact on results. This will allow potential bidders to become more comfortable with the seller’s business model.

The Forecast

The forecast, generally a 5-year outlook, is by far the most scrutinized part of the management presentation and the bidding process as a whole. The forecast must come from a detailed financial model that contains three financial statements (Income statement, Balance Sheet and Cash flow statement) and forecasts revenue and COGs at a granular level – whether it be by product type, business segment or line of business – depending on the nature of the company. The model should also forecast out operating expenses and headcount at a detailed level. These forecasts must also be accompanied by a list of assumptions used for the key drivers/ metrics and rationale for the use of such assumptions.

While it is tempting to be overly aggressive with your forecast/assumptions in an attempt to maximize your valuation, there is a fine line between being overly aggressive and unrealistic.

A good rule of thumb is: The more backup you can have for your assumptions, the better.

Whether it be a historical figure or an industry average, you want to be able to substantiate your assumptions. If you’re unable to show logical rationale for your assumptions, you run the risk of a lower valuation or having the potential buyer lose confidence in your understanding of the business and drop out of the bidding process completely.

In Summary

  • Know your historical financials. Answers to questions regarding your historical financials should come as second nature and should rarely require follow up.
  • Have a forecast that is backed up by a detailed model. Your model should contain a granular build-up of all key forecasted P&L items, contain a forecasted income statement and balance sheet and be the source for all key sub analyses required as part of the sale process.
  • Justifiable assumptions. Be optimistic in your outlook to the point where you can intelligently defend the rationale for your assumptions.

The management presentation is a time-consuming process that requires the Seller’s management to exhibit a strong understanding of their company and its outlook going forward. The finance section, in particular, tends to be subject to the most intense scrutiny. While the CFO and other executives won’t be the ones building the forecast model, they need to understand, agree with and be comfortable explaining not only the numbers but the details behind the numbers and the assumptions that underlie these figures. An inability to do this can have serious adverse effects on the potential sale of the company.

Learn More

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sell-side due diligence decision tree

About the Author

Mike has over 10 years of experience in roles requiring expertise in strategic planning, forecasting, budgeting, business valuation, financial modeling and both buy-side and sell-side M&A transaction support. He served as a Sr. Analyst at Elements Behavioral Health where his responsibilities included leading the budgeting and forecasting processes as well as acquisition transaction support. Additionally, he served as a Sr. Associate in the Private Capital group at Union Bank where he focused on executing middle market acquisition opportunities across various sectors. Mike holds an MBA from the Graziadio School at Pepperdine University, a Bachelor of Arts in Economics from Brock University and is a CFA Charter holder.

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