How to create an acquisition memorandum?
As I discuss in my recent book, Selling Your Startup, an Acquisition Memorandum is a document startup owners use in mergers and acquisitions. A presentation about a startup with information for a potential acquirer, detailing its operations, management team, and financial statements.
You owe it not only to yourself but to your investors, and also to the team who turned your idea into a reality of obtaining the best possible reward for the hard work that you have put in.
Entrepreneurs very seldom take the first offer that they receive and instead turn it into a bidding competition.
As a result, you’ll probably be able to find the best buyer on even better terms. With this acquisition memorandum example, you’ll be able to present your startup in the best possible light.
You’ll also increase its worth to prospective bidders, and avoid regrets for not maximizing your exit.
Remember that mastering the storytelling side and how you are positioning your business is critical when it comes to engaging and speeding up the process. This is done via your acquisition memorandum. This is super important to reach a successful acquisition. For a winning acquisition, memorandum template take a look at the one I recently covered (see it here) or unlock the acquisition memorandum template directly below.
Here is the content that we will cover in this post. Let’s get started.
- 1. Who Prepares the Acquisition Memorandum?
- 2. What’s Included in an Acquisition Memorandum
- 3. The Cover Slide
- 4. Intro Slide
- 5. Disclosures
- 6. Table of Contents
- 7. Executive Summary
- 8. Market Opportunity
- 9. The Solution
- 10. Target Market
- 11. Competition and Advantages
- 12. Market Traction
- 13. Financial – Historical and Projections
- 14. The Executive Team
- 15. Technology Platform
- 16. Sales and Marketing
- 17. Company Background
- 18. Reason for the Sale and What the Next Steps Are
- 19. What an Acquisition Memorandum is Not
Who Prepares the Acquisition Memorandum?
When a business is sold, it employs an investment banker or a mergers and acquisitions consultancy group.
The banker’s initial step is to learn about the startup and acquire as much information as possible from the executive team to create a corporate profile.
The banker prepares the Acquisition Memorandum and uses it as a marketing document to make the startup appear more appealing.
The goal is not only to sell for maximum value but also to serve the seller’s best interests. Investment bankers strive to sell for the highest possible price.
You can also create your own by using the outline below in a similar format to your pitch deck.
This makes it easier when you aren’t sure which direction you will go, and may either end up raising another round of funding. Or find the timing is right for an exit.
What’s Included in an Acquisition Memorandum
An Acquisition Memorandum usually has several important aspects to it. Below is a list of the vital slides that you’ll include to attract the most interest from your audience:
- Executive Summary
- Market Opportunity
- The Target Market
- Market Size and Growth
- The Competition
- Competitive Advantage
- Financial Projections and Results
- Market Traction
- The Executive Committee
- Technology Platform
- Sales and Marketing
- Company Background
- Reason for Sale
- Buyer Requirements
- Letter of Interest Instructions
Would you like to know how to share information with investors? Check out this video I have created that is sure to help you with critical details.
The Cover Slide
Many new startups use horizontal slides for the Acquisition Memorandum. If you choose to do so, ensure that you use short statements and bullet-pointed lists. If you decide to use vertical slides, use short paragraphs.
Select a background that complements your company’s brand.
To keep it interesting and exciting for the reader, use pictures, charts, and diagrams, and fonts, and colors that match your brand.
Ensure that you also include your contact information and a compelling backdrop that illustrates your company’s mission.
The intro slide is a brief statement explaining the startup’s mission and nature, and something that immediately piques the reader’s interest.
Use a rich photo and tagline that will immediately attract the attention of your readers, websites like Getty Images and Shutterstock are perfect sources. Keep this slide short and sweet with a decent mix of visuals and text.
The slide that contains all of the disclosures is critical, it protects you. Consult with an attorney to ensure that you disclose everything that needs to be disclosed to the reader.
Table of Contents
An accurate table of contents will make your Acquisition Memorandum easy to navigate. It gives potential acquirers the option to jump to the sections they are interested in reviewing first.
The Executive Summary is a one-to-two-page summary of the complete memorandum. It should at least include:
- The startup’s key business products and service offerings
- Financial overview – Cash flow, revenue, profitability, EBITDA margins
- The nature of the transaction
- Investment rationale
This slide will assist a potential acquirer in determining if they’re interested in reading further, so you must tailor this section to each audience. Highlight what can bring them the most value.
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The acquirer must stay aware of the market size and current market trends, so you need to provide an overview of the market and strengthen the startup’s case.
You’ll compile the market overview using reliable data sources such as the World Bank, IDC, Gartner, Forrester, Reuters, Bloomberg, university studies, government data, etc.
The data points are more reliable when they come from credible sources, which helps the acquirer better understand the market and design the best strategy.
The market overview contains the following factors:
- The market size
- Key participants in a variety of industries
- The popularity of different product lines
- Market growth trends and the factors that influence them
- Competitor mapping with the target’s ranking
Use your creativity to illustrate the problem that needs to be solved, and if necessary, use drawings, charts, or diagrams.
If there is enough relevant information on the market and its appeal, this part could be 2-3 slides long.
In the simplest form, make a statement about what the startup does. You can answer questions such as:
- What is the nature of the service or product?
- How is the business compensated?
- What is your business plan?
Typically, this will be 3-5 slides, so highlight what your startup does and how your product or service works. Also add a schematic diagram depicting the movement of goods or services, the payment, and pricing, etc.
You’ll demonstrate this graphically, using representative images of the context in which the product or service is utilized.
It’s essential you show your target market, why it exists, how big it is, and how fast you expect it to grow.
Depending on your stage and go-to-market strategy, this may be a specific demographic, national, or global approach – the more numbers there are, the better.
Assist your potential acquirers in thinking large, as it could potentially belong to them.
Growth usually gets depicted from year to year, but showing high statistics isn’t enough. You must also demonstrate that these figures are increasing with time.
Competition and Advantages
Every business faces direct and indirect competition, and you need to know who they are and why you think you’re better than them.
It’s common practice to arrange competitors on a 2×2 chart with your startup at the top right. On the two axes, display pertinent metrics or offerings.
A second competitor slide might be used to discuss the key competitors and any shortcomings that they may have.
Show the company’s competitive advantages. Use bullet points, charts, and features to show that your company ticks all of the boxes.
Make sure the acquisition memorandum has this information.
Demonstrate traction in terms of client growth and other key performance indicators (KPIs). If there is enough meaningful traction to report, utilize 2-3 slides.
Then, if you have any impressive financial traction, display it (for example, monthly run rate, revenue growth, etc.) Only utilize financial measurements at this time.
Financial – Historical and Projections
From a value standpoint, this is essential since it provides a detailed analysis of the profit and loss accounts.
It includes actual financial data from prior years and financial forecasts. Such projections and assumptions are also laid out so that the acquirer understands why they are being made.
Use graphs to visually show the potential acquirer that your startup has not yet peaked and there’s still room for growth.
Ensure that you include any relevant projected KPIs as a starting point on your financial presentations.
Show at least three years of historical data if you have it, then make a 5-year plan. Show both past and predicted numbers simultaneously.
This is also a fantastic way to add significant value to your startup while motivating a strategic acquirer.
Consider including some extra benefits or forecasts that may be associated with this proposed merger and acquisition.
The Executive Team
This section includes a brief overview of the company’s key individuals, highlighting their roles, past job experience, years of experience, etc.
This is a highly crucial section, as well as one of the most straightforward. Each person’s photo, name, title, and a summary of what they do, their background, and their claim to fame is usually included.
In this section, an organizational chart may be beneficial to show the hierarchy and reporting system.
The company interested in acquiring you will want to ensure that you have the appropriate people in the correct positions.
It may be one of your best selling points and areas of value creation. Expect a vesting time of at least two years during which you and your senior executives will be required to stay on to complete the integration. Add this information in the acquisition memorandum.
Find a visual approach, and include bullet points to help describe the tools and technologies utilized.
Buyers will want to know how much of your technology is open source and proprietary and the actual IP with its own worth.
If you aren’t technically minded, hire somebody to put together a step-by-step tutorial. The more precise you make this, the more likely they are to proceed with a deal.
Sales and Marketing
To illustrate the startup’s sales and marketing strategy, use diagrams, bullet points, and images to keep things interesting.
This could also be another fantastic opportunity to show how a merger or acquisition will result in more integration, profits, and revenue.
Bear in mind that if you rely too heavily on paid advertising for growth, potential acquirers will be concerned.
Ensure that you highlight the natural distribution channels in place so that potential acquirers can see that your startup would still grow in the right way even if you didn’t spend money on marketing.
Keep in mind that in fundraising, storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
Provide an easy-to-understand timeline of your startup’s significant accomplishments in the acquisition memorandum. Examples of milestones include:
- Funding rounds
- Product launches
- Revenue goals
This is a chance to demonstrate your track record and the various efforts you made to get you to where you are now.
This section will persuade the buyer that the best course of action is to buy your company rather than construct things from scratch in-house.
Reason for the Sale and What the Next Steps Are
Why are you selling or considering selling right now? What are the requirements for a buyer? Are there steps for your audience to take, and how soon should they explore any interest in buying your startup?
The acquirer’s approach is to look for reasons not to buy your startup. Ensure to mention the thesis for how this deal can benefit them.
Avoid creating the impression that you’re looking to make money quickly and that your motivation to sell is solely financial.
As a founder, you still have a lot of work to do. Not only to sell your startup but also to optimize its value and guarantee so that the appropriate investors purchase it, who will carry out its mission and maximize its potential.
What an Acquisition Memorandum is Not
A standard Acquisition Memorandum will include all of the information listed above. But it’s equally crucial to understand what it’s not about.
- An Acquisition Memorandum isn’t exactly the same as a pitch deck, it is a marketing tool used by you, bankers, and other dealmakers to promote your business. It is more detailed-focused than your average pitch deck.
- It is not a legally enforceable agreement between the buyer and the seller.
- The document does not float your opinion of your valuation or sales price.
Whether you have received an inbound offer or you are just starting to feel your exit plan, a good acquisition memorandum can go a long way to kick start things.
For all the sacrifice and hard work, you owe it to yourself, and to the investors that made a bet on you and also to the team who made your vision a reality.
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