Selling Your Business: Understanding The Teaser
This guide is intended to provide an in-depth look at the teaser, which is a document commonly used in mergers and acquisitions (M&A) transactions. A teaser provides potential buyers with an overview of the target company, giving them a better understanding of what they would be investing in. Although it does not need to be too detailed, a teaser should provide enough information to pique the interest of buyers and encourage them to pursue the business for sale further. What Is A Teaser In M&ATeasers are an important part of the M&A process, as they provide potential buyers with a high-level overview of a company that is for sale. These documents give prospective buyers just enough information to decide whether or not they would like to pursue a potential deal further.
Teasers are typically short documents, usually one or two pages (although they can be longer) and are intended to advertise a business for sale rather than to provide prospective buyers with detailed information about the business for sale. Teasers normally serve as a way to give prospective buyers a bird's eye view of a business, disclosing some high-level key information about the business for sale.
While teasers do not contain enough information for detailed financial analysis, they are useful in helping potential buyers understand what a business has to offer before needing to commit more resources into analyzing it further.
To understand the role of the teaser, we need to first understand why confidentiality is important in the M&A process.
Confidentiality is a major concern for sellers in M&A deals. The M&A process has evolved to protect the seller's identity. We'll look at why confidentiality is important in M&A deals in more depth here. There are a number of precautions taken by sellers to protect their confidentiality.
First, when looking to sell a business, normally the seller will look to go through intermediaries. These intermediaries include investment banks, M&A firms, and business brokers. The choice of which type of intermediary to use is largely dependent on the size of the business and the exit strategy they are looking to use. Business brokers tend to focus on small businessesā?"normally under $10 million in revenue. Investment banks, on the other hand, normally focus on large businesses (doing +$100m) as well as businesses that are looking to exit via an IPO, or businesses that have publicly traded securities in circulation. In addition, we have M&A firms that tend to focus on the middle of this range.
Intermediaries act as middlemen between the seller and prospective buyers in M&A transactions. This middleman-like capacity protects the seller's confidentiality as they don't need to approach prospective buyers directly.
Second, we have the teaser. The teaser is a short one- or two- page document designed to give prospective buyers the "highlights" about the business for sale yet keep the seller's identity confidential. The purpose of this document is to pique the buyer's interest enough that they want more information.
Third, we have non-disclosure agreements. When prospective buyers request more information about a business for sale, they normally draft and sign a non-disclosure agreement with the seller. This is an additional measure taken to protect the seller's confidentiality.
Fourth, we have confidential information memorandums (CIMs). After the prospective buyer signs the NDA (after reading the teaser), this is what they receive in return. The CIM is designed by both the seller and the intermediary. It is a confidential document (protected by the NDA) that is designed to give the prospective buyer enough information to conduct a valuation of the business for sale, but not enough information to give away anything secret (like active ingredients in pharmaceuticals).
If you're interested in learning more about confidentiality in the M&A process and how these documents work, as a starting point, we recommend our guide here.How To Write A TeaserHere, we'll go over some general tips for writing a good teaser. - They should understand what the business does - Prospective buyers should have an understanding of what the company does, and how it generates revenue. This includes both financial performance metrics (e.g., sales and revenue breakdowns, 3+ years of historical financials) as well as qualitative elements (e.g., management team composition and background). Furthermore, buyers should also be made aware of the location of the company and when it was founded. This helps buyers to determine if a business is located in an area where they are comfortable investing as some buyers are interested in specific geographic markets. Additionally, projections of future revenue should also be included in a teaser to give prospective buyers visibility into where the company may be heading.
- State Objectives For The Deal - It's important to clearly state your objectives for an M&A transaction at this point. Are you looking for an equity partner? Are you looking for a strategic merger? Let prospective buyers know so that they can see a potential fit if there is one.
- Maintain Integrity - When negotiating, it is essential to maintain integrity. There is no worse way to start a negotiation than by trying to deceive the other party. Any attempts to mislead or deceive the other party will likely be discovered during more detailed research or during the due diligence process. Any breach of integrity will erode trust between parties, reduce the potential upside of an agreement, and make negotiations more difficult. Maintaining integrity throughout the negotiation process will help ensure a successful outcome and solidify relationships for the future.
- Understand Your Prospective Buyer - Try and look at your business from the lense of a prospective buyer. What would they want to know about this company? While integrity is important, don't make the mistake of underselling your business here. For a teaser to do its job, it needs to get the buyer to see the possibilities.
- Audit For Confidentiality Breaches - It's always a good idea to write a teaser with input from the intermediary helping facilitate the transaction. They have experience here that will prove invaluable to you. As an important note, don't take any information from your company's website as a quick search of the internet may reveal your business' identity before you're ready for that.
For more information and tips on writing a good teaser, we recommend our guide here.
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