Mergers and Acquisitions For Dummies (46 page)

What is the demographic of the customer?
Are the customers businesses or consumers? Is this demographic growing or shrinking? What sort of macroeconomic factors affect these customers?

Where does Seller fit in its sales channel?
An offering document should describe a company's sales channel. Is it a supplier of raw materials, a manufacturer, a distributor, or a retailer? Does it offer a service to other companies or consumers? In other words, where does the company obtain the materials used to fabricate its end product? Who does the company buy from, who does it sell to, and who do those customers sell to?

Does the company have any customer concentration issues?
Flip to the section “Income statement basics,” later in this chapter, for more on customer concentration.

If a customer that accounts for a big chunk of revenue is a large company (say, Fortune 500 size), you may be able break out the specific divisions and the corresponding sales to substantially lower the concentration issue.

Sales and order processing

Products and services are wonderful. Suppliers and vendors are great, too. But all of those products, services, and raw materials don't amount to a hill of beans without the ability to sell them. Buyers want some detail on sales information, so the offering document needs to cover the following:

How does the company go to market?
Does it utilize a direct sales force, e-mail, Internet, other social media, catalog, and/or word of mouth?

Who are the key salespeople?
What are their backgrounds and experience?

How are orders taken: phone, fax, e-mail, or in person?
Does the company have a dedicated customer service department?

What are the company's terms of sale?
How does the company get paid: credit card, cash, check, or wire transfer?

What is the average transaction size?

Customer names

As Seller, should you provide customer names in the offering document? Yes and no. In other words: It depends. I provide both sides of the argument here; read both bullets and pick the option that best suits your situation:

No:
Customer names should not appear in the offering document because they're a highly sensitive bit of information, especially if Seller's direct competitors are reviewing the offering document.

Yes:
If Seller's Web site or existing materials list customers or if the names of certain customers are otherwise public information, specifically mentioning those customers doesn't hurt, especially if the customers are of the large and extremely well-known household names.

Whichever argument you follow, providing a full customer list in the offering document isn't a good idea because you should disclose detailed customer information (name, amount of annual purchases, and so on) only after you're reasonably certain Buyer will close a deal. For this reason, I always recommend Sellers wait until near the end of due diligence before providing the full, detailed customer list to Buyer.