When constructing a pitchbook for M&A transactions, the most important thing is to present a company overview and portray the company in the most attractive light as possible to the management team. Regarding the order of slides, the directors or VP will provide guidance on the optimal slide order. The order will depend on the ideas and strategies they wish to convey to the management team. Regardless, a company overview will be a fundamental part of their pitch.
Laying out the company highlights is an important part of framing the overall company overview. Generally, the highlights should include the company’s valuation, its forward-looking strategy, key corporate finance transactions, and a summary of the most attractive parts of their business.
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Again, the key takeaway is to make the company look as attractive as possible. If their stock has performed well, make sure to highlight this fact in a blurb or in a stock price performance chart. If the company’s stock has outperformed its peers, a great way to make the company appear attractive is to select a timeframe that specifically highlights the outperformance and a chart that visually represents the company stock’s remarkable performance.
But what if the company has not performed well? It is guaranteed that the management team knows this, and the reason they are meeting with investment bankers is to screen strategies that will improve their valuation. The key here is to highlight the opportunity that your bank is presenting. What kind of re-rate would follow if the company were to follow your strategy?
Depending on the industry, the metrics that you highlight will be different. For example, the relevant valuation ratios for a mining company (P/NAV, P/CF) will be different than those of an entertainment company (EV/Sales, EV/EBITDA, P/E).
The trademark of a good investment bank is being plugged into industry-wide current events and being knowledgeable about the company’s strategy. Often, what management will communicate to the public may not be exactly what they are actually planning behind closed doors. On the sell side, we gain a deeper insight into a company’s strategy. For a serial acquirer, the types of companies in its M&A pipeline provides us with key information on the company’s plans and their key motivations.
The investment banker’s job is to be a step ahead of the company management and guide them to value-creating opportunities. Depending on the strategy, the hallmarks of a strong strategy is that it creates value (i.e. NPV positive), provides a sustainable competitive advantage (i.e. improves sustainable growth rate, ROIC, etc.), and is realistic (i.e. can the company finance the transaction using debt? Equity? Existing dry powder?).
Corporate Finance Transactions
Previous transactions offer insight into the company’s current financial position. The key aspect to consider here is the cost of capital of every strategic alternative. Cash provides the lowest cost, then debt, then equity. We want to know how much leverage a company management team is comfortable with, and how they would want to finance the proposed transaction(s).
The bigger the business, the more likely that the company uses a larger set of operating metrics or business segments. For example, a large equipment manufacturer will report its backlog, major customers, and possibly, sales by product. A software-as-a-service (SAAS) company will report its total subscribers and churn rate. Every company is unique in this regard, and it is your job to figure out how best to portray the metrics and segments in the most attractive way possible.
In an M&A transaction, it is important to highlight the metrics that will benefit from an acquisition. Does the target company serve a valuable major customer? Does the target company give the acquiring company geographic exposure in a low-risk or high-growth segment? These are all questions to think about when framing a pitch to the target company.
The company overview sets the stage for the remaining content of the presentation. It is vitally important that this slide serves as a strong launchpad for the remainder of the content.
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