Contents of the Offering Memorandum

Executive Summary: It constitutes one of the most important parts of the document and is the key selling chapter of the document. It should emphasize the strengths and advantages of the business in addition to summarizing the business' key points, specifically including what is for sale and the reasons for sale of the business.

Buyer Procedure: The rules as specified by the selling corporation are given, which indicate whether competitive bidding or some other process is being used. Dates for indications of serious interest and for initial bid submission are specified. Apart from stipulating when and where detailed business reviews will be held, it also sets the date for submission of final bids. In addition to describing the method of payment that the seller would accept, and outlining both acceptable and unacceptable deal structures, it also specifically indicates the persons in the selling corporations whom the prospective purchases are authorized to contact.

Background: The business is introduced by means of historical perspective and highlights key evolutionary events till date.

The key elements of this section include history of the business; date of founding or acquisition; past and present strategic objectives; background as to why the business is being sold; background of key officers and employees, etc.

The Market: A comprehensive picture of the industry in which the business is participating is provided in this chapter. It also provides information that emphasizes the strengths of the business being sold. The following types of data and information are used for this purpose: Market size, major products/services, historic growth rates.

• Industry's current position in its life cycle.
• Product/service life cycle position.
• Projected growth rate of market and major segments.
• Customer concentration.
• Market share of business being sold and market saturation.
• Major competitors and their market shares.
• Market strengths and weaknesses.
• Domestic and international factors.

Products/Services: Prospective buyers find the following types of information helpful in describing the products/services of the business being sold:

• Quality objectives.
• Pricing policies and schedules.
• Technical specifications of the product/service.
• Operating and/or production processes, etc.

Facilities and Fixed Assets: There should be separate exhibits made to show the specific facilities and fixed assets that are to be included as part of the sale. The facilities and fixed assets should be categorized in terms of owned or leased, by location, and by key activities. This part includes an analysis of adequacy of both facilities and equipment for future growth, and contractual obligations are also indicated.

Systems and Operations: A detailed description of the business systems and operations is included. A distinction of those systems and operations capabilities included as part of the sale and those not included in the sale is made. The section also addresses adequacy of the systems and operations, included as part of the sale, for both current and future production and delivery of products/services.

Organization, Management and Personnel: Apart from describing the key human resource elements of the transaction process, this section also states who among the management and/or personnel are believed to be critical to the business, lists the numbers and employee categories to be made available, and describes all employee benefits.

Key Financial Information: Sufficient financial information will be expected to be received by prospective purchasers to enable them to make a preliminary judgement regarding their interest in acquiring the business. Generally, financial history of the business pertaining to the last five years is provided and is shown in pro forma terms so as to reflect accurately the specific nature of the business being sold. Items such as intercompany charges for services that the selling corporation no longer intends to provide, overhead allocations from the selling corporation, and federal and state taxes, are often omitted from the profit-and-loss statement. Prospective purchasers are advised of these adjustments and instructed to insert their own estimates regarding these expenses while valuing the business. The balance sheet, also, is similarly adjusted to reflect specifically what is being sold.

The types of data and information that might be included are balance sheet and income statement for the past five years; revenue analysis
(by product/service, seasonality factors, and sales policies); expense analysis (by business segment, by product/service, fixed vs variable cost, etc); and, other specific financial items (loans, receivables analysis, prepaid expenses and deferred charges, and purchase contracts).

Valuing the Business: There are several valuation techniques available, one or more of which can be utilized by the prospective purchasers in determining their offering price for the business. A similar analysis should be conducted by the divestiture team, which will serve a number of purposes such as:

• Provide the selling corporation an estimate of the market value of the business.
• Assist in identification of prospective buyers.
• Assist in comparing values of different offers in cases where more than one offer is received.
• Provide foundation for price negotiation later in the selling process.

A few of the basic valuation techniques that might be used are book value, comparables, discounted cash flow (net present value), payback, and replacement cost method.

The valuation methodologies must be modified to reflect the special circumstances of each prospective purchaser such as considerations of market forces, competition, effect of the acquisition on the buyer's base business, etc.