You are an owner or senior manager of an acquisition-minded print and graphic communications company and, like many of your peers these days, you're in "early courtship" of a potential M&A candidate.
You get to the point of requesting financial statements and other disclosures when the other owner says, "I don't mind sharing financial information if we are in the ball park on the value of the business, but I would like to know what you are thinking of offering before going down the path of due diligence."
What are you going to do?
Option A: forget about it
Option B: make up an offer just by "winging it", but risking over commitment on your part or insulting the other owner
Option C: request preliminary financial disclosure limited to revenue, gross margin or value added, operating expenses, net income, depreciation and interest.....essentially boiling it down to revenue and EBITDA [NOTE: if there is no "E" in "EBITDA", don't worry, just call me to value the general intangibles asset by itself].....then use this limited disclosure to formulate an offer via a non-binding Term Sheet that contemplates further due diligence before Closing.
Here's my perspective:
It is not unreasonable for owners of a potential M&A target to provide very limited disclosure in anticipation of further talks if and when the parties are "in the ballpark" on key terms such as "price" and "structure".
Therefore, we recommend Option C in most cases.
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