M&A Board Memos
Writing M&A Board memos is a great way for executive teams to figure out if a particular acquisition makes sense to execute. At the LOI stage, the acquiring company may have a good sense for the target company’s products, services and culture. However, one doesn’t know a target company at the LOI stage the way one comes to know a company during the due diligence process.
I recommend that M&A teams begin to craft Board memos once formal deal due diligence begins. Craft a Word-based memo and a PowerPoint presentation.
The Word-based memo is for the Board memo author and any Board members that are detail-oriented. Writing a Board memo helps one crystalize his/her thinking.
The PowerPoint presentation is for Board members who are not detail-oriented. The PowerPoint presentation may also be shared externally with institutional investors once modifications have been made.
The written Board memo should include:
Strategic rationale for the acquisition: Why do we wish to pursue this deal? There should be no ambiguity here.
Detail that supports the strategic rationale. (example: target company’s SaaS products are best-in-class, have pricing power and provide a natural upgrade path for our customers). Supporting detail should include everything that is material to the strategic rationale and may include detail about product, profitability, corporate culture, management team, competitive landscape, valuation and more.
Deal Timeline: A timeline of how the deal evolved to this point in time, when the deal is expected to close, what needs to happen for the deal to close on close date.
Deal structure: cash, debt, equity, purchase consideration and holdbacks, earnout detail including related financial targets, management compensation, valuation and any other deal-related elements that you feel is relevant.
Financials: target company financials; proforma financials; comps which compare peer group company financials (if they exist in the public domain) to the post-deal pro forma financials, include something on valuation in this section as well.
Products: For Technology companies I believe in describing the product portfolio in detail. If you feel your Board won’t digest it, include it as appendix. Talk about the technology stack, how it is built, what it costs to maintain, whether or not it is scalable, whether or not elements are due to be upgraded or phased out, this type of detail.
Open Items: Keep a rolling list of open items that cover all elements of due diligence from Accounting, to cross-training sales teams post-close to Human Resources, etc. The open items list is for the benefit of the Board memo author, it does not have to be incuded when the Board memo is circulated.