Daniel Bernstein, Vice President of Corum Group, outlines the importance of preparation in the M&A process, emphasizing due diligence, record keeping, and understanding the buyer’s checklist. He details various aspects that companies need to prepare, such as financial data, corporate structure, and employee relations, to optimize outcomes and valuations during a sale. The document provides insights into both asset and stock transactions in M&A, highlighting necessary documentation and strategic planning for successful negotiations.

1. Preparing for Exit
Daniel Bernstein
Vice President
Corum Group

2. About Me
• 20+ years in the games industry
• Computer Science and Music Mash Up
• Founded Sandlot Games, sold it in 2011
• Advisor to tech companies, from drone
startups to public companies
• VP at Corum Group
• Sell-side advisory to private high
technology companies

3. About Corum Group
• M&A Investment bank
focused on selling
companies
• Sold over 300 companies in
30 years
• Created ~$7B of transaction
value
• Largest tech M&A educator
in the world

4. 8 Stages of an Optimal Outcome
• Prepare, prepare, prepare!
IntegrationClosing
Due
DiligenceNegotiationDiscoveryContactResearchPreparation

5. Preparation and Planning
• Importance of preparation
• Due Diligence
• Record Keeping
• Audits
• Financial Statements
• Financial Projections

6. Being prepared means
• Preparing your company
• Preparing for sale – due
diligence
• Preparing to pay your
taxes
• Preparing to live with the
deal after closing

7. How to get more of what you ask
Preparation begins before the
decision to sell
Frame company agreements and
contracts with M&A in mind
Planning is key to higher valuations

8. Understanding the Buyer’s Checklist
• All buyers use a “due diligence checklist”
• Often overly comprehensive
• May contain irrelevant requests
• Varies depending on the nature of the
transaction (Stock or Asset Purchase)
• May ask for information that could be
damaging if the deal doesn’t happen
• Timing of production of potentially damaging
information is often negotiated

9. Corporate and Legal Structure
Articles of incorporation
By-laws
Minutes – board, committee, shareholder
meetings
Recent changes in corporate structure
Parent, subsidiaries and affiliates
Shareholder list/cap table

10. Financial Data
Audited financial statement since
inception
Most recent 3-year projections
Monthly sales projections taking
seasonality into account
Changes in accounting
methods/principles – last 3 years
Outside consultants’ or accountants’
reports

11. Tax Status and Contracts
Federal/state income tax returns – last 3
years
Detail of any audit
List of bank and non-bank lenders
Agreements: credit, debt, leases, etc.
Guarantees: mortgage, financial, liens
Contracts: suppliers, vendors and
customers

12. Regulatory/Insurance/Litigation
Copies of any permits and licenses
Reports of government agency
Applicable federal/state/local
regulations
Copies of insurance documents
Decrees, judgments or Settlement
documentation
Description of any current or
potential litigation

13. Employee Relations/Property
Management organization chart and key staff bios
Compensation plans: including pension, options,
profit sharing, deferred compensation, and
retirement
Correspondence, memoranda or notes concerning
pending or threatened labor stoppage, labor
disputes
Confidentiality agreements with employees
Personal property owned/leased by company
Titles, mortgages, deeds of trust and security
agreements

14. Intellectual Property/Products
IP documentations, copyright or patent filings
Details of product line offering, market share
List of all major suppliers – amounts
purchased
Inventory analysis – turnover and
obsolescence
Backlog analysis by product line, seasonal
analysis

15. Markets and Competition
List of major clients
List of competitors and detail of market share
Any pertinent marketing studies
Sales database size
Analysis of pricing strategy
Sales projections, lead analysis

16. Due Diligence = Full Disclosure
• Deal with any weaknesses or
problems openly
• Don’t sweep anything under the rug
• Do what you can to reduce risk
perception
• Consider business from their
perspective
• Prepare question responses in
advance

17. Control the timing

18. Financial Statements
Past Financial
Statements
Future
Projections

19. Historical Statement Requirements
• 3 years of historical
financials, plus
current year-to-date
• Buyers may require
quarterly breakout
• For valuation: desirable to have financials by month
• Be prepared to update financials regularly and quickly
• Consider formatting to match public companies in your
market

20. 3 Year Projections: Revenue/Profits
• Key valuation
metrics
• Often the most
difficult to prepare
 Projections must be on standalone basis & match
historical financial statement format
 Be realistic compared to historical results – sales,
profit margin, revenue per employee
Remember – Buyers are buying future earnings

21. Projections
• Understand and document your assumptions
• Do not be too conservative
• Do not be overly optimistic
• Do not miss your targets while negotiating
• Be clear if projections require additional funding
Be Careful: Earn-outs may be tied to your projections

22. 0.5 1
1.5
3.5
0
4
8
12
16
Last Year Year 1 Year 2 Year 3
0.5
2
7
15
0
4
8
12
16
Last Year Year 1 Year 2 Year 3
0.5 0.6 0.7 0.8
0
4
8
12
16
Last Year Year 1 Year 2 Year 3
Too
Aggressive
Defensible
Too
Conservative
All amounts
in USD
$Millions
Projections, a case study

23. Two types of M&A transactions
When Assets
are
purchased When Stock is
purchased

24. When Stock is Purchased
• All of the outstanding
shares of stock are
transferred
• The buyer operates
business uninterrupted
• Seller has no
continuing company
interest or obligations
Shareholders
Buyer
Stock

25. When Assets are Purchased
Shareholders
Buyer
Company
• No shares of
stock are
transferred
• Liabilities and
taxes remain
• Company shell
remains Dividend

26. Questions?