Posted on: September 6th, 2018
Deal making sounds sexy but at its core, it is a complex project involving numerous work streams comprised of many small steps. Some work streams may overlap while others are completely separate.
Usually, there is tremendous upfront enthusiasm by everyone involved. This initial magical feeling usually wears off as the deal process grinds on and the parties become more grounded. Throughout business and financial due diligence processes, the lender is constantly verifying and confirming their initial understanding. Through asking more questions of management and customers, they develop a large knowledge base to inform their approval decision.
Often the diligence information does not perfectly conform to the information presented upfront, which got the lender excited. This can create problems in getting the deal closed. This arises in a number of ways.
Either the company did a poor job in their initial presentation and did not present with enough clarity. They may not have consistently reinforced the lender’s basic understanding along the diligence process, or may not have invested the time explaining the nuances or subtleties of the business during diligence process as well.
Lenders require clear, crystalized information to become educated on any company. The clearer the information, the better their initial understanding.
Lenders also require consistent story- line reinforcement as their knowledge of the company moves beyond the initial snapshot and into the moving image –diligence phase.
Reinforcement allow the company to reconcile any gaps the lender may have and get them comfortable with the new picture. Here are 4 ways to ensure you are presenting a clear and consistently reinforced narrative:
Use a prose-based Confidential Memorandum
A Word document is superior to a power point presentation in getting your point across. PPT’s generally do a poor job of explaining and organizing information. When you write a CIM, it forces you to explain things more clearly. This results in a more robust understanding by the lender.
Tell a Compelling Growth Story
Growth is the best framework to use to highlight the strengths of the business. The type of growth story will help the lender establish reference points with his prior borrowers, building his confidence in the deal.
Commit to Full Cycle Education
Do not assume the lender knows all they need to know from your initial CIM. Spend the time to continue to build their understanding throughout diligence, as it will lead to a quicker diligence process and a stronger relationship.
Appoint an Advisor to manage your diligence process
A good advisor will check in on the lender and make sure they are on track. If they are getting lost or overwhelmed in details, a good advisor will be able to reorient them and get them back on track. They will make sure there are no unresolved knowledge gaps with the lender.