When Buyers Price Your Business Before They've Met You, Something Has Gone Wrong
Part 2 of 2: Why the prospectus model destroys value - and what we use instead.
Last week I wrote about what goes into an information memorandum — the positioning, the growth opportunities, the deliberate restraint on financial detail. This week is about something more fundamental: what kind of document should it be in the first place?
I’ve seen deals where the buyer submitted a formal offer before they’d spoken to a single member of the management team. Not a preliminary indication. A formal offer. Based entirely on a stack of documents someone had decided was “enough information to come up with a price.”
The buyer had never sat across from the CEO. Never felt the culture. Never asked the questions that only surface face to face, when someone is explaining why they built the business the way they did. And yet there was a price on the table — arrived at entirely from paper.
That’s a prospectus model. And, in my experience, it is one of the most value-destructive approaches in South African M&A.
What a prospectus actually produces
Last week I explained why financial buyers default to the numbers when you give them the chance. A prospectus gives them every chance. Full financial statements, balance sheets, ratio analysis, margin breakdowns, customer concentration, supplier terms, capital expenditure history — everything a trained analyst needs to build a model and arrive at a valuation without ever picking up the phone.
The result is an offer anchored on what the business has done, not what it could do in the right hands. And that anchor, once set, is almost impossible to move.
Financial models are built to identify risk, not to capture upside. Every conversation that follows becomes the seller trying to shift a number the buyer has already committed to internally.
You’re behind the eight ball before the first conversation even starts. And it’s entirely avoidable.
What happens when you hold the detail back
Here’s what sounds counterintuitive but plays out consistently.
When a buyer reads a well-positioned IM — one that tells them what problem the business solves, what makes it distinct, and what growth is available — but doesn’t have the granular data to build a complete model, they arrive at the table differently.
They haven’t anchored. They’re interested because the positioning resonated, not because a spreadsheet told them what to offer. The first conversation is about fit and potential. And because they can see the strategic value but can’t yet cap the number, they come in with an open mind rather than a fixed ceiling.
A prospectus says: here’s everything, now tell us your price.
Our approach says: here’s why this business matters, now let’s talk.
One produces a number. The other produces a relationship. And relationships are where premium outcomes live — because a relationship builds trust, trust reduces risk, and reduced risk increases price.
A buyer who understands the strategic fit will pay for it, but only if they’ve had the chance to discover it themselves rather than having it buried under a spreadsheet.
Give a buyer enough financial information to understand the economic shape of the business. Revenue scale, earnings trajectory, margin quality. But let the detail deepen as the relationship does — after the management meeting, after the strategic conversations, after they’ve understood what they’re actually buying. By the time you’re in serious price discussions, the buyer’s conviction is built on something more durable than a model. It’s built on understanding.
The real cost is what you’ll never see
The most dangerous thing about the prospectus model isn’t the low offers. It’s the silence. And this problem is more widespread than sellers realise — many advisors will call their document an information memorandum, but when you look at what they’ve actually produced, it’s a prospectus by another name.
When a financial buyer works through one of these documents, and the numbers don’t hit their hurdle rate, they simply move on. No phone call. No meeting request. No conversation in which you might have learned that their strategic interest was strong, even if the current financials didn’t excite them. The document gave them permission to make a decision based solely on data — and they did.
An IM built around positioning doesn’t give that permission.
It asks the buyer to engage before they evaluate. And that engagement is where the deals happen that a prospectus would have killed. The buyer who would have passed on the numbers alone sits down, hears the growth story first-hand, and realises the opportunity is larger than the current earnings suggest. That meeting — the one that wouldn’t have happened under a prospectus model — is often where the best outcomes in my career have come from.
What the document is called matters less than what it’s built to do
“Information Memorandum” is a misleading name for what we produce.
It implies that the document’s job is simply to provide information. It isn’t. Its job is to attract the right buyer, build enough interest to earn a meeting, and set up a conversation about value that starts in the right place.
The businesses that achieve premium exits aren’t the ones with the thickest documents. They’re the ones whose advisors understood that the sale starts the moment a buyer opens the first page — and built that page to sell.
If you’d like to discuss how we’d approach positioning your business, I’m always happy to meet for coffee at our Illovo offices.
Until next time,
Rick Grantham, Deal Leaders International