How to write an investment teaser​

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June 2024

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  THE teaser is the first “filter” through which prospective buyers will pass before moving forward. The teaser should help attract the right potential buyer(s) and screen out the irrelevant ones, making the rest of your sale process simpler and more efficient for everybody.

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   Active strategic buyers typically review more than 500 acquisition opportunities each year and buy approximately 1-2% of them. Most private equity firms, because they have a broader and more flexible acquisition criteria than strategic buyers, often review over 500 businesses a year and will often only make investments in up to five of those companies. These odds place tremendous emphasis on the quality of the offering materials that we prepare for prospective buyers. Luckily, writing an excellent Teaser is not rocket science. A Teaser provides a 50,000-foot view of the company and gives preliminary access to information potential buyers would see if they were to go down to a 5,000-foot altitude. The goal of the Teaser is not to sell the business, it is to ensure the right pilots spot your company and fly down to the lower altitude.

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Buyers should have a clear understanding of a company after reading the Teaser. To do this, the Teaser must include the following.

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• How the company generates revenue

• When the company was founded

• Sales and revenue mix of products / services

• The various industry / end markets sold into

• How the company distributes its products / services

• Overall financial profile: three years of historical revenue and EBITDA and at least two years of projections

• Three to five “Investment Highlights” that discuss the unique strengths of the company (i.e. market share leader, owns significant intellectual property, excellent financial profile, high level of recurring revenue, etc.)

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   The grammar, presentation, and language must be perfect. Use a serif font – it’s easier to read. My favorite is Baskerville or Garamond. Do not over capitalize words (i.e. AUTOMOTIVE AFTERMARKET PARTS SUPPLIER) it’s terrible to read. Do not use flowery language or gushing superlatives that this is a “once-in-a lifetime opportunity” or hyped-up adjectives (i.e. “wildly profitable”) to describe the business. They exude amateurism and bring to the mind a talentless used-car salesman. Triple check for flawless grammar and error-free spelling. I should not have to say this, but I have to say this because people continue to mess this up and should not be tolerated. Quadruple check for flawless grammar and error-free spelling. Do not make mistakes in the work product that you create for your clients. 

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   Keep it concise and professional, but still interesting. The Teaser is one page, no exceptions. This forces you to write concisely and to focus on the importance of every word, comma, and period that is placed into the finished document. Recall private equity firms reviews hundreds, perhaps thousands of these a year. They are taking time out of their busy working lives to read this document that you wrote, treat it as a privilege. Do not abuse that privilege by boring your reader. You want them spending time thinking about how interesting the business and investment opportunity is, not trying to understand what the company does or (more likely) moving onto the next opportunity or checking his e-mail and forgetting about it.   

 

   Never blow your load on the Teaser. Never prematurely disclose the name of the client (or other identifying information). Prospective buyers will review the teaser prior to executing a confidentiality agreement, so make sure they cannot identify the client based on information contained in the Teaser. There are many reasons to protect anonymity, but the most important reasons are to preserve the company’s freedom of action, avoid having competitors spread false or damaging rumors, and avoid alarming current employees of a potential sale this early in the process.

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   Don’t bury the lead. Always answer the most important question. While there are multiple important elements of an effective investment Teaser, each one should answer the following question – what is the source of the company’s competitive advantage? A clear answer to this question is crucial because the essence of the company’s value is tied to how sustainable its competitive advantage is.  Competitive advantage dictates the company’s ability to generate, maintain, and grow profitable operations over the long term. When investors look at the opportunity, they seek to understand this outlook -- especially since it forms the basis for their valuation estimate. 

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   Competitive advantage can have many sources: customer entrenchment and high switching costs (e.g. database software), long-term contracts (ex: equipment service companies, defense and government contractors), brand recognition (certain consumer products), intellectual property, devoted and stable management teams, culture (Southwest Airlines is a great case study in culture as a sustainable competitive advantage), and on and on. Often there are multiple that play off each other.

   

   Be certain to make the competitive advantage the focus of the teaser. Getting this element written in the right way takes some time, but it is essential. If there are PE firms evaluating the company, they are going to rely on the sustainability of the competitive advantage to generate a return on their investment. The price they are comfortable paying for the business is directly impacted by how protected the firm’s stream of revenues and profits appears to be. The more protected, the more the buyer is willing to pay to acquire the company. If you want to achieve a high multiple for your client (pretty much your entire fucking job), you must demonstrate that the company has sustainable growth potential predicated on a defendable competitive advantage.

   

   If there are strategic buyers evaluating the company, they potentially have many (or sometimes all) of the necessary in-house resources to try to reproduce the company’s products and services. Strategic buyers therefore confront the well-publicized “build vs. buy” decision when evaluating the opportunity. The more powerful the competitive advantage and the more complex it is to reproduce, the more likely they will buy the company versus attempting to build a competing product or service. Of course, this raises significant additional complexity for us in terms of sharing information with a would-be competitor (more on this topic will be highlighted in a later post on confidentiality within a sale process).

   

   Don't beat around the bush — get straight to the point.  Avoid analogies of the "just as, so too" variety. These two-stage arguments are generally misunderstood. Avoid superlatives, generalizations, and platitudes. Be specific and factual. Be enthusiastic, friendly, and memorable. Don't be a bore. Tell the truth, but make the truth fascinating.

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   Make the headline count. It is the telegram which decides whether the reader will actually take the time to read the rest of the page. You've heard that first impressions count, well this is the first impression of the first impression. Five times as many people will read the headline versus the body copy. If you haven't done some selling in your headline, you have wasted 100% of your reader's time.
 

   The headline is the "ticket on the meat." Use it to flag down the readers who are prospects for the kind of business you are selling. If you are selling a business that is incredibly profitable, display the words “30% EBITDA Margins” in your headline; they catch the eye of everyone who likes to make money. Conversely, do not say anything in your headline which is likely to exclude any readers who might be good potential buyers. Thus, if you are advertising a business which can be appealing equally well to strategic and financial buyers, don't slant your headline to PE firms alone; it would frighten the strategic buyers away.

   

  Again, buyers look at thousands of opportunities each year. They have limited time to review each opportunity and are only able to make a certain number of investments. No investment teaser will attract every buyer (nor should it), but it should effectively attract the right set of buyers. Of course, the structure of an investment teaser should vary based on the business model, current size, and industry. While teasers should be constructed bottom-up, all effective ones clearly articulate the company's core competitive advantage. However, just because you state the competitive advantage does not mean you should explain or reveal all the details and intricacies of it. In fact, you should not do this. The Teaser is designed to generate curiosity among relevant qualified buyers so that more thorough materials and in-person meetings can be shared. Again, don't blow your load on the Teaser.