A confidential information memorandum (CIM), sometimes called a confidential offering memorandum (COM), or even private placement memorandum (PPM), is used in sell-side research to offer prospective buyers insights into a company’s operations and finances. In private equity research, the CIM may be presented as a disclosure document for prospective buyers during an auction.
Unlike many other documents and files created and shared during the mergers and acquisitions process, a CIM does not have to follow a specific format. It can range from 50 to 150 pages (more or less) and may or may not include elements such as:
- Graphs.
- Tables.
- Spreadsheets.
- Photos.
- Videos.
- Text.
Understandably, with so many different elements to share, all under confidentiality agreements, having a secure way to create, store and share the files and information is crucial.
Who Researches and Compiles the CIM?
If you’re on the sell side of a private equity deal, you’ll hire a firm to prepare the CIM for prospective buyers to review. Company executives or employees rarely create the CIM on their own, but rather turn to an investment banking team to compile the necessary financial information and to paint the company in the best light to buyers.
At its heart, the CIM is a marketing document, but it must also be completely factual. By enlisting an outside firm to create the document, you can be sure the document touches on key considerations potential buyers will want to know. You also want to make sure the document reaches your target market of buyers and does not reveal information you would not want to be shared with firms that, ultimately, may choose not to go through with the M&A deal.
Basics of a Confidential Information Memorandum for Equity Research
A CIM for private equity deals or the sale of a company includes a number of elements ranging from executive biographies to financial projections and other key data needed to complete financial due diligence. How those who are compiling the sell-side research choose to structure the information depends on what factors they want to highlight and what elements they might want to downplay.
In general, a CIM may include:
- Company overview and history.
- Products and services.
- Market and industry overview.
- Organizational structure.
- Sales, marketing and management bios.
- Financial results and projections.
- Principal assets.
- Suppliers and vendors.
- Technology, intellectual property and other assets.
The CIM should include relevant details, facts and figures that would entice a buyer to complete the merger or acquisition and show the buying company how to get the most value from their investment.
What Is Not Included in a CIM?
A CIM is not a legal contract. It also does not include a company’s valuation. It may hold back information that prospective buyers could use against the company — either to kill the M&A deal or to compete with the company in the future if the deal doesn’t go through.
For instance, the CIM may include financials that are already available for a publicly-traded company, but it may or may not include specific, detailed information about the company’s IP, technology and human resource capital (beyond short summaries of the sales, marketing and the executive management team).
How Is a Teaser Different From a CIM?
Before a prospective buyer signs a non-disclosure agreement (NDA) and gains access to a CIM, they will likely review a teaser. This document is a whitewashed, quick summary of the CIM. It does not include the company’s name but may include:
- Financial information.
- An analysis of growth opportunities.
- Future projections.
- Summary of the target market and industry.
This information can help those on the buyer side of equity research narrow down their prospects for M&A deals.
How Your CIM Affects the M&A Process
The CIM is the first step in the due diligence process for M&A deals. The company on the buy side has approved the teaser and has interest in acquiring the company in question, and now digs deeper to explore the full market potential and financial projections.
If your CIM for private equity doesn’t entice them to move forward to explore the rest of your documentation, the deal could fall flat immediately. And if it’s difficult to access, understand or follow, it could paint the company in a poor light. With this in mind, you want to give any prospective buyer just enough details to want to move forward, without revealing anything competitors could use to gain the upper hand.
Why You Need a Virtual Data Room for Your CIM Documentation
With so many moving parts and people involved in the process of creating a CIM for private equity, confidentiality and security are important at every step. Not only will company leaders and your investment firm require seamless access to read and revise documents, but — ultimately — third parties require secure access.
CapLinked offers virtual data room services for every step of the M&A process. With the capabilities to grant and revoke access at any time, track file changes and ensure the security of documents, creating and sharing CIMs can be easier with CapLinked virtual data rooms.
Dawn Allcot is a full-time freelance writer and content marketing expert specializing in technology, business and finance.
References:
MelCap Partners, LLC – What Is a Sell-Side Confidential Information Memorandum and Why Is It an Important Document?
