When you’re attempting to sell your company to a prospective buyer, or trying to secure financing from potential investors, there are a lot of moving parts that have to be dealt with. Among the many other issues is that of documentation — the various types that are needed to move the transaction along. One of the most important of these is the confidential information memorandum, which is used in virtually every merger and financing situation.
What Is a Confidential Information Memorandum?
A confidential information memorandum (CIM) is a document that is typically used in mergers and acquisitions (M&As). It contains important information about the business that is being acquired or is looking for an investment from prospective investors.
This information is relevant to the transaction, as it includes data that is important to potential buyers or potential investors. In short, a CIM gives a potential buyer detailed insight into the company it is looking to acquire. Other names for a CIM include “offering memorandum” and “information memorandum.”
When and Why Are CIMs Used?
What does the CIM mean? Typically, a CIM is a part of the due-diligence phase on the sell-side M&A process for investment banks or venture capital firms. At the outset of the M&A, information is gathered on the client (the company that is being acquired or sold), which includes company information, its products and services, financials and information on its industry.
Note: In some instances, a “light” version of the CIM often called an executive summary or teaser is produced — usually five to 10 pages — which redacts the identification of the company. This “anonymous” document is simply produced to give a general overview of the company in order to attract interest.
What Does a CIM Contain?
Because a CIM typically includes a large number of pages (in most instances it’s anywhere from 50 to 150 pages), it contains loads of information on the company, its financials, growth opportunities, and its industry overall. The structure and contents of a CIM vary from situation to situation, but in most cases, a CIM contains the following sections:
- Key Investment Highlights
- Products and/or Services
- The Overall Market
- Sales and Marketing
- The Management Team
- Financials (Past Results and Projections)
- Risk Factors
Of course, there are usually more sections, but these are the ones that tend to end up in every CIM. Under these offering memorandum sections are additional information on the company, which includes a thorough overview and history, data on competitors, employees, assets (tangible and intangible), legal and contract data, supplier overview and technological capabilities, among many others. A CIM follows no standard formula; it can be extremely text-heavy or can contain graphs, photographs and even videos in some cases.
On the Sell Side of the Transaction
A CIM is usually prepared by an investment banker, M&A advisory firm or venture capital firm, in conjunction with the target company. The CIM is used as a marketing document, and efforts are made for as many aspects of the company to look attractive to potential buyers or prospective investors. The maxim for the investment banker is “don’t just sell, but sell for the maximum value.”
In most cases, before a prospective buyer gets to see the CIM prepared for the target company, it receives the teaser to gauge interest. If the potential buyer is interested, it then receives the CIM, which obviously includes the company name, the information about the company itself, its financials and management and all the items that are relevant to the sale or investment.
A CIM gives buyers a snapshot of the company — accurate and up to date — to help them decide whether it’s an opportunity worth pursuing. It creates a basis for the overall worth of the company, its value on the market, and whether or not an analyst would be brought in to determine any growth potentials or growth opportunities.
When crafting a CIM as a business owner, it’s best to put yourself into a buyer’s mindset; think of what questions you would ask if you were the one buying a company. Being in this buyer mode will help you think of all the things that need to be brought into the CIM — things that will make the company more attractive, which will lead to a higher selling price or better terms on the investment.
How To Share CIMs
The standard way to share CIMs, along with other documentation related to the acquisition, is in a virtual data room (VDR). A VDR (sometimes referred to as a “deal room”) is a secure, online repository for document storage, editing and distribution. It is generally used during the due-diligence process that occurs in the early phases of a merger or acquisition.
Security Outside of the VDR
Sharing CIMs and other financial documents related to an M&A is a risky proposition; since these documents are a detailed, intimate look behind the curtain of a company, ending up in the wrong hands (a competitor, perhaps) could be trouble. That’s because these types of documents contain a lot of proprietary information — details about financials, intellectual property and other possibly sensitive data — pending lawsuits, employee data and information on competitors, among other details that are not intended for public consumption.
How Caplinked Can Help
Caplinked is a leading provider of VDRs, used and trusted by those in the M&A industry. A Caplinked VDR contains the tools and features required for security during the due-diligence phase. These simple yet secure features include high-level admin controls, document and version control, 24/7 customer service and multiple layers of security. To see how a VDR will help your merger and securely manage your documents during the M&A process, sign up today for a free trial of a VDR solution that will help the due-diligence process flow far smoother.
Chris Capelle is a technology expert, writer and instructor. For over 25 years, he has worked in the publishing, advertising and consumer-products industries.