The term mergers and acquisitions (M&A) broadly describes one company’s process of combining. A merger is the combination of two firms, which subsequently form a new legal entity under the banner of one corporate name, and acquisition refers to one entity’s takeover. One of the most important documents in the mergers and acquisitions process is CIM.
What does CIM stand for?
A CIM stands for Confidential Information Memorandum and represents an overview business document for selling company used in mergers and acquisitions at investment banks process. Confidential Information Memorandum or Offering Memorandum (OM) and Information Memorandum (IM) or “book” is an early prepared document to put the selling company in the best possible light and provide company buyers a framework for performing preliminary due diligence.
Prepared early on in the sell-side process in conjunction with the seller’s investment banker to provide potential buyers with an overview of the company for pursuing an acquisition. The CIM is designed to put the selling company in the best possible light and provide buyers with a preliminary due diligence framework.
The investment banker or merger & acquisition (abbreviated as M & M&A) advisory firm hired by a seller to market a business to potential buyers will draft a document called the Confidential Information Memorandum (CIM) that has information about the business.
The CIM, which is also called the “book” for the transaction, will usually include the following details
- a comprehensive description of the business being sold and how it operates
- a summary of the industry sector in which the business is functioning and the opportunities which are available in the market
- financial information about the business, including a detailed analysis of the historical financial results, projections for the business in future
- a summary of the process of auctioning the business, including the structure of the proposed deal and the time frame for which the business will accept letters of intent or expressions of interest for purchasing the business.
CIM due diligence represents the process of examining a company’s numbers, comparing the numbers over time, analyzing historical financial results of the company during Confidential Information Memorandum creation. Company management needs to apply a systematic way to analyze and mitigate risk from a business or investment decision.
Explanation of CIM
Since the CIM provides the potential buyer of a company with the information they require for deciding the initial offer for the business, the CIM is considered to be of the most important business documents prepared in selling the company. Usually, the CIM book will not specify any purchase price for the business. However, it will ensure that the prospective buyer has sufficient information about the business to decide on a suitable business acquisition value. It is essential that the CIM clearly specify all the business’s features, information, and assets so that the buyer is willing to pay a premium while acquiring the company.
Some of the information which should be provided in the CIM to potential buyers include:
– the diversified customer profiles so that the business does not depend completely on any particular customer
– the entry barriers for starting a similar business, reducing the number of competitors
– how the business is planning to achieve the projected growth in the future and the resources available, skills, the ability of employees to achieve this growth
– Growth opportunities for the business in the future, like new products or services which are being planned
– the strengths of the management team of the business, how they have helped the business grow
– whether the business is scalable, how it can be grown faster, the resources that are required for business growth
– opportunities for the business in the market place, outside the business, which can be utilized to get more orders, help the business grow
The seller of a business should review the CIM, which has been prepared for the business, thoroughly to ensure accuracy of the information and other details before it is distributed to financial advisors, potential investors, or strategic buyers. Though investment bankers and M&A advisors are experienced and well-trained professionals who understand the process of selling a business well, only the seller knows all the details of the business he is selling. Hence, it is important to ensure that all the business’s valuable features are properly highlighted in the CIM to ensure that the business is sold at the highest price possible and the seller gets the best terms for the deal.