Confidential Information Memorandum (CIM) for business sale
The investment banker or merger & acquisition (abbreviated as 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) which 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.
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 which are prepared in the process of 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 so that they can decide a suitable value for the business acquisition. It is very important that the CIM should clearly specify all the features, information and assets of the business 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 which 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 of the business. 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 valuable features of the business 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.