There is a critical document in the M&A sale process known as the “Confidential Information Memorandum” or “CIM.” This document tells your company’s story, explains its value, and lays out important facts and figures for buyers. Other names for the CIM are pitch book, offering memorandum and confidential business review. Here at Exit Strategies we often refer to it as the “deal book.” This articles answer common questions about deal books and why they are important to sellers.
Who receives the deal book and when?
Buyers receive a CIM after signing a confidentiality agreement and after passing our screening process. One of the CIM’s main purposes is to help buyers make an informed and swift go/no-go decision.
Who prepares the deal book?
The deal book is prepared by an M&A broker from interviews and documents supplied by you. We also rely on our knowledge of your industry and further research. Completing a deal book can take 3-4 weeks after all the facts are gathered, but the rest of the sale process will go faster, with fewer headaches and missteps. Remember, the goal is not to be for sale; but to sell and maximize value in a sale. While we’re putting the CIM together, we will develop and prioritize the list of potential strategic buyers, and build-out our data room for due diligence. We’ll also coach you on preparing the business.
What information goes into a deal book?
A CIM contains insightful discussion of a company’s history; products and services; customer base and markets; operations; key technologies, processes and capabilities; management and personnel; facilities; important contracts; fixed assets; IP and intangible assets; strategic relationships; growth strategies; and more. It presents and analyzes 3-5 years of financial statements with normalization adjustments, and often includes financial projections. It also usually discusses the competitive landscape and industry outlook. Most of our CIMs are 10-30 pages in length, plus exhibits. Every CIM is a custom piece of work that sells the unique attributes of our client’s business.
When writing the CIM, we withhold any highly sensitive information, such as the identities of customers. A CIM would contain summary analysis of the customer base, but actual names aren’t shared until due diligence, after reaching an agreement on price and terms.
How does the deal book benefit sellers?
A professional CIM improves the outcome of a business sale process in several ways. Here are few of them:
- Sets expectations – Sets a professional tone for future discussions, builds credibility, and let’s buyers know you’re serious about maximizing value.
- More interest – More buyers will explore a deal when they know the right information is available.
- Perception of value – A consistent story and better information leads to better offers; conversely, uncertainty produces low offers.
- Speed – Having reviewed the CIM, buyers quickly move to the next stage in the deal process, or move on, which is in everyone’s best interest.
- Persuade stakeholders – Buyers have a document with which to educate their partners, lender, spouse, attorney, CFO, CPA, and other decision makers.
- Less renegotiation – Fewer surprises in due diligence means less renegotiating and fewer blown deals
- Secure your proceeds – Important disclosures are made in the CIM that you’ll want to be sure are known and documented. Overselling turns buyers off; we therefore aim for transparency and balance in the information presented.
- Save your time – The CIM helps you avoid answering key questions piecemeal, over and over; and avoid spending time with the wrong buyers.
Confidence – You will shape the story, approve the CIM, and understand exactly how your company will be presented
It’s hard to believe, but I know business brokers who think that a CIM is too much work and others who believe that the less said to buyers the better. In my opinion, selling without a CIM is a formula for disaster. Brokers who rush to market and skip or skimp on this step are likely to disappoint their clients. A well-written CIM is well worth the effort and time upfront.
If you’re considering selling your company, I urge you to hire an M&A broker who will invest the time to present it in the professional manner that you and your shareholders deserve. The CIM or deal book is an essential part of a successful business sale.