What is a Confidential Information Memorandum and why should I care?

There is a critical document used in the business sale process known as the Confidential Information Memorandum or “CIM.” Other names for this document are pitch book, deal book, offering memorandum and confidential business review. A CIM tells a company’s story and lays out important facts and figures for prospective buyers. This article answers common questions about deal books and explains how they benefit sellers of businesses.

Who receives the CIM and when?

Buyers receive a CIM after signing a non-disclosure agreement (“NDA”) and after passing our screening process. One of the CIM’s main purposes is to help buyers make informed, confident and swift go/no-go decisions. Not having a CIM is a big time waster for sellers and buyers.

Who prepares the CIM?

The CIM is prepared by an M&A broker from interviews with and documents from the seller client. We also rely on our industry knowledge and research. Finalizing a CIM can take a few weeks after all the facts are gathered, but it makes the rest of the sale process goes faster, with fewer headaches and missteps. Remember, the goal is not to be for sale; but to sell and maximize value in a sale. In parallel with putting a CIM together, we complete our list of potential strategic buyers and build-out a data room for due diligence. We also coach our client on final business preparation during this time.

What information goes into a CIM?

A CIM discusses a company’s products and services; history; customer base; end markets; operations; technologies, systems, processes and capabilities; management and personnel; facilities and fixed assets; key contracts and certifications; IP and intangible assets; strategic relationships; growth plans; and more. It presents and analyzes several years of financial statements with normalization adjustments, and may include financial projections. It often discusses the competitive landscape and industry trends.

Every CIM is a custom document that tells our client’s unique story to potential buyers. Stories should have numbers attached to them, and every number should have a story. CIMs can be 10 to 60 pages in length, plus exhibits, depending on the complexity of the business.

When writing the CIM, we exclude highly sensitive information. For example, a CIM typically presents a detailed analysis of the customer base without naming customers. Some things should wait for due diligence or even closing.

How does a deal book benefit sellers?

A professional CIM improves business sale outcomes in several ways:

  1. Sets expectations.  Sets a professional tone for future discussions, builds credibility, and let’s buyers know you’re serious about maximizing value.
  2. More interest.  More buyers will explore a deal if they receive quality information.
  3. Perceived value.  A consistent story with supporting information leads to better offers. Conversely, uncertainty produces low offers.
  4. Speed.  Having reviewed a quality CIM, buyers can move quickly to the next stage in the deal process, or move on, which is in everyone’s best interest.
  5. Persuade stakeholders.  Buyers use the CIM to educate their investors, partners, lenders, CFO, attorney, CPA, and other advisors and stakeholders.
  6. Save your time.  A CIM helps you avoid spending time with the wrong buyers. And meetings with buyer candidates will be more productive.
  7. Less renegotiation.  Fewer surprises during due diligence means less renegotiating and fewer blown deals
  8. Secure your proceeds.  A CIM makes important disclosures, early on. Important facts are less likely to be missed.
  9. Confidence in your team.  Because you help shape the story and approve the CIM. You will understand exactly how your company will be represented by your M&A advisor.

It’s hard to believe, but some business brokers think that CIMs are too much work. Those who rush to market and skip or skimp on the CIM disappoint most of their clients.

If you are considering selling your company, I urge you to hire an M&A firm that will invest the time to analyze and present your company in the professional manner it deserves. The Confidential Information Memorandum or CIM is an essential part of a successful business sale process.

For further information on the benefits of a Confidential Information Memorandum or to discuss a current business sale, acquisition or valuation need, contact Al Statz in our Petaluma, California office, 707-781-8580 or alstatz@exitstrategiesgroup.com.