What is an Information Memorandum?

“Life is never quite like the brochure.”
Chuck Lorre

What is it?

An information memorandum (IM) is your company’s selling collateral, it’s the headline factors that attract the perfect buyer for your business.  Knowing who your potential buyer means you can present the best IM to attract them.

The information memorandum (IM) is the first chance a buyer gets to see what your business is all about, especially if you aren’t known to them through another relationship.  You get this opportunity to present your business in the most positive light.  Think of it as the application to a beauty parade where you’ll be showing interested parties what an attractive investment prospect your business is. It’s also the initial basis on which your eventual buyer considers putting in an offer so it’s well worth spending some time and effort on getting the first impression pitched at the right level.  

The message you send in your IM directs the type of buyer you attract.  It is important to give an accurate and honest representation of all aspects of your business. Every IM is unique and can vary widely from company to company, though there are always some common elements which buyers need to make informed offers.  If these are absent, then no further expressions of interest follow:  

• A description of the business and its history.

• The principal assets included in the sale.

• Summary current and historical financial information.

• Financial forecasts for the future (and their basis).

• Information about employees and, where appropriate, major customers and contracts.

A buyer is interested in how your company operates, and how you generate revenue.  A summary of your products and services and the industry sector you operate in gives them an idea of whether they are looking at something of interest to them other than pure profit motive.  Showing them your market awareness and understanding of the competitive landscape shows buyers that you understand the place your business occupies including its risks and its strengths..

“Information is only useful if it can be understood.”
Muriel Cooper

Be clear on how you differentiate yourself from others in your market or industry and on your reasons for selling.  Make sure it’s clear what’s for sale and what isn’t, especially if there is property involved.  A summary of your key staff is usually included and any contractual terms, especially if they are out of the ordinary (share options, special bonus arrangements) – though most of this is covered in minute detail in the DD too.  The IM is the headlines.

Details of your major customers might be a step too far in the IM, but you need to tease the buyer with outline details of your customer base, including your typical customer type and any customers who are particularly important to the business.

Summary financial reports to illustrate the general financial health of the business are enough for most IM’s.  You don’t need detailed analysis in the document, but you do need it for the DD.  More focus is usually given to summary forecasts for the future of the business.  Do not be tempted to drift off into a fantasy land of “hopes and prayers” on your projections.  

These need to be justified in the DD process and you should expect a lot of analysis on any projections.    

Be guided by your professional advisors, but most IM’s give an indication of the expected terms of sale and desired time scales for completion.  Don’t be afraid to set out what you want (or need).  Yes, that might scare off some buyers, but it engages the ones who are willing and able to satisfy your requirements.

From experience keeping your information memorandum clear, concise, and simple but impeccably accurate serves you better than complicated and full of holes.  If your business is larger or more complex, then it’s going to be longer and more detailed.  The purpose of the IM is to generate interest enough to take potential buyers to the next step.

You need enough information to whet their appetite but not too much that could expose you to your competitors. IMs are usually very restricted in their distribution and only sent to interested parties after receiving a signed non-disclosure agreement (NDA).  This gives you some legal protection against the information being disclosed without your express prior permission.

Do not be surprised by leaks.  Sometimes they come about by accident especially if the process becomes protected.  In one transaction a junior secretary on her first job for the M&A advisor had a single moment of indiscretion without realizing she was in the presence of a financial journalist.  The next day the deal was on page 6 of the Financial Times.  In this case there was already a PR contingency plan in place.  This was quickly enacted and the whole incident was managed positively to reduce the impact.

Having a PR plan in place and agreed with your team and advisors before anything happens is good preparation.  It’s always better to be on the front foot and lead in these situations.

Are you ready to leave. your business (no matter when it happens)? Click here to contact Christine by email alternatively you can book a call with the Business Mentor of the Year 2020, author and speaker. Who helps business founders get their businesses exit ready so they can enjoy a happier, richer future.  She saves them THOUSANDS and increases the value of their businesses by MILLIONS.