A confidential information memorandum (CIM) gives a potential buyer the information they need in order to make an offer to buy a business.
It’s not a legally binding document but is instead a marketing document designed to present a company in an attractive light.
The confidential information memorandum won’t include a valuation. At this stage, the company is looking for bids.
However, it should include an overview of the key financials and products, a summary of historical financials, and a financial projection for the next few years. The CIM should also review things like competitors, operations, and strategy.
What are the sections of a confidential information memorandum?
A confidential information memorandum will normally include the following sections:
Overview and key investment highlights (executive summary)
Products and services
Sales & marketing
Financial results and projections
Risk factors (sometimes omitted)
Who prepares a confidential information memorandum?
Usually, the company’s investment banking deal team creates the CIM and also solicits potential investors. The company provides information about its products, operations, market, and so on.
The investment banking deal team endeavors to make the company look as attractive a prospect as possible, with a particular focus on writing the executive summary section of the CIM.
How do potential investors review the confidential information memorandum?
Financial analysts usually review the CIM quickly to begin with. If the fund doesn’t invest in the company’s industry, then the fund won’t pursue the CIM. Next, the analyst considers the executive overview and the financials before moving on to read the rest of the CIM if those seem promising.
The analyst then generally provides a summary for the senior team. If the firm is interested in buying the company, they’ll submit a non-binding initial letter of intent.