Any competent investment banking firm will assemble a Confidential Information Memorandum (CIM) when bringing a business to market. The CIM serves as a selling document, which provides a comprehensive overview of the business, addressing core strengths and weaknesses. A deliberately constructed CIM will control the initial story that buyers receive at the most impressionable stage. A poorly constructed CIM will do the exact opposite, and there is zero room for error.
Collect the Right Data
The process starts with a kick-off meeting, where the advisor meets with the client and spends a full day (or maybe more) talking to management about the business and touring relevant facilities/operations. This is a critical juncture, as the information collected and the ability to decipher such information will shape the narrative of the document. An experienced investment banking team will know the right questions to ask, the topics to cover in greater detail, and will be skilled in reading the management team (i.e. what excites/concerns them). The kick-off meeting sets the trajectory for the process, and the right questions must be asked. This step should not be overlooked.
The Information Memorandum must follow a logical structure, which supports a focused explanation of the business. Yes, many CIMs have relatively standard setups. Sections will include: Executive Summary, Products and Services, Markets and Customers, Operations, Human Resources, Growth Opportunities, and Financial Information. However, the subsections within these topics and the chronology set forth need to accommodate the story of the business. This is easier said than done. A scattered structure will lead to a disjointed narrative. Conversely, an organized structure will produce a transitive flow that coherently presents the information.
Strategic Presentation of Data
Businesses are complex and it is tremendously difficult to paint a complete picture in one document. The investment banker needs to extrapolate key pieces of information to include in the CIM. Raw data can be interpreted countless ways depending on its presentation and supporting commentary. Skillful advisors don’t just insert the provided charts, they conduct thorough analysis and creatively incorporate data in a way that supports the story. Also, the banker needs to be smart about what to include at this (relatively early) stage and be cognizant of who will have access to this information. Notwithstanding Confidentiality Agreements, the advisor needs to protect the client and know when to redact information for certain buyers (often strategic competitors). In other words, know your audience. Financial buyers and strategic buyers will have different priorities, so tailor the information in the document based on the anticipated buyer universe.
Allocate Information and Data Appropriately
These documents (sometimes Word Docs and sometimes PowerPoints) can be lengthy and need to effectively retain the interest of prospective buyers. A poorly written CIM will over allocate info and space to non-core business aspects, and under develop key points that buyers need to fully understanding when conducting their evaluation. If 50% of the document focuses on Great Grandpa’s original production technology, the CIM has missed the mark. Buyers can get lost in the information, and it is the investment banker’s job to construct a document that is concise when needed, and excessively detailed when required.
Carefully Address Business Challenges
The CIM is a selling document and therefore must highlight the strengths of the business, but equally important, must thoughtfully address the challenges. Assembling a CIM allows the seller to preemptively position key issues in the most favorable manner. In doing so, a successful CIM will steer the buyer down a train of thought that minimizes past and present challenges. Every business, even the most successful, has areas of weakness. Common issues include volatile financial performance, customer concentration, light management, cyclical industries, etc. A skilled advisory team will actively market around these issues by uncovering remedies, counterbalancing opportunities, pointing to positive end-market dynamics, and crafting “one-time” explanations. Buyers will undoubtedly uncover a business’s weaknesses, so the seller must address them early and control the overall impact.
Easily the most important. Every CIM needs to have a thesis that best-positions the company within the marketplace. The investment banker needs to work with management to refine and define the narrative. There is no substitute for experience and expertise. With this in mind, every component of the document must serve a purpose in articulating the thesis of the business. Every section, subsection, paragraph, bullet, and chart should correspond to the broader purpose of the CIM. If the CIM does not articulate a clear story about the business, it has failed entirely. All aforementioned “pieces” will have an impact on the gravity of the story. The document needs to be informative, comprehensive, articulate, and convincing. It’s a selling document.
Millions of dollars are at stake when selling your business. There are no “take backs” when going to market, so you better get it right the first time.