When it comes to the M&A process of selling your company, the last thing you want to do is carelessly put the marketing materials together at the last minute. Much like a job recruiting process where résumés determine whether applicants get interviews, the Confidential Information Memorandum (CIM) determines whether sellers get offers.
What is a CIM?
A CIM is one of the most important documents used in the sales process. It provides potential buyers with necessary information in order to make an initial bid. This is different from a “teaser” because it contains much more detail. In fact, a confidentiality agreement will be signed by the potential buyer before receiving the CIM, agreeing not to divulge private information to the marketplace. The document typically includes detailed information about the company and its operations, the management team structure, a description of the industry and opportunities within the market, financial information of historical performance and future projections, and also a summary of the sales process and when an indication of interest or letter of intent is to be received.
If you’re not sure why you need to prepare professional and comprehensive marketing materials to sell your business, then you might be in danger of getting low-balled or even ignored by potential buyers. A few reasons why you need a CIM are:
As I shared in the beginning, a CIM functions much like a résumé: it weeds out the wrong applicants. A teaser is hardly enough for an investor to decide if your company is truly something they’d buy. A detailed document will effectively screen out those who are less interested, allowing you to move forward with the right bidders.
Apart from the screening, a carefully prepared CIM will save you time in a number of ways. If you send out a document that’s missing details, then you can expect to get a series of phone calls and emails from undecided buyers asking about the same information. Sending a detailed CIM with quality information will cut the series of phone calls and emails into a smaller number of in-depth conference calls. Also, as a quick caveat, you don’t want to spend to much time chasing questions that aren’t relevant at this stage of the sales process…it can get out of control if you let it. Furthermore, comprehensive and quality information help the investor to decide sooner whether or not to go forward. This will help you speed up the sales process and have more time to run your business.
A buyer not only decides to invest, they decide what to invest in. A CIM won’t close a deal alone (it is only a part of the process), but it will set the tone for the rest of the deal. It paints the picture and attracts the right buyer by showing how your business is what they’re looking for. You want to highlight everything the business has to offer. This is easier to do when you put yourself in the investor’s shoes. Detailed information will also show that you know what your business is worth, which helps to avoid getting low offers. Remember, value is perceived not only by what you choose to include in the document but how you choose to present it.
How do I make a CIM?
Hopefully by now you see how important this document is. Therefore, you should be willing to invest in a quality CIM. The best way to do this is by contacting an investment bank or an M&A advisory firm (the latter is usually more economic). Such professionals understand the sales process and industry well enough to create high-quality, attractive marketing materials – it’s what they do. However, no one knows your business better than you, so you can expect to work closely with them and to answer a lot of questions. Also, to save time, it’s not a bad idea to use internal resources to gather as much relevant information about the company beforehand.