Information Memorandum

An IM is a document provided by a company to prospective investors after the investors have reviewed a brief Investment Summary, or “teaser”, and signed a Confidentiality Agreement. Some business owners and financial advisors look at an IM as a marketing document which provides a selective overview of the attractive features of a company. A company and its advisor(s) must strike a balance when preparing an IM.  The document is a marketing document, in the sense that it should motivate investors to want to invest in the company – but it needs to avoid hype, exaggeration, or omission, and provide a complete disclosure of ALL material facts.  Hype or exaggeration will only diminish the credibility of the company and its management in the eyes of investors, and may also create legal liability for the Directors of the company.

In general, an IM allows the owners of a company to present a comprehensive, accurate, and attractive picture of a company. It’s also worth stating the obvious here – Investors EXPECT an IM, if you don’t have one you almost certainly will not get anybody interested let alone get their investment. An IM also helps to ensure that all investors receive the same information.  This is particularly crucial when a seller is running a competitive process.  The more information that finds its way into the IM, the less need there is for investors to pose written questions, saving time for both buyer and seller. From an investor’s point of view, a good IM demonstrates the professionalism and motivation to sell of the sellers, as well as the quality of the management—all important factors when deciding whether to invest in, or buy, a company.

Preparing an IM requires a high level of internal organization. The CEO or business owner should lead a small team of experts in the main areas (e.g. sales/marketing, legal and finance) that will need to be covered in the IM. Deliverables and deadlines should be decided for each member of the team. When this process is complete, the final version of the IM should be reviewed by the owner, CEO, and all members of the team, to ensure consistency, completeness and accuracy. As a sanity-check, the Seller(s) and their advisors need to ask themselves what information they would require if they were buying the company – using a company they know little/nothing about as their reference point. Given the IM is designed to solicit a non-binding offer on the company, with valuation, the omission of one or more key facts may give a distorted valuation, and provides investor with an opportunity to renegotiate their offer – typically downwards.

This investment memorandum is a document that a business presents to potential investors. It presents the investment case in the context of a detailed view of the business, its management team and their financial plan for the business going forward.

This information memorandum is for a high-profile technology investment opportunity in the technology sector.

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Key Points

Key Questions Answered

  • How solid is the business platform? - Sales development - Profitability - Customer portfolio - International setup How strong are the commercial positions? - Industry and market outlook - CaseShare market positions - Business model - Competitive position - Key challenges & opportunities How will market dynamics affect the business going forward? - Mission, vision, key positioning - Financial ambition & targets - Transformation map - Business strategies - Growth scenarios - Detailed financials