A confidential document used in Mergers & Acquisitions
A Confidential Information Memorandum (CIM) is a document used in mergers and acquisitions to convey important information about a business that’s for sale including its operations, financial statements, management team, and other data to a prospective buyer.
This guide will break down all the various sections that are included in most CIMs and provide a downloadable template that can be edited to create your own CIM.
When any company goes through a sale process, it hires an investment banker or M&A advisory firm. The first step of the banker is to understand the company and gather as much information as possible from top management to come up with a profile of the company.
The banker prepares the CIM and uses it as a marketing document, which is intended to make the company look attractive as the objective is “not just to sell, but to sell for maximum value.” The reason an investment banker tries to sell a company at the maximum value is because they represent the best interest of their client (the seller) and their commission is based on the sale price.
An example table of contents for an offering memorandum:
Below is a detailed analysis of each section:
This is a 1-2 page summary of the entire memorandum. It contains at least the following:
This section of the CIM contains the investment rationale in detail – i.e. why the “target company” would be a great fit for the acquirer. Typically, it may include the following (as hypothetical examples):
It is imperative for the acquirer to know the market size and current market trends. It is the duty of the banker to give an overview of the market and make the company’s case stronger. The investment banker prepares the market overview from credible data sources, such as the World Bank, Gartner, IDC, Forrester, Bloomberg, Reuters, etc. Credible sources provide reliability to the data points and help the acquirer to better understand the market and formulate the right strategy.
The overview of the market contains elements like:
Sample Slide of the Market Overview:
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It contains basic details of the company such as:
This section contains a detailed analysis of the products and services offered by the company in its day-to-day business operations.
For the product categories, the company will include a list of the products it offers under various segments, the differentiating factors of the products, the target segment of each product, etc.
From a service perspective, it shows the company’s various service offerings, the capability of the company, the end-to-end process of the services it offers, revenue models such as Fixed Price projects, or those based on Time and Material, etc.
Example of Service Capability:
It shows the revenue profile of the company from different aspects, which is very important for the acquirer. It shows the revenue mix according to Geo, Product, Business Segments, etc. By showing the information in this manner, buyers can see where the major revenue comes from and if it is aligned with their business strategy.
An example of a Typical Revenue Profile:
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Segregation of the employees is shown so that the buyer has a fair idea of the existing personnel mix and can plan changes that will help them achieve cost optimization, or whatever strategy they plan to execute.
An employee profile can be shown in several ways, including by Function, Qualifications, Geography, Pyramid, etc.
It’s important to have full profiles on all key employees.
For any acquirer, it would be important to know what kind of customers the company would be serving in the future. Some of the popular questions the acquiring company would be interested in include – will the customers be large enterprise customers or too many small customers, how many years of relationship with the customers, revenue contribution from Top 5 or 10 customers, etc.
Representative Set of Customers:
This is perhaps the most important section from a valuation perspective, as it gives a detailed analysis of the profit and loss account. It contains actual financial information from previous years, as well as financial projections by the management of the target company. The assumptions of such projections are also written so that the buyer understands the rationale for such projections.
Since the target company is preparing the projections, it will try to show the company in a very positive position and make it attractive in order to achieve a higher valuation.
Example of a Target Company’s Profit and Loss Account:
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A brief profile about key personnel of the company, highlighting their role(s) in the company, years of experience, previous work experience, etc.
This section is extremely important, and also one of the most matter-of-fact sections. It typically includes each person’s photograph, name, title, and a multi-paragraph description of what they do, their background, and their claim to fame.
An organizational chart may also be useful in this section to illustrate the hierarchy and reporting structure.
As discussed above, a typical CIM will include all of the above information.
But what is also important is to know what it is not about. CIM is NOT:
In 2011, Google bought Motorola. So what information did Google receive to make it decide to purchase Motorola for a whopping $12.5 billion? These things, that are not known in the public domain but are very important for any company to know, are contained in a document called a Confidential Information Memorandum (CIM).
In any M&A deal, once the buyer and seller enter into transaction mode, they sign a Non-Disclosure Agreement (NDA), which restricts either party from using confidential information they are supposed to receive through CIM. The information contained in the document is confidential, as it gives a detailed insider financial analysis of the company; hence the document is called Confidential Information Memorandum (CIM), Offering Memorandum, or Information Memorandum (IM).
Here is a template you can download to get a basic idea of how an offering memorandum or confidential information memorandum is laid out.
This template is only for educational purposes only and should not be used or relied upon in any way for any other use.
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This has been a guide on how to write a confidential information memorandum (CIM). The downloadable MS Word Template would be a good illustration of the types of information included in an offering memorandum.
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