In the next article of our new series, 11 Critical Steps in the Sell-Side M&A Process to Build Founder Confidence, we answer the question what exactly is a CIM and why do you need one? Mergers and acquisitions are complex, even under the best circumstances. Business owners and advisory team members should prioritize assembling detailed, accurate information about your business before you head into the M&A phase. This often means putting together a Confidential Information Memorandum (CIM).
Here are the details you need to think through during the preparation phase of your upcoming sale, merger, or acquisition.
What is a CIM?
Contemplating the sale of a business is potentially fraught with paperwork and last-minute details to get everything organized. Amid this process, you may be asked for a CIM, otherwise known as a Confidential Information Memorandum. This is an extremely detailed presentation that you will use to market the sale of your business during a merger or acquisition.
This CIM, sometimes called a Confidential Information Presentation (CIP), is usually put together by the business owner, CEO, M&A advisor, or management team to give background on the business. If there is something a prospective buyer should know before making an offer, that information belongs upfront in the CIM.
Keep in mind that assembling a CIM is quite a time commitment, but it pays off later in the sale process. Prospective buyers have all of the details necessary to make a well-informed offer, minimizing your time spent answering basic questions about daily operations and streamlining their due diligence.
Why is a CIM Important?
CIMs are a critical piece of the puzzle when thinking about selling your company. The presentation positions your brand in the marketplace, showing where the hidden value is for interested buyers. It’s a strong way to position yourself in the market and reach more buyers, which ultimately serves to collect competitive offers.
As your M&A advisor or investment banker develops the CIM, it can go out to a wide pool of the people most likely to invest and purchase. Why does this matter?
In short, the CIM ensures that offers coming in during a sale process actually take into account the critical elements and nuances of your business. If they are unwilling to move through with closing due to a change in terms, you will be out of time and money invested in securing their offer. The detailed CIM makes it more likely that they understand relevant details about the sale and increases the odds of a stress-free closing.
As you may have already gathered, a CIM differs depending on the aspects of your business that will most appeal to buyers. Your goal should be to draw attention to the strengths of your business as well as the opportunities for future expansion.
Generally speaking, there are six aspects of a detailed CIM:
- Executive Summary: The executive summary is often the best starting point for a CIM. It gives an overview of the Company’s goals, plans for future expansion and growth, and detailed reasons why you are selling the business now.
- Company Overview: A company overview should be simple for you to assemble. It reveals the history of the company, the timeline, what sets the product or service apart, and any value added to the market. You might share more about the marketing and introduce your existing team.
- Industry Overview: Much like the company overview, this section is meant to reassure buyers that the market is profitable. It details the market trends and forecasts growth in coming years.
- Key Investment Considerations: Why should a buyer invest in your company? The key investment considerations outline roughly five to ten characteristics that set you apart from competitors.
- Growth Opportunities: This section of the CIM draws the most attention from buyers because it gives them a clear picture of what the future could hold. Can you expand into online markets, open a second location, or merge with another, larger brand? Track the trajectory of your company in this section.
- Financial Overview: This may be the most time-consuming part to put together. Start by providing historical financials to prove the company’s viability. From here, you will show projected financials where you can highlight revenue growth, adjustments to EBITDA, and a run-rate revenue projection.
Common Mistakes in CIMs and How to Avoid Them
While it might seem straightforward to detail your company’s most pertinent information, there are actually a few places where CIMs tend to go off the rails:
- Overloading with Information: There is such a thing as overwhelming prospective buyers with more information than they need to make an educated and savvy business decision. Instead, you should focus on including only relevant and concise details that paint a larger picture of what the future holds.
- Inconsistent Data: Nothing throws up red flags quite like seeing different numbers in the various sections of the CIM. As you work your way through sharing details, ensure that the financials align across sections to prevent back-and-forth with buyers who may raise an eyebrow and turn away at inconsistencies.
- Ignoring Visual Design: Despite being a serious document, buyers want to enjoy reviewing your CIM. Large blocks of text and obscured numbers make it hard to read quickly to see if they might be interested in a more thorough look. Enhance readability with graphs and charts.
Are you ready to take the first steps toward a merger and acquisition by another company? The first step is often assembling your CIM, and Paddock Capital Markets can help. Our team focuses exclusively on M&A and strategic advisory that can help you sell using our global connectivity.