Everything you need to know about an information memorandum (IM)

The information memorandum (IM) plays a crucial part in selling a company. It’s an essential document sellers provide to prospective buyers. Selling a company can be challenging, both emotionally and mentally. It involves a large amount of detail and complex terminology. The IM helps to streamline this process by collating, analysing, clarifying and summarising the specifics.

Here, we explore the content of the IM and its importance and impact on company acquisitions.

What is an information memorandum?

An information memorandum provides potential buyers with detailed insights about a company. It’s also known as a bidbook. The IM document examines a company’s activities, financial health and prospects extensively.

Why is an information memorandum crucial to acquisitions?

An IM document is indispensable for the buyer because it identifies all the essential aspects they must consider when deciding whether an acquisition fits their strategy. The figures the IM provides are central to the company’s initial valuation and for providing information for further negotiations in the acquisition process.

Painting a clear and realistic picture

Using the IM, the seller should aim to present the company positively but realistically. They must take a professional approach, highlighting the company's potential for improvement honestly and clearly to help buyers decide the amount of added value in the company. Added value can affect the company's acquisition price.

What will you find in an information memorandum?

General introduction

Details about the author, the purpose of the IM, a confidentiality and disclaimer statement detailing terms and parties involved.

Summary

A concise presentation of the reasons for the sale and why the company is attractive to potential buyers, including key financial metrics.

Legal structure and activities

The company's legal structure, tax information and an overview of the entities involved in it. This section also discusses core activities such as markets, revenue distribution and principal customer relationships.

Organisation and external analysis

Detailed description of organisational structure, management team, major shareholders and external market analysis. Includes a comprehensive SWOT analysis.

Financial data and forecasts

Fundamental financial information, including normalised historical balance sheets, profit and loss accounts and cash flow. Includes forecasts vital for assessing potential value and investment return.

Appendices

All relevant documents and supporting information such as asset summaries and contracts.

Requests for additional information

After the seller has provided the IM, potential buyers may request additional information. At this stage, the seller should consider carefully how much more information they should share, especially with direct competitors.

A trusted advisor will provide support and guidance. We recommend the seller holds regular management meetings with them to explore and assess bidders’ interests and requests further.

About Marktlink

As specialist advisors for SMEs, our team guides you through every step of the acquisition process for a smooth and successful transaction. For over 25 years, we've provided tailored advice and support, made complex processes manageable and helped our clients achieve their business goals. Discover how we can assist you on your M&A journey. Contact us today.