If you want to sell your business successfully, the documents you provide to potential sellers play a crucial role.
In the early stages of the M&A process The Information Memorandum is in the foreground..
Read in this article how to create a Create a sales-promoting information memorandumhow it differs from the business plan and which contents should not be missing.
You don't have much time to read? Here are the most important facts about the Information Memorandum at a glance:
- An Information Memorandum (IM) is a document that provides a potential buyer of a business with basic information about the company provides.
- There should be a clear and detailed presentation of the essential characteristics of the company and its finances contain.
- An IM is usually prepared by a specialised consultant and passed on to potential buyers.
- The Information Memorandum is crucial to the sales process as it allows buyers to get a picture of the company and make a Informed decision about a possible purchase to be able to meet.
Table of contents
- Information Memorandum Definition
- Importance in the sale of a company
- What should be considered in the Information Memorandum?
- When is an exposé or information memorandum issued in the M&A process?
- Difference to the Business Plan
- How is it created and by whom?
- Contents Information Memorandum
- Management summary
- Basic information on the company and business model
- Presentation of products and services
- Reason for sale
- Statement of Assets / Assets
- Corporate strategy and mission
- Customers, target group, market and competition
- Marketing, sales and growth potential
- Finances and operating results of the last 3 years
- Business organisation
- Personnel and processes
- Legal aspects and participations
- Conditions and financing
- Financing options for the purchase price (earn out options)
- Familiarisation phase / Post-merger integration
Information Memorandum Definition
An Information Memorandum (IM) is a document that helps business sellers to introduce and market their business. It contains detailed information about the Company, its finances, operations, customer base and future prospects.
The memorandum usually contains a summary of the company's business activities, its financial position, its strategy and its competitive position.
The information memorandum is often also called a company exposé.
Importance in the sale of a company
An information memorandum is one of the most important documents when selling a business. It serves as a sales document and provides the potential buyer with an overview of the Company, its services and finances. It is also the first document that - after previously only vague and general statements - gives concrete information about the object of sale.
The IM is also an important basis for negotiations between the seller and the buyer. It can already be a initial offer entail. Therefore, it should be carefully prepared and updated.
What should be considered in the Information Memorandum?
Although the IM (Information Memorandum or also Exposé) is primarily to be regarded as an information medium in the M&A process, which should provide the potential buyer with the most comprehensive information possible about the company, it can be also be understood as an advertising medium. The strengths and perspectives of the company should be clearly elaborated.
It can also be attractively designed and may supported with pictures and graphics be. The term 'sales prospectus' is also appropriate here. The information contained in the prospectus must be truthful, but may be presented in an appropriate promotional manner.
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When is an exposé or information memorandum issued in the M&A process?
The time schedule for the issue of the exposé is usually clearly specified. In the first step, a neutral and anonymous advertisement description for the intended company sale is created (also known colloquially as a teaser), which is printed on about one DIN A4 page. brief and important information about the object for sale there. Interested parties who read the teaser (e.g. via stock exchanges or direct approach) then contact the seller or their M&A advisor and sign a Non-disclosure agreement (NDA). On this basis, the Information Memorandum is issued to the prospective buyer.
The IM should definitely be created before an advertisement or a direct approach. This avoids delays after an approach by possible buyers. In addition, uncertainty could arise for the interested party if a lot of time would be needed for transmission after an enquiry.
Difference to the Business Plan
A business plan describes a company and its Economic prospects generally for a period of three to five years. The main focus is on the future of the company, what goals are being pursued and how they are to be achieved. It is a document with the aim of planning.
An information memorandum, on the other hand, sets out the Focus on several areas of a company: on the past as well as the present of the company and at the same time on the future. The point of an IM is to give the interested party a kind of 360-degree perspective on the company and the business model. How did the company develop historically, where does it stand today and what is the perspective.
The orientation towards the respective target group also illustrates the difference: A business plan (Business plan) is used primarily for Internal strategic planning purposes or external funding requests created. An information memorandum, on the other hand, is intended to convince potential buyers to acquire the company. It is a complex structure that does not only consist of numbers.
How is it created and by whom?
To ensure that the Information Memorandum meets the expectations of potential buyers, it is important that it is prepared by experienced professionals. The IM is therefore usually prepared by an external M&A advisorwho thoroughly analyses the enterprise and prepares a detailed report on its strengths and weaknesses. It is important that the organism of the enterprise in question can be understood holistically and that the special feature (USP) is highlighted as a benefit.
Here it makes perfect sense that specialists from individual departments of the company to be sold can contribute relevant information and possibly even collaborate on it. This depends on the size of a company and the high confidentiality of an intention to sell must be guaranteed.
We would be happy to assist you with our expertise in creating an effective and convincing information memorandum.
Contents Information Memorandum
Although there is no clearly defined structure for IM, various contents have become established. Depending on the size of the company the exposé comprises about 30 to 50 pages and should cover the following contents.
The Management Executive Summary provides a brief overview of the company and its key figures. This section is Particularly important for potential investorsas it gives them a first impression of the company's performance. Therefore, the management executive summary should be as precise and meaningful as possible. Every reader wants to understand right away where money is earned or not earned and which perspectives are based on which assumptions.
Basic information on the company and business model
It should always be taken into account that prospective customers do not yet know the company. Therefore, it should be explained to them early on in the IM how the concrete business model designed. How and where are sales generated? What basic information is important for further understanding?
Presentation of products and services
The products and services of a company are the core of its existence. Consequently, it is crucial for the buyer of a company to have a Complete and accurate picture of these products and services to obtain.
Reason for sale
Another important aspect to include in the information memorandum is the reason for the sale. This is especially important if you want to sell a business that has already been is established and has a good reputation has. The reason for sale can be, in particular, that you want to retire or that you want to concentrate on other business areas. The reason should be comprehensible and also concretely provide a conclusive basis for a buyer in later discussions.
Statement of Assets / Assets
The statement of assets and liabilities should provide an overview of the company's main assets. These include Real estate, machinery and equipment, inventories, but also patents or licences. It is important that this information is as accurate and up-to-date as possible. Only in this way can the potential buyer assess what value he or she attaches to the individual assets.
Corporate strategy and mission
Another essential factor for the successful sale of a company is the Clear communication of the corporate strategy and mission. This gives potential buyers an insight into the company's long-term goals and signals that the company has a clear direction. At the same time, it can help buyers imagine how the company could be integrated into their own business. This also includes the presentation of the culture of a company.
Customers, target group, market and competition
In order to dive into the understanding of the company structures in the market environment in more detail, a Definition of target groups and competition makes sense. In this way, interested parties can better understand the company structure and weigh up future opportunities. Possible dependencies on a few customers should be disclosed as well as risks in the company's further competition.
Marketing, sales and growth potential
An information memorandum should provide an overview of Marketing, sales and growth potential of the company give. This section gives potential buyers a first impression of how the company markets its products or services and brings them to the public. References to prospects and opportunities in the event of further expansion or the acquisition itself can also be mentioned here.
Finances and operating results of the last 3 years
The financial and operational results of the last three years are the basis for the successful sale of a company. These figures provide information about the Profitability of the company, the value of the company and future prospects. Likewise, the seller can show what further development he expects for his company and support this conclusively with arguments.
A well-organised company will convince a potential buyer that it is an attractive investment. This gives an overview of how the company functions and which employees are responsible for which tasks. Especially the qualification of the employees plays an increasingly decisive role. Also Information on the hierarchy and management culture of the company are helpful.
Personnel and processes
On the one hand, the company must have qualified and motivated staff in order to be successful in the future. On the other hand, efficient processes are essential to Save costs and improve the quality of the products or services ensure. In this section of the Information Memorandum, you should therefore detail what measures you have taken to optimise both the personnel and the processes of your company.
Legal aspects and participations
Another important aspect of preparing an information memorandum is to include all legal aspects and participations. All permits and authorisations required for the business should be listed here. Information on shareholdings in other companies as well as relevant legal disputes is also important.
Conditions and financing
Conditions include, for example:
- The Time of handover of the company
- The Amount of the imaginable purchase sum
- The Terms of payment
- Possible blocking periods for the sale of shares or participations
The financing of the Company sale should be described in the information memorandum. This includes details of the credit institutions involved in financing the company, the amount of the loans and their maturity.
To initiate the next step and get a first impression of the buyer, it is advisable to conclude the information memorandum with questions and/or prompts:
1. why do you have a specific interest and what do you associate with it for your future?
2. what potential do you see for developing the company further?
Please describe your ideas on the possible structure (e.g. earn-out arrangements) and on the financing of the purchase price.
Financing options for the purchase price (earn out options)
Another important point is the so-called "earn out". This is an additional payment from the buyer to the seller that depends on the future success of the company. Of course, a seller can reject a flexible purchase price component and insist on a fixed price.
The Earn Out is a kind of Risk protection for the buyer: If the company performs worse than expected after the purchase, the buyer pays less or no earn-out as another component of the purchase price. To this end, a number of special features need to be taken into account that can prevent disputes later on.
Another financing component in the sale of a company is the so-called vendor loan. In this case, the seller provides the buyer with a Part of the purchase price in the form of a loan available. However, the buyer does not have to repay this loan immediately, but can repay it in instalments over a certain period of time.
This is particularly advantageous if the buyer cannot raise the purchase price immediately. Another Advantage of the vendor loan is that the buyer participates in the company by repaying the loan. This gives him a strong interest in ensuring that the company continues to be successful in the future. However, in the event of an eventuality, the seller will always be able to claim his collateral only after the banks and thus also enters into a certain degree of entrepreneurial risk with the purchaser.
Familiarisation phase / Post-merger integration
In the familiarisation phase / Post Merger Integration it is important that the new company understands and preserves the culture and values of the old company. In this phase it is also important to Communication between the two companies crucial to ensure a smooth transition. Ideas about this phase are to be described in the IM.
The Information Memorandum is an important tool to start the sales process already. to steer them in the right direction at an early stage. With relevant information and a slightly promotional presentation, it can arouse the curiosity of interested parties, convince them and significantly influence the success of the sale.