What is an Information Memorandum and what is contained in it?

What is an Information Memorandum and what is contained in it?

Selling a business is a major financial and personal decision that requires thoughtful planning and preparation. A key document in marketing a business for sale is the information memorandum. This sales document provides prospective buyers with an overview of the business, its operations, finances, assets, reasons for sale, and value proposition. Crafting an effective information memorandum is critical for eliciting strong initial interest and offers.

The information memorandum serves as the business’s resume and first impression to potential investors. It should present the most compelling aspects of the business in a structured, easy-to-digest, and visually engaging format. Key elements to include are:

Executive Summary

The executive summary should provide a high-level overview that summarises the essence of the business. Cover the core company details including history, products/services, facilities, number of employees, customer base, competition, growth trends and future projections. This section makes first impressions so it needs to pique reader interest.

Company Background

Provide more details around the company’s history, founding, ownership structure, milestones, acquisitions, and developments over time. Outline the current state of the business including locations, subsidiaries, segments, and brand portfolio. Give readers context around how the business got to where it is today.

Products and Services

Describe in depth the company’s product and service offerings. Detail the associated features and benefits, intellectual property, competitive advantages, and customer value proposition. Provide specifics around suppliers, production processes, technologies leveraged, and product development pipelines.

Market Analysis

Overview the addressable market including size, growth trends, customer segments, buyer behaviours, seasonality, channels, and competitive landscape. Provide independent research and statistics around industry dynamics. Analyse strengths/weaknesses of product positioning relative to competitors.

Marketing Plan

Summarise marketing strategies around pricing, product promotion, advertising, and distribution channels. Provide specifics around current marketing investment and campaigns. Outline online presence including website, SEO, social media following and engagement metrics.

Operations

Describe key operating processes including order management, fulfilment, production/service delivery, quality control, customer support, and after-sales service. Outline operational assets like systems, infrastructure, facilities, equipment, and intellectual property. Identify efficiencies, capacity utilisation, supply chain optimisation efforts, and future expansion plans.

Management Team

Profile leadership including founders, key executives, and board of directors. Highlight prior successes, domain expertise, notable distinctions, and vision going forward. Convey stability and continuity of current management during ownership transition.

Employees

Provide specifics on current personnel including headcount, organisational structure, compensation, retention rate, policies/procedures, and culture. Note any advantages in expertise, flexibility, productivity, specialised skills, unionisation, or dependence on key people.

Financial History and Projections

Summarise historical financial statements including profit and loss accounts, balance sheets, and cash flow statements for recent representative periods (past 3-5 years). Provide key metrics like revenue, profitability, asset value, indebtedness, working capital, and liquidity ratios over time. Note one-time extraordinary events or adjustments. Include forward looking sales and profitability projections.

Purchase Details

Outline proposed deal terms including expected sale price range, negotiating flexibility, financing options, timeline, transition planning, and post-sale involvement. Provide high-level vision for growth under new ownership. Note major value creation opportunities.

Supporting Documents

Additional documents to include as appendices are current profit and loss accounts and balance sheets, full business plan, legal organisational chart, customer lists, contracts, intellectual property registers, assets register, marketing materials, and growth strategy presentation.

Packaging this information in a professional, visually engaging format provides buyers with an accessible overview of operations, finances, strengths, future potential, and transaction details.

Bridging Document Gaps

While the memorandum contains comprehensive information, buyers will inevitably have additional questions and data requests around operations, financials, growth plans, risks, integration, etc. As a seller, one should anticipate and welcome this due diligence process. Preparing supportive information like customer references, site visit schedules, management meeting agendas, Q&A logs, and financial model scenarios in advance facilitates an efficient process.

Confidentiality Concerns

As the information memorandum contains sensitive details, requiring signing of a non-disclosure agreement (NDA) prior to sharing the full document protects against disclosure of proprietary information. The NDA should clearly define restrictions around utilising or distributing confidential data without permission. One may also initially limit distribution to vetted qualified buyers as another protective measure.

Securing Buyer Commitment

While the information memorandum aims to convey an attractive business opportunity, the goal is to progress buyers from initial interest ultimately to a signed acquisition agreement. Following NDA signature and document delivery, one should schedule management presentations, facility tours, Q&A calls, and preliminary non-binding proposals to facilitate buyer engagement, address concerns, and secure written LOIs (letters of intent) from qualified buyers.

With a tightly crafted information memorandum that puts your business’s value proposition in the spotlight paired with stewarding buyer engagement, you can maximise the likelihood of exiting your business on favourable terms to all stakeholders. This sales document is the critical first piece in marketing your company for acquisition so refine it carefully to make the best first impression.

Author: James Syree, Partner & CEO

For more information, please contact James Syree on james.syree@ballardsllp.com

Disclaimer. This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated with us.

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