Confidential information memorandums (CIMs)

A confidential information memorandum (CIM) is one of the most important documents used when selling a business. It presents key facts about the company—its operations, market position and financial performance—to potential buyers.

“A CIM showcases the business in the best possible way to maximize value and let buyers know exactly what they’re going into if they make an offer,” says Antoine Bradette, Associate, Growth and Transition Capital at BDC.

“It’s very important— it’s the document that will spark a potential buyer’s interest and help sell the business.”

What is the purpose of a confidential information memorandum?

A CIM is a key document used in the sale of a business. It presents the main aspects of the business to potential buyers in a structured and comprehensive way. The CIM is typically prepared by the seller’s advisor, with close input from the management team and key personnel.

The CIM describes all the information a potential buyer needs to understand the business, industry and company’s competitive advantage. It typically includes:

• details of the business model
• client and supplier relationships
• the management team’s background and expertise
• the sector, industry and competition
• the market position and product/service differentiation
• financial performance and projections

The CIM should provide buyers with everything they need to draft a letter of intent to acquire the business.

Reaching buyers more efficiently

The CIM helps the seller reach a large pool of potential buyers without having to repeat the same information multiple times. By sharing key information upfront, sellers can move more efficiently toward receiving offers.

“If you have 1,000 potential buyers, you can’t afford to have a four-hour discussion with each of them to explain the business,” Bradette says.

Second, the CIM is designed to present the business in the best possible light to maximize buyer interest and valuation. “The job of the advisor is not only to understand the business and present facts and financials in a pertinent way, but also to help realize the most value for the seller,” Bradette says.

“Value isn’t solely defined by price. It also includes alignment with the seller’s priorities, such as preserving local jobs, maintaining company culture, ensuring brand legacy and securing a smooth transition for employees and clients.”

Accurate information is key

Presenting accurate and complete information is key. It’s important for the business owner and management to work closely with their advisor to ensure that information in the CIM is precise, detailed and reliable.

“If the buyer drafts a letter of intent based on the CIM, you don’t want surprises during due diligence where the buyer finds incorrect information or missing details,” Bradette says. “You want to avoid having difficult discussions or repricing in the due diligence process.”

While a CIM is standard in formal sale processes aimed at attracting multiple buyers, it may not always be used. For example, a company may skip a CIM in a one-on-one negotiation in which the owner hadn’t planned to sell but was approached with a purchase proposal. In this case, the seller could skip the CIM and proceed directly to discussions or sharing financial data.

Maximizing interest and value

That said, a seller looking to maximize their value would typically use a CIM to run a competitive process and invite multiple offers. “Normally, to secure the best deal, you want to have the greatest possible number of potential strategic or financial buyers,” Bradette says. “A CIM is necessary if the seller wants to generate buyer interest, maximize value and sell to the highest bidder or person with the best fit.”

Finally, while the CIM is designed to reduce early-stage questions, it likely won’t eliminate them entirely. Potential buyers may seek to ask additional questions. The CIM should limit this follow-up process to a minimum.

Sellers may also refuse to answer additional questions, Bradette says. “You can tell potential buyers: ‘The CIM gives you everything you need to understand and appreciate the business. Give us a letter of intent, and we’ll choose a few partners to go forward with.’”

Who prepares the CIM?

A CIM is typically prepared by a seller’s external advisors, such as an investment bank or an accounting firm with a mergers and acquisitions (M&A) department.

These independent professionals have the experience to validate and challenge the seller’s information before presenting it to potential buyers.

The seller and management team have an essential role in the process. They must provide accurate and complete information to ensure the CIM reflects the business.

Advisors help find buyers

The process of drafting a CIM can take two to four weeks. “It’s time-consuming for the seller, but the CIM is an important document,” Bradette says. “The sellers need to be committed to help prepare the needed information.”

The advisors’ role goes beyond drafting the document. One of their most valuable contributions is identifying and reaching the right potential buyers. “You can have the best CIM and the best business, but if you don’t send the CIM to the best potential buyers, then the value you’ll get will almost certainly be lower,” Bradette says.

“Advisors have relationships and a lot of contacts. They know who’s active in the space, at what time, and the current metrics and multiples for the industry. They can also help you negotiate with buyers and navigate the rest of the sale process.”

Sample of a CIM’s parts

A CIM typically follows a standardized structure, but its content and emphasis can vary depending on the target buyer. For example, a local buyer may want to see a CIM that focuses on regional details, while a buyer from abroad may expect more material on international sales, foreign client relationships and cross-border growth opportunities.

Advisors also sometimes prepare multiple versions of a CIM to adapt the content to different types of buyers.

While every CIM is tailored to the transaction, the core elements generally remain the same. They typically include these sections.

Executive summary

The first section is an executive summary. This outlines the business and the elements of the transaction process. This section gives a high-level view of the business:

• what is being sold and in what form—shares or assets
• who controls the business
• real estate inclusions or exclusions
• a company overview—where the business is headquartered, when it was founded, what it does, main product or service offerings, industry experience, facility size, number of units sold, a brief overview of historic and forecasted revenues, metrics for valuating the business, etc.

The executive summary also normally outlines:

• steps of the transaction process
• requirements for submitting an expression of interest
• transaction rationale—why the owner is selling
• key investment highlights—one or two pages outlining the company’s competitive advantage, often divided into five to 10 unique elements

Industry overview

Next usually comes an industry overview. This section provides context on the market in which the business operates, including:

• market size
• growth trends
• key drivers
• the company’s main competitors and competitive advantage

This section can be adapted to the target buyer. “If you’re targeting strategic buyers with a deep understanding of your industry, the industry review may be more specialized and focus more on your specific positioning,” Bradette says. “If you’re targeting a private equity or solo buyer, you may need to include a more general industry primer.”

The section may include a table or chart comparing the seller’s business with key competitors, highlighting the company’s advantages at a quick glance.

Company profile

The company profile is where potential buyers get a complete and detailed view of the business. This section presents the company’s full story—what it does, how it operates and what makes it different. Depending on the size and complexity of the business, it can be from a few pages to a few dozen pages long.

“This section tells the story of the business,” Bradette says. “This is where you put the business in the forefront.”

The company profile commonly starts with a series of one-page summary documents:

• a company snapshot (drawing on highlights of the executive summary)
• executive team bios, skills and expertise
• the company’s timeline, including key milestones and strategic achievements in its evolution

This is usually followed by an overview of the business’s offering, which could include:

• standard and custom product lines
• service offerings
• manufacturing processes (if applicable), including any unique expertise or productivity highlights
• sales cycles

Next follows an overview of the company’s clients and suppliers:

• customer segments, including revenue breakdowns and any unique features, such as diversification and long-standing relationships
• supplier relationships

Finally, the last section describes the management and workforce. It includes:

• organizational structure
• workforce and corporate culture details

If relevant, the section also includes real estate holdings and facility information, such as whether it’s owned or leased, location, size and property valuations.

Financial performance and outlook

The financial performance and outlook section will likely be the most scrutinized part of the CIM. “Even if you have the best workforce and competitive advantage, if you can’t present reliable financial data, a buyer won’t appreciate the business’s fair market value,” Bradette says.

This section typically includes the company’s three financial statements:

• income statement
• balance sheet
• cash flow statement

It’s also important to include:

• financial forecasts, along with information to back up the projections
• evolution of revenue, operating expenses and earnings before interest, taxes, depreciation and amortization (EBITDA)
• any EBITDA adjustments

Capital-intensive businesses can also present their free cash flow, which shows how much net operating profit remains after capital expenditures.

Key performance indicators can also be presented here.

Advisors play an important role in challenging the seller’s forecasts and reviewing interim financial statements to ensure their reliability. It’s common for advisors to recommend adjustments if projections seem overly optimistic or lack proper support.

The CIM is typically accompanied by an Excel data book presenting historical financial statements and projections.

Is a CIM the same as a CIP (confidential information presentation)?

A CIM resembles a confidential information presentation (CIP), but there are some differences. A CIM is typically a PDF document of several dozen pages and is sent to potential buyers.

A CIP is a shorter document sometimes used during in-person meetings or online presentations to describe a business, often in PowerPoint format. It is usually more visual and may clarify key points or deepen engagement with a potential buyer who has seen the CIM.

That said, the CIM is the standard document most commonly used to describe companies to potential buyers.

Best practices when preparing a CIM

Follow these best practices to maximize the CIM’s effectiveness.

1. Take the time to do it right—The seller should be fully committed to the process of preparing the CIM. Rushing the work or presenting incomplete or inaccurate information is a critical mistake. “The biggest error is to present information that is not reliable and gets broken apart in due diligence,” Bradette says.
2. Use a teaser and NDA first—Before sharing the CIM, it’s standard practice to send a teaser, which is an anonymous one-page summary of the business. The teaser is designed to capture buyer interest without revealing the company’s identity.
   
   The full CIM should be shared only after the buyer expresses interest and signs a non-disclosure agreement (NDA). This is especially important when engaging competitors. They may be among the best potential buyers, but they also pose a great confidentiality risk.
3. Protect sensitive information—Even with an NDA in place, sellers should limit some sensitive details in the CIM. When describing key customers, employees or suppliers, it’s common to use generic labels like “Client #1” or “Employee #2” rather than real names. This reduces the risk of information being misused if the deal doesn’t move forward.
4. Target the right buyers—Identifying and targeting the best potential buyers is just as important as the quality of the CIM itself. Advisors and sellers should collaborate to build a carefully selected buyer list to help ensure serious interest and the best possible outcome.
5. Ensure legal support—While M&A advisors provide valuable guidance, sellers should also retain independent legal counsel to handle NDAs, draft transaction documents and support negotiations.

Next step

Discover proven strategies to find the right buyer and get the best price for your company by downloading BDC’s free guide on Selling Your Business.