Think of the Confidential Information Memorandum as a storybook; a self-contained standalone narrative that reads front to back, and optimally reveals a company for its maximum expressible enterprise value. As sell-side M&A advisors with years of operating experience inside technology companies, we build the CIM document once we've done a full deep-dive with the executive and management; after we have gathered a comprehensive view each major functional area of the business from an insider's perspective: the underlying technology platform and architecture, the existing customer base, the management team, the financial history, and so on. We then endeavor to surface certain forward-looking pro forma aspects of company value, which range from the obvious, to the aspirational. The more obvious points might relate to things like projected next 12 month (NTM) financial performance, as supported by existing sustained customer acquisition based on historical growth. More aspirational points might tie to growth opportunities in new lines of business, geographic expansion, 'share of wallet expansion' for negative churn, or certain aspects of expected post-acquisition cost or revenue synergies. All of the financial points manifest in the bottom-up developed financial model which exists and is distributed as a companion to the CIM; therefore, one way to think of the CIM is as the Management Discussion and Analysis (MD&A) portion of the financial model, as if the financial model and CIM were presented together as a company's annual report as at the time of marketing the company for sale.
By way of illustration, let's dissect and break down the architecture of a typical CIM that we've used in the marketing of a recent enterprise software SaaS transaction, slide-by-slide.
Table of Contents
The TOC is straightforward. It's arguably unnecessary, as the CIM is meant to read cover to cover, but is helpful for later quick access to sections like the Financial Summary. Ensure the TOC is hyperlinked for easy navigation, regardless of which document format you elect for distribution (typically watermarked PDF, customized per interested party, post NDA).
Please see the next article in this series: Investment Highlights.