An information memorandum in mergers and acquisition is a document that summarizes the business plan of the company, its operations, its history, what it offers to potential partners, projected profit and loss statements for the next five years. It also includes any details about products or services that may be of special interest to potential partners. IM’s often accompany a Merger and Acquisition proposal and includes key information about the buyer company and its strategy. It may take the form of a letter to the management of the target company, which is intended to help in their decision-making process.
It is an important document prepared by sellers in competitive mergers and acquisition transactions for prospective purchasers. The purpose of this document is to provide general key information on the company being sold so that when it comes time to negotiate, buyers can bring their own perspective into negotiations. The information memorandum is often required by law, but it is also recommended to be prepared in most corporate transactions.
What are the components of an Information Memorandum?
The information memorandum contains many details about the company being sold. The IM should include:
The reasons why the buyer wants to make this acquisition; for example, accessing new markets, diversification from existing assets, etc. Other components include:
Details about how it intends to finance this proposal – both from debt financing and from equity financing.
Details of the synergies it expects by doing this deal.
The target company’s likely reaction to this proposal, including its likely response to any offer that may be made (whether it accepts, rejects or counter-offers).
The timetable for any further meetings that may follow.
The buyer’s approach to any due diligence, including an outline of what is to be done by whom and how it intends to go about this.
Potential buyers are interested in the information memorandum because it usually gives them an idea about how profitable the company they may buy is. The reason why they typically want to know this is that they want to make sure that, if they ever do actually buy the company, they will be able to recoup their investment. If a company has potential for growth or seems to offer lots of opportunities for profit, this will attract possible buyers.
For the seller, the information memorandum is an opportunity to communicate information about the company that he or she wants to sell. It is also an opportunity to give potential buyers valuable information about the business, including all of its valuable assets.
Who should prepare an Information Memorandum?
The information memorandum needs to be prepared by a professional with proper guidance from someone who has knowledge of the business it will be selling. This is because selling companies are usually quite knowledgeable, but they do not always have all of this valuable expertise. For some reason, businesses often do not feel comfortable talking about their own products and services with other people, which makes it difficult for them to actually communicate the things that they know.
If someone who does not have knowledge of the business attempts to prepare an information memorandum, this will probably result in a lot of key information being left out. The end result may be that the seller could miss out on valuable opportunities to show off his or her firm’s strengths to potential buyers.
The information memorandum is often one of the first steps in conducting a merger or acquisition for any business.