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BLOG - Top 10 things to include in an Information Memorandum for prospective buyers

BLOG - Top 10 things to include in an Information Memorandum for prospective buyers

Friday, 20 December 2019

An Information Memorandum is a document shared with parties interested in buying your business. Typically, these parties have already signed a confidentiality agreement, and this is the first time that the identity of your business is revealed. The purpose of the Information Memorandum is to provide enough information for the recipients to decide whether they wish to pursue the opportunity further and, if so, what price they might be willing to pay.

So, what’s usually included in the Information Memorandum?

  1. Executive Summary

An Executive Summary is often the last section of the Information Memorandum to be written. Nothing new should go into this section. In theory, it should be possible to gain a high-level understanding of the business and the acquisition opportunity by simply reading the Executive Summary in isolation from the rest of the Information Memorandum. In reality, many buyers won’t go beyond the Executive Summary in deciding whether the opportunity is for them, so it is absolutely crucial to draw out and emphasise the most salient and attractive points.

  1. History, background and ownership

Whilst a buyer will be interested in the future of the business, and what they could do with it if they owned it, a summary of the history of the business still provides some helpful context. It doesn’t need to be chapter and verse, just a timeline of key dates such as when the business was formed, when key customers were won, when important milestones were reached, etc.

  1. Location and property

Some of the potential buyers will quite possibly never have heard of you before, nor have an understanding of where you’re located and the markets you operate in. Maps and photos provide a useful visual in the Information Memorandum, along with details of why your locations are effective for your business. Explain if the properties are held freehold or leasehold. If freehold, then give an indication of the market value and willingness to sell or rent to a buyer of the business. If leasehold, give details of the lease.

  1. Products and services

Explain in the Information Memorandum what you sell. If your product or service is quite technical then others in your industry are likely to understand without much explanation. But your buyer might come from outside your industry, so it’s always best to bring it back to basics and keep your explanation simple and jargon-free. Ideally, break down your turnover and gross profit by product/service type over the last three or so years to show trends and demonstrate your most profitable areas.

  1. Sales and marketing

Most buyers prefer an evenly distributed customer base; certainly not one with a heavy reliance on a small handful of large customers. If you have recurring clients then demonstrate it with some historic analysis. If you have customers under an ongoing contractual arrangement, give full details; this will be really attractive to a buyer.

  1. Market and competitors

What is the size of your market? Is it expanding or contracting? Where do you sit in your market? What are the latest trends and how will this affect your business in the future? A buyer will expect you to have a strong view on these questions so they can factor it into their acquisition assessment.

  1. Management and employees

Although you don’t need to give names of key individuals in your teams, it’s important to give a buyer a good feel for the strength and depth of the management team, and also what impact there might be if the owners leave. As part of this, we typically suggest the inclusion of a table in the Information Memorandum, giving an overview of all or key staff members, showing job title, job description, age, length of service and remuneration level.

  1. Financial review

A summary of the financial statements is essential to the Information Memorandum. Now is the time to present the numbers in a positive light, highlighting what has gone well and explaining any difficulties and how they’ve been resolved. In this part, we would always look to demonstrate the maintainable level of profits of the business by adjusting the profit in the accounts for unusual, exceptional or non-recurring items.

  1. Growth opportunities

To this point, the Information Memorandum has been mainly focused on the past and current position, but now the report should turn to the future. If you think the business will grow, then explain why and how this will happen, ideally with financial forecasts to demonstrate the impact on profit. Don’t expect the buyer to do this work for you, so if you don’t, you’ll be leaving cash on the table when the deal completes.

  1. Criteria of offer and outline of process

Finally, the Information Memorandum needs to include a call to action for the buyers. Explain the sale process and who they should contact for further details. It’s also really important to set out the key criteria for any indicative offers as this will enable the comparison of such offers and save lots of time later on trying to clarify any missed information or misunderstandings.

 

If you’d like to explore the potential sale of your business, please get in touch.

Call 0330 024 0888 or email corporatefinance@larking-gowen.co.uk

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