Information Memorandum (IM) establishes the credibility of your company
An Information memorandum is a legal document prepared by an investment banker or a mergers and acquisitions advisory firm and provided by the company to the prospective investors after they have signed a confidential agreement. This is presented to the potential buyers as a marketing document which will highlight the attractive investment summary or features of the respective company. IM is the best document offering a vast amount of investment and company information to the potential buyers. It is completely a marketing document that motivates the prospective investors to invest in a company and should disclose all the materially essential facts to the buyers. According to the section 31 of the companies act, 2013, an information memorandum should be filed by a company which is also filing the required shelf prospectus. Also according to the Rule 10 of Companies (Prospectus and allotment of securities) rules, 2014, it should be filed in Form PAS-2 to the registrar along with the prescribed fees.
But why is Information memorandum prepared? Generally, it is prepared to allow the management of the company to provide a complete, comprehensive, accurate, detailed and an attractive picture of their company to the prospective buyers so that they finalise the deal. The buyers will not be interested in dealing with the company if it will not have an IM. The basic purpose of preparing an IM is that it will ensure the same information to all the prospective investors. It is imperative for a seller who is going to run a competitive process. A detailed and comprehensive IM should essentially be drafted to save the time of both the seller as well as the buyer, as more information is contained in an IM; the fewer questions are raised by the investors, thereby, saving the precious time of both the parties.
Internal organisation is very important for the preparation of an IM. A small team of expert professionals, lead by the owner or CEO should be incorporated to cover all the main business functional areas (such as finance, legal, marketing, production, market positions) in an information memorandum. The final IM should be reviewed by the company CEO to ensure accuracy, completeness as well as consistency. Try to provide a complete detailed description of the business in the information memorandum along with the summary of opportunities and industry in the market. The wider areas that should be explained in detail in an IM include-
- Growth opportunities
- Investment summary
- Customer diversification
- Entry barriers posed by the competitors
- Strength of the team management
- Scale of operations
- Opportunities in the industry and market
To conclude, the confidential information memorandum should be thoroughly reviewed by the seller before it is offered to the potential strategic or financial buyers. Although, investment bankers and M&A strategists know the sales process, but only the business seller understands his business well. So, it is his responsibility to highlight the most valuable features of the business in IM to obtain the best price for the business. So, a business seller should make that first impression in front of the investors through a superior quality IM.
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