Information Memorandum
An information memorandum is the document a seller's adviser writes to describe a business to potential buyers — its market, products, customers, team, financials and the reasons to buy it — sent under a non-disclosure agreement to invite indicative offers. It is a sales document, and a buyer reads it as one.
- Also known as
- IM, Confidential information memorandum, CIM, Offering memorandum
- Used at
- the start of a sale process, after the teaser and the non-disclosure agreement
- Binding
- no; buyers rely on due diligence, not on the memorandum, and the sale agreement says so
- Typical length
- 40–80 pages, with a financial model alongside
- Written by
- the seller's corporate finance adviser, with management
- Audience
- the buyers who signed the confidentiality agreement
How an information memorandum works in practice
The information memorandum is where a seller decides what the story is. For a fintech that means choosing the metric the business is valued on — annual recurring revenue for a software company, payment volume and take rate for a processor, loan book and net interest margin for a lender — and presenting three years of history and three of forecast on that basis. The regulatory section matters more than in most industries: which licences the company holds, in which jurisdictions, what conditions attach to them, and whether they transfer with the shares or have to be re-applied for.
Buyers use the memorandum to decide whether to bid and what to bid, and to write the list of questions for due diligence. Every claim in it becomes a question: a stated churn of 4% becomes a request for the cohort data behind it, a stated gross margin becomes a request for the interchange, scheme and processing costs that produce it. The adviser expects this, which is why the memorandum's numbers are the ones management can support in the data room.
The memorandum carries no warranty. The sale agreement will say that the buyer has not relied on it, which is the reason a buyer's price is conditional on diligence confirming what the memorandum described.
A good memorandum also says what is wrong. A customer concentration, a licence condition, a loss-making product line — a buyer will find each of them in the data room within a fortnight, and a memorandum that named them first, with management's answer beside them, keeps the price it asked for. One that hid them loses the price twice: once for the finding, and once for having hidden it.
Example
An adviser prepares an information memorandum for an e-money institution with €18m of revenue: 52 pages covering 1,400 business customers, 34% year-on-year growth, an EMI licence in Lithuania passported into 27 states, €410m of safeguarded client funds, and a forecast of €31m of revenue in two years. Twelve buyers receive it; five submit indicative offers between €70m and €95m of enterprise value. Diligence later confirms the revenue but finds the forecast assumes a pricing change not yet agreed with the largest customers; the winning bid closes at €78m.
Common mistakes
- A forecast that no assumption in the data room supports, which costs more in credibility than it gains in price. - Burying the regulatory position, which every serious buyer of a licensed business reads first. - Describing the company's customers by name before the buyer has agreed a clean-team arrangement. - Reading the memorandum as a set of facts rather than as the seller's case, and skipping the diligence that tests it. - Sending it before the non-disclosure agreement is signed.