How Much Information (and when) Do I Share With Potential Buyers?

There are four phases of progressive information release to smaller and smaller audiences in the acquisition/divestiture process.

The first document used is called a teaser and is typically only one to three pages in length.  The teaser is a “blind” (i.e. no information from which the company identity can be deduced) overview of the acquisition opportunity and is sent to pre-approved qualified buyers whereupon interested parties must sign an NDA to receive a CIM.   The teaser is constructed so as not to be able to identify the company specifically and can be sent to as many as hundreds of potential acquirers (particularly as there are thousands of private equity funds out there).

The second document is the Confidential Information Memorandum (“CIM”) where the number sent maybe several to as many as twenty or more.  CIMs are only sent to qualified buyers who have signed an NDA.  CIMs vary in level of detail but typically range from 40 to 100 pages.  A CIM describes the nature of the business (i.e. product/service range, revenue model etc), suppliers, customers, competitors, a management profile, high level financial information such as historical revenues and EBITDA and a balance sheet.  In many cases it will also describe the market the company competes in and the competitive dynamics and growth opportunities the company faces.

One must appreciate that a CIM is a selling document and therefore opportunities tend to get more time than threats.  However, it is important to provide all relevant information in a CIM because potential buyers will be asked to issue an expression of interest based on the CIM and they will then be afforded due diligence to verify for themselves that all that is represented in the CIM is accurate and complete.  Customers, key suppliers or key management are not necessarily mentioned by name in the CIM.  The CIM undoubtedly raises questions which are typically answered by the agent or in concert with management.  It is important to protect competitive intelligence at this point as there will be only one successful buyer and this company should not be put in a position where its competitors now know sensitive information about the company.

The third stage is one where, based on an acceptable expression of interest, seriously interested parties are afforded a management presentation.  Only the top three to six (depending on the price range, the quality or potential threat of the bidders) are typically selected for this phase.  At this point more detailed information is shared with the goal of securing a LOI that will contain as few conditions as possible.  The dance here is one between protecting sensitive information and disclosing enough information to ensure that the final LOI is one that will be quickly translated into a purchase and sale agreement.

The final stage is exclusive due diligence and closing.  At this point the seller is an open book, so it is of utmost importance to have a high level of confidence in the selected party.  Private companies are typically not ready for due diligence.  Such a detailed level of record keeping is not required and generally not a priority for private companies.  The agent will usually issue a due diligence request list early in the process and it often takes some time for the company to prepare the information.  Each request is different but some items to expect include: monthly financial statements, a receivables aging list, revenue analysis by customer/by product/service, customer/supplier/strategic agreements, details on patents/IP/software architecture, employment policies and contracts, details on any environmental/legal claims and more.

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