• A Confidential Information Memorandum (CIM) is an important M&A transaction document.
  • It is commonly used in both investment banking and private equity.
  • Analyzing the CIM efficiently can differentiate a good deal from a poor investment. 
  • Executives with hands-on experience drafting and distributing a CIM are invaluable to any portfolio company.

What Is a Confidential Information Memorandum (CIM)? 

Confidential Information Memorandums (or “CIMs”) are a document prepared by investment banks to help sell a client company. Private equity and other buy-side firms invest great quantities of time reading CIMs to decide which opportunities to pursue. It is also known as the Offering Memorandum (OM) and Information Memorandum (IM), among other names.

The CIM in Private Equity

The CIM will detail critical confidential information on company history and its business model, operations, financials, management; in short, the CIM contains anything an investor needs to know to make an informed investment decision. If the firm decides they are interested in buying the company after reviewing the CIM, they will submit a non-binding initial letter of intent.

Financial analysts or associates will take several approaches to digest the CIM. Most associates begin with the EBITDA and cash-on-cash returns. 

An initial flip-through of the CIM book will include reviewing the industry. Many CIMs are thrown out immediately if the fund does not invest in the industry. Next up for review are the financial metrics, including revenue, EBITDA growth, profit margins, capital expenses, and general cash flow. Finally, the company cycle, value-prop and management team are assessed. Once the initial evaluation is complete, the analyst will return to the first page and start an in-depth reading. 

Creating the CIM with this in mind will make the document far more effective. In most cases, the fund will have a very specific type of portfolio it is looking to invest in. Reviewing the financials first will allow the associate to immediately reject the companies which do not fit their narrow requirements. If the CIM meets the requirements, the associate will provide a sample one-page summary for the senior team. ...