Confidential Information Memorandum: A CIM Guide
What a confidential information memorandum contains, how a CIM differs from a teaser, what buyers actually read first, and the mistakes that cost sellers price and time.
What a CIM is, what belongs in it, what buyers read first and what they skip, and why the document that wins a good price looks nothing like a brochure.
What is a confidential information memorandum?
detailed sale document a seller's adviser gives to buyers after they sign a non-disclosure agreement
. It names the company, sets out the operations, customers, people and normalised financials, and is the basis on which a buyer forms an indicative offer.
It is not a marketing brochure and it is not a business plan. A CIM that overstates gets corrected in diligence, and every correction costs price. The document that achieves the highest number is usually the one that raises the awkward issues itself, on its own terms, before a buyer finds them.
Released", value: "After an executed NDA
Preceded by", value: "A one-page anonymous teaser
Legal status", value: "Not an offer, and not a contract
The order matters. Most of the value is created before a single page is written, in the work of getting the numbers to a state a buyer will accept.
Three years of filed returns reconciled to management accounts, with every add-back documented as you go. If the earnings figure in the CIM cannot survive a quality of earnings review, nothing else in the document matters. This step routinely takes longer than the writing.
Segment the revenue the way a buyer values it
Recurring contracted revenue, repeat service work and one-off projects carry different multiples. Presenting them as one number invites the buyer to price all of it as the lowest-value category.
Assemble customer, contract and people data
Customer concentration by revenue, contract terms and renewal dates, headcount by function, licences and certifications held, and who holds them. Buyers test all of this, so it should come from your systems rather than from memory.
One page, no company name, enough sector, size and shape for a buyer to decide whether to sign an NDA. The teaser controls who sees the CIM at all, so it is written with more care per word than anything else in the process.
Draft the CIM around the buyer's questions, not the seller's history
Buyers want to know what they are buying, why it will still be there after you leave, and what it will cost them to run it. Company history is context, not content.
Disclose the known problems on your own terms
Customer concentration, a departing key employee, a lease coming up, a licence held personally. Raised in the CIM, each is a fact the buyer prices into their opening offer. Discovered in diligence, each is a reason to reduce an offer already made, and the reduction is always larger.
Control the distribution and log it
Every recipient on an executed NDA, every version tracked in a data room, and a record of who saw what and when. Confidentiality failures with staff, customers or competitors do more damage in this trade than almost anything a buyer can do at the negotiating table.
Executive summary: Two pages that a buyer could act on alone: what the business does, where, how it makes money, what the earnings are, and why it is being sold. Most buyers decide whether to keep reading here.
Two pages that a buyer could act on alone: what the business does, where, how it makes money, what the earnings are, and why it is being sold. Most buyers decide whether to keep reading here.
The specific, evidenced reasons this business is worth owning. Recurring revenue, licensing, route density, technician retention, contract length. Evidenced claims only; adjectives are ignored.
How work is won, scheduled, delivered and billed. Systems in use. Where the process depends on the owner personally, which is the question behind every other question in a lower middle market sale.
Customers and contracts: Concentration by revenue, tenure, contract terms, renewal profile and pricing history. Named or anonymised depending on the stage and the buyer, but always with the underlying structure visible.
Concentration by revenue, tenure, contract terms, renewal profile and pricing history. Named or anonymised depending on the stage and the buyer, but always with the underlying structure visible.
People and organisation: Headcount by function, tenure, compensation structure, licences and certifications, and who would need to be replaced if you left tomorrow.
Headcount by function, tenure, compensation structure, licences and certifications, and who would need to be replaced if you left tomorrow.
Financial section: Three years historical plus current-year trading, normalised, with a clear bridge from reported profit to adjusted EBITDA or SDE. Every add-back listed and supportable. Working capital and capital expenditure history included, because both become negotiations later.
Three years historical plus current-year trading, normalised, with a clear bridge from reported profit to adjusted EBITDA or SDE. Every add-back listed and supportable. Working capital and capital expenditure history included, because both become negotiations later.
Concrete opportunities the buyer could execute, with what each would cost. Speculative upside is not paid for, and overreaching here damages credibility across the whole document.
What is being sold, the structure contemplated, whether the owner will stay and for how long, and the timetable for indicative offers. This is what tells a buyer how to respond.
Every number in the document reconciles to the filed tax returns
Recurring and non-recurring revenue shown separately, with gross margin on each
Add-backs listed individually with the evidence already assembled
Customer concentration stated plainly, with the mitigation alongside it
Known problems disclosed before a buyer finds them
Growth opportunities costed rather than asserted
Operational data pulled from systems, so diligence confirms rather than contradicts
Projections presented with more confidence than the historical record supports
A single blended revenue figure that hides the mix
Add-backs with no documentation, which are removed in the quality of earnings review
A key customer, licence or employee issue that surfaces in week six of diligence
Marketing language in place of evidence
Financials that do not tie to the returns, which puts every other number in doubt
Wide circulation without NDAs, which reaches your staff and customers before you do
A representative sequence for a lower middle market US sale process. Timings vary with readiness of the financial records more than with anything else.
The two stages that most often overrun are the first and the second to last, and both for the same reason. Where the financial records were not properly normalised at the start, the quality of earnings review at the end becomes a renegotiation rather than a confirmation.
What is the difference between a CIM and a teaser?
A teaser is one anonymous page sent to buyers before any confidentiality agreement, describing the sector, approximate size and shape of the opportunity without identifying the company. The CIM is the full document, typically 25 to 50 pages, released only after an NDA has been executed, and it names the business. The teaser decides who gets to see the CIM, which makes it the more important document for protecting confidentiality.
Who writes the CIM?", answer:
The sell-side adviser writes it, working from the owner's financial records, systems data and management input. An owner can write one alone, and some do, but the document has to anticipate how a specific buyer population will read it, which is difficult without having sat on the other side of the process. The financial normalisation underneath it is the part that most often needs outside help.
How long should a CIM be?
Usually 25 to 50 pages for a lower middle market business. Length is not the objective. A buyer decides whether to continue from the executive summary and the financial section, and everything else exists to support those two. Padding a thin business into a long document is transparent and counterproductive.
Should I include financial projections?
Include the current year's trading and a supportable near-term outlook. Buyers rarely pay for projections in the lower middle market, and aggressive forecasts damage credibility across the whole document. Where you do include forward numbers, tie them to something already contracted or already happening rather than to intent.
How is confidentiality protected when the CIM names my company?
By controlling distribution rather than by redacting the document. Buyers are approached first with the anonymous teaser, the CIM is released only after an executed NDA, it is delivered through a tracked data room rather than by email attachment, and the owner approves the buyer list before anyone is contacted. Sensitive material such as named customer contracts is commonly held back until a later diligence stage.
Do I need a CIM if I already have a buyer approaching me?
Arguably you need it more. An unsolicited buyer with no competition sets the price, the pace and the framing. A properly prepared CIM lets you present the business on your own terms and, if you choose, put the same document in front of other credible buyers so the first offer has something to be measured against. Owners who sell to the buyer who approached them, without preparation, are the group most likely to be surprised by the final number.
What should I do before commissioning a CIM?
Establish what the business is likely to be worth and which factors are holding that number down. Several of those factors take twelve to twenty-four months to fix and are worth more than anything achievable in negotiation. The free written valuation report is the sensible first step, and it commits you to nothing.
Selling a Business in the US
When to Sell Your Business
How a confidential information memorandum is prepared for a lower middle market US sale process, and what buyers expect it to contain.
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