For many business acquisitions, the information memorandum (IM) is the starting point of the business acquisition. An IM is a comprehensive summary of a company. It contains all the ins and outs of the business.
An IM can help to interest potential buyers in the business acquisition and inform them about the business to be acquired. For many business acquisitions the IM is the basis for the negotiations and the final agreements.
What does the IM contain?
The IM provides a glimpse of the company being offered. It is important to paint a realistic and complete picture of the company. Because extensive insight is given into confidential information about the company, it is advisable to have the interested party sign a confidentiality agreement in advance.
The IM generally contains the following information:
- The market position;
- The history and development of the business and the current organization;
- The company's activities, including business model and strategy;
- financial information;
- Other information that may be relevant, such as housing, personnel, investments, etc.
Based on the IM, the interested party decides whether or not to proceed with negotiations.
The steps after the IM
After the IM, anon-binding offer is often made. This offer is made on the basis of the information provided in the IM. The principles of the business acquisition are then often also laid down in a so-called letter of intent agreement. In this letter of intent, the potential buyer expresses the intention to buy the business under certain conditions.
To arrive at the final purchase price and conditions, the buyer conducts extensive research into the business. We also call this due diligence. After the investigation, the purchase agreement is finally drawn up, with accompanying guarantees and indemnities.
The importance of the IM
The IM is one of the most important building blocks, namely the starting point, within the sales process. The price perception of a potential buyer is largely determined by how the company is presented in the IM. Then the initial bid is made based on the information in the IM. This makes it important that the information in the IM is accurate. If it later turns out that information was incorrect or information was missing, that can lead to claims for damages because the buyer assumed wrong or incomplete information.
Despite the fact that the IM is the foundation of many business acquisitions, in practice we see that too little attention is paid to it. It is wise to pay more attention to the IM in a business acquisition and to seek legal advice. Precisely because incomplete or incorrect information in the IM can lead to future problems with a (potential) buyer and because the IM is so decisive for the final course of the business acquisition.
A lawyer can help draft an IM, to ensure that an IM contains the necessary information. Furthermore, a lawyer can help steer the IM toward the ultimate desired course of the business acquisition. For example, consider the desired legal structure (before and after the business acquisition) and the type of acquisition (stock sale, asset transaction, etc.). This legal advice is important, because with a legally sound IM you steer the business acquisition in the right direction.
