Definition
An information memorandum is a detailed document about a business for sale, usually prepared by the broker or corporate finance adviser and shared once a buyer has signed an NDA. In the US it is often called a confidential information memorandum (CIM) or an offering memorandum. It typically covers history, products, customers, staff, premises, financial performance and the sale process. It is a sales document written for the seller, not an independent report.
A business broker markets businesses for sale and manages the process on the seller's behalf. The broker is usually paid by the seller, mostly when a deal completes.
Non-disclosure agreement (NDA)
A non-disclosure agreement is a contract in which a potential buyer promises to keep information about a business confidential. Sellers usually ask for one before sharing the business's name or detailed figures.
Worked example
A fictional buyer receives a 40-page information memorandum for Stonebridge Precision Engineering Ltd, a fictional UK manufacturer. It shows:
- revenue of £5,000,000 and adjusted EBITDA of £900,000
- a customer list with names removed, the largest described as "a long-standing aerospace client"
- six add-backs totalling £150,000, explained in a single paragraph
- a line saying the owners "will support a smooth transition"
The buyer writes down three questions: what share of revenue the aerospace client represents, what evidence supports each add-back and how long the owners will actually stay.
Adjusted EBITDA is EBITDA after normalising adjustments, showing what a business would earn with a paid manager in the owner's seat. Larger small-business deals are usually priced on it.
Add-backs are costs added back to reported profit to show what a business would earn under a new owner. They raise SDE and adjusted EBITDA, so each one needs evidence.
Why buyers care
An information memorandum is often your first detailed view of a business, and it shapes your first offer. Because it is written to present the business well, figures may already be adjusted, risks may be mentioned briefly or not at all and forecasts may be optimistic.
Use it to build your list of questions rather than as evidence. Compare its figures with the original listing, and later with the accounts, and note anything that changes. Information memoranda usually carry a disclaimer that the seller does not guarantee their accuracy, which is one more reason to verify.