Information Memorandum

What is Information Memorandum?

An information memorandum is a document prepared by your company to provide a comprehensive overview of your business to prospective investors.
Also known as offering memorandum or investment memorandum, it captures the past, current and future performance outlook of the business. Typically, it is used for:

• large private equity capital raises
• later stage investment after initial rounds
• divestment of major assets
• mergers and acquisitions
• sale of the entire business

How to write a confidential information memorandum

Below is an example template for a company investment memorandum.

• Investment Highlights: A summary of the key selling points of the business generally and the proposed transaction specifically

• Corporate Information: 
  - Corporate history with major milestones
  - Organisational structure
  - Geographic spread
  - Ownership
  - Management team and their expertise
  - Current and future business goals, strategies and plans.
• Products and Services Offerings: 
  - The products and services your company offers
  - The total number of customers and their segments
  - Business USPs
  - Associated risks
• Performance Overview: 
  - Past and current financial and operational performance review
  - Key performance metrics
  - Future outlook of your company 
  - How you will achieve targets
• Market and Competition: 
  - Market strategy
  - Overview and potential of the target market
  - Current and expected market share
  - Competitor analysis
  - Industry drivers and barriers 
  - Applicable regulations and associated risk factors
• Proposed transaction: A summary of the transaction that investors are being asked to participate in, including: 

  - Reasons to raise capital
  - Amount of capital to be raised 
  - Stake available for sale and related company valuations 
  - Clear information about what you will spend the funds on and why, including milestones and timeframes.

Why is an Information Memorandum important for business today?

An Information Memorandum is only prepared for a specific event. However retaining a copy of the Information Memorandum prepared for past events can serve as a useful source of material when there is a need to prepare summary information on the business.

Why is an Information Memorandum important for an event tomorrow?

An investment memorandum is important for an event tomorrow for the following reasons:

• It lowers the cost participating in the transaction by providing potential investors with a summary of the key aspects of the business and the potential transaction
• This allows potential investors to, at a very low cost, form a view as to whether they wish to proceed with the transaction and conduct further due diligence
• It also allows additional investors to be educated on the fundamental elements of the business and proposed transaction at no additional cost to the company management team in the form of time spent presenting or answering individual questions
• These factors combine to enable a greater number of potential investors to assess the opportunity thereby increasing competitive tension in the transaction and increasing the chance of achieving favourable terms
• The information memorandum also provides a strong vehicle for clearly conveying the key selling messages to investors to ensure that these are not misunderstood, or worse, missed altogether
• It also provides a mechanism for educating potential investors on the nuances of your business, particularly for those investors that may not have a great deal of familiarity with your industry, regulatory environment, competitive landscape or geographic region

Pros of addressing Information Memorandums

• Increase the pool of potential investors in the transaction
• Reduces the impact on management of the preliminary education of potential investors
• Allows the key selling messages of the business and investment to be clearly articulated
• Helps educate potential investors who may have a lower level of starting knowledge

Cons of not addressing this topic

• Increases demands on management time by requiring them to convey information to each potential investor individually
• Increases the cost to investors of reaching a preliminary view on the business and opportunity thereby reducing the number who will ultimately participate
• Increases the risk that some potential investors may not appreciate all of the key selling messages that the management team may wish them to.

FAQ

Is information memorandum legally binding?

No, an information memorandum is typically not legally binding. It is a document used to provide information about a company and its investment opportunity to potential investors. The purpose of an information memorandum is to inform and persuade investors, but it does not usually establish contractual obligations or legal commitments between the company and the recipient of the document.

What is the difference between a prospectus and an information memorandum?

The main difference between a prospectus and an information memorandum is that a prospectus is a legal document, whereas an information memorandum is not. 

A prospectus is required by regulatory authorities when offering securities to the public. It provides detailed information about the investment opportunity and is used primarily for IPOs.

An information memorandum, on the other hand, is a document created by a company to provide potential investors with information about the company and its investment opportunity. It is typically used in private placements or private fundraising. For this reason, it's sometimes called a private placement memorandum.

How long should an investment memorandum be?

The length of an investment memorandum can vary depending on the complexity and scope of the investment opportunity. However, it is generally recommended to keep it concise and focused, typically ranging from 10 to 30 pages. The goal is to provide sufficient information to engage and inform potential investors without overwhelming them with unnecessary details.

What makes a good offering memorandum?

A well-crafted offering memorandum should showcase the key advantages of your company, while covering all pertinent details required by investors as part of their due diligence.