Key takeaways
- A Confidential Information Memorandum (CIM) is the primary marketing document in the sale of a business. A Private Placement Memorandum (PPM) is a disclosure document used to raise capital by selling securities privately.
- Both must tell a compelling, accurate story. A CIM persuades buyers to make strong offers; a PPM must give investors the material information they need, and is subject to securities antifraud rules.
- The best documents lead with investment highlights, support them with credible financial data, and anticipate the questions buyers or investors will ask in diligence.
- Adjusted EBITDA and projections must be defensible. Overreaching hurts credibility and can create legal exposure.
- A PPM should be prepared with securities counsel. Exemptions like Regulation D have specific requirements.
When a business owner decides to sell, or a company decides to raise capital, the offering document becomes its first impression. It shapes how buyers and investors perceive the opportunity, how much they offer, and how smoothly diligence proceeds.
A strong offering document doesn’t just describe the business. It frames the opportunity, answers questions before they are asked, and builds credibility that carries through to closing. A weak one invites skepticism, lowball offers and painful diligence.
This article explains the two most common types of offering documents for private companies and what belongs in each.
CIM vs. PPM: what’s the difference?
| Confidential Information Memorandum (CIM) | Private Placement Memorandum (PPM) | |
|---|---|---|
| Purpose | Sell all or part of a business | Raise capital by issuing securities (equity or debt) |
| Audience | Strategic and financial buyers | Investors, often accredited investors |
| Tone | Marketing document, supported by facts | Disclosure document with full risk factors |
| Legal framework | Contract and fraud law; protected by NDA | Federal and state securities laws, including antifraud provisions |
| Typical prepared by | Sell-side advisor, with management | Company and advisors, with securities counsel |
| Distribution | After a non-disclosure agreement | To qualified prospective investors under an exemption |
The Confidential Information Memorandum (CIM)
Where it fits in a sale process
A typical sell-side process includes:
- Preparation: valuation, financial cleanup, quality of earnings, and data room setup;
- Teaser: a short, anonymous summary sent to potential buyers;
- NDA: interested buyers sign a non-disclosure agreement;
- CIM: buyers receive the detailed memorandum;
- Indications of interest (IOIs): buyers submit preliminary price ranges;
- Management meetings and diligence;
- Letters of intent (LOIs) and negotiation; and
- Confirmatory diligence and closing.
What goes in a CIM
1. Executive summary A concise overview: what the company does, why it’s attractive, key financial metrics and the transaction being contemplated.
2. Investment highlights The five to eight reasons a buyer should be excited, each supported by evidence. Examples: – recurring revenue from long-term contracts; – diversified, loyal customer base; – strong margins and cash conversion; – defensible market position or proprietary processes; – experienced management team willing to stay; – clear, actionable growth opportunities.
3. Company overview and history Founding, milestones, ownership and legal structure, locations and facilities.
4. Products and services What the company sells, how it’s delivered, pricing, and revenue by product line.
5. Market and industry Market size, trends, growth drivers and competitive landscape. Be balanced; buyers will verify.
6. Customers Customer segments, concentration analysis, retention rates and contract terms. Customers are often anonymized at this stage (“Customer A”) to protect relationships.
7. Sales and marketing How the company wins business, the sales team, pipeline and channels.
8. Operations Facilities, equipment, suppliers, technology systems, quality control and capacity.
9. Management and employees Organizational chart, key managers, tenure, and headcount by function. Indicate who will stay after closing.
10. Financial information – three to five years of historical financial statements; – adjusted EBITDA with a clear reconciliation of each adjustment; – revenue and margin trends; – working capital and capital expenditures; and – projections with stated assumptions.
11. Growth opportunities Specific, credible ways a buyer could grow the business, ideally with supporting data.
12. Transaction overview What’s being offered (stock or assets, full or partial), the process and timeline, and contact information.
Financial credibility matters most
Buyers will test every number. The CIM’s adjusted EBITDA should tie to the financial statements, and each adjustment should be supportable. Aggressive add-backs or unrealistic projections lead to retrading, where buyers reduce their price after diligence. Our articles on normalization adjustments and quality of earnings explain what holds up.
Remember that buyers price on a multiple of earnings; see our article on EBITDA multiples. Every dollar of unsupported EBITDA is a dollar times the multiple that may disappear in diligence.
The Private Placement Memorandum (PPM)
Why PPMs are different
When a company offers equity or debt securities to investors, it is subject to federal and state securities laws. Private offerings are generally made under an exemption from SEC registration, most commonly Regulation D.
Even exempt offerings are subject to antifraud provisions, including Rule 10b-5, which prohibit misstatements or omissions of material facts. A PPM helps the company disclose material information, manage liability, and document what investors were told.
Common Regulation D exemptions
- Rule 506(b): No general solicitation. Unlimited accredited investors and up to 35 non-accredited but financially sophisticated investors (who must receive specified disclosure).
- Rule 506(c): General solicitation permitted, but all purchasers must be accredited, and the issuer must take reasonable steps to verify accredited status.
Issuers generally must file Form D with the SEC within 15 days after the first sale and make any required state notice filings, such as in Massachusetts.
Accredited investors include, among others, individuals with income over **200, 000 * * (300,000 with a spouse or spousal equivalent) in each of the past two years with an expectation of the same, or net worth over $1 million excluding a primary residence, as well as holders of certain professional certifications.
What goes in a PPM
- Cover page and legends: securities offered, price, minimum investment and required legends.
- Summary of the offering: terms, use of proceeds and investor rights.
- Risk factors: a thorough, specific discussion of business, industry, financial, management, regulatory and offering-specific risks.
- Business description: similar to a CIM, but balanced and factual.
- Management: backgrounds, compensation and conflicts of interest.
- Use of proceeds: how the money will be spent.
- Capitalization: ownership before and after the offering.
- Description of securities: rights, preferences, restrictions on transfer.
- Financial statements and projections: with appropriate cautionary language.
- Related-party transactions.
- Tax considerations.
- Subscription procedures: subscription agreement and investor questionnaire.
Valuation in capital raises
Investors will ask how the company arrived at its pre-money valuation. An independent valuation, or a well-supported analysis, can help justify pricing, and may be required for certain equity compensation purposes. A feasibility study can support projections for new projects or expansions.
Common mistakes in offering documents
- Overselling. Superlatives without support erode trust.
- Inconsistent numbers between the document, financial statements and data room.
- Unsupported projections or “hockey stick” growth without explanation.
- Ignoring weaknesses. Buyers will find them; it’s better to address them on your terms.
- Disclosing too much too early, such as naming key customers before buyers are vetted.
- Thin or boilerplate risk factors in PPMs.
- Preparing a PPM without securities counsel.
- Poor design and organization, which signals a poorly organized company.
Preparing your company before writing the document
The best offering documents are built on preparation: – clean, reconciled financial statements, ideally reviewed or audited; – a quality of earnings analysis; – an independent valuation; – organized contracts, leases and corporate records in a data room; and – answers prepared for likely diligence questions (see our financial due diligence checklist).
Frequently asked questions
Often 30 to 60 pages, depending on the complexity of the business. Clarity matters more than length.
Usually the sell-side advisor, working closely with management. Owners should review every statement for accuracy.
Securities laws can apply regardless of who the investors are. Consult securities counsel before accepting investment.
Purchase agreements typically limit reliance on CIM statements, but misleading information can still create risk and will damage credibility. Projections should be reasonable and clearly labeled as estimates.
The bottom line
An offering document is the bridge between your company and the people who will buy it or invest in it. It should be compelling, but above all it should be credible. Thorough preparation, defensible financials and honest disclosure lead to better offers and smoother closings.
Foxboro Consulting Group, Inc. provides capital financing and offering memorandum services, including financial analysis, valuation and document preparation support. Contact us to discuss your transaction or capital raise.
This article is for general informational purposes and does not constitute legal, securities, tax or investment advice. Securities offerings should be structured with qualified securities counsel.
