Ranking high on the riskiness scale of investor documentation is the Information Memorandum ("IM").  To those that aren't familiar with it, it is the document used to market a business to buyers or prospective investors and is written by a company's corporate finance advisor (such as Sapphire Capital Partners), with heavy input from the company.  IMs are a necessary evil - they are required to be written in order to raise finance or sell a company, yet can expose the company to the risk of misleading or even misrepresenting as they straddle the realms of marketing documentation and factual overview that allows investors to make a fair investment decision.

Unfortunately, many corporate finance advisors view Information Memorandums more in the light of a marketing document and select to present only the attractive features of the business, burying the risks and sensitivities under generic language or curt statements.  This is the wrong way to approach such a document, and it is often the case that many failed or contentious transactions end up in courts over document misrepresentation, leading to either purchase price adjustments or financial penalties imposed on companies, and reputational damage.  IMs in the UK are required by law to present "full, true, and complete disclosure of all the information which may materially affect the company's valuation".

Yet, IMs serve to standardise information provided to all interested parties, so that the decisions can be made on an even playing field.  Five key points to consider regarding IMs are as follows:

1) Financial promotions, such as Information Memorandums, in certain cases are regulated by the Financial Conduct Authority and carry specifically worded disclaimers in pre-designated locations within the document.

2)  The volume of information presented in an IM is notably less than what would be presented in a business plan, and the wording is more concise.

3)  A non-disclosure agreement should be signed prior to releasing the Information Memorandum to potential investors and their advisors.  Also make sure you include all the necessary FCA disclosures etc.

4)  IMs do not typically state the price of the company; rather they present pertinent and sufficient information in order for the buyer and their advisors to value the business on offer.

5) Prior to obtaining the IM, a teaser document, which is a one to two page document describing the business in very high level terms, is provided to the interested parties in order to assess whether they would be interested to progress to the next stage.

The following are areas covered in the Information Memorandum:

1. Company background - this is typically the first section of the IM presented after the risk disclaimers.  Areas touched on in this section include the ownership structure of the company, how it was formed, where did it progress from and where it is now.
2. The product/service - the product or service is described in detail, listing any trademarks, patents or intellectual property that is significant to the company.
3. Customers - a top ten customer list with the respective percentage they comprise of total sales is typically exhibited here.  The customers may not necessarily be named.
4. Sales & marketing - sales by product is presented here as well as the marketing strategy.
5. Management team & key staff - pen profiles of the significant people that make up the organisation are presented here.
6. Historical accounts for a three year period - a high-level year on year variance or fluctuation analysis may also be presented here.
7. Reason for sale or finance raising - this is usually a one-liner explaining what the company wants to achieve (i.e. exit or growth).
8. Company's run rate - earnings are normalised in order to present a run rate for normal operations.  Typically the purchase price is based on a multiple of this number so it is important that this metric is properly calculated and presented.

9. Investor risks - relating to investing in the company and the potential pitfalls.
10. FCA disclosures - the type of investors that can receive the document is specified (e.g. high net worth or sophisticated investors etc.).
11. The exit - the timing of when investors would expect to get their money back is indicated.
12. Tax consequences - such as the benefits of investing via a seed enterprise investment scheme or an enterprise investment scheme. 

When embarking on the process of selling your company make sure you have the right corporate finance advisor that can prepare a water-tight Information Memorandum in order to avoid any unecessary headaches during the process.  Selling a company is stressful enough.