Confidential Information Memorandum (CIM)

What is inside a CIM

CIM structure is conventional, and buyers read them in a habitual order: executive summary first, financials second, everything else only if the first two survive. Writing the document in the order below is correct; expecting it to be read in that order is not.

A standard lower-middle-market CIM contains:

• Executive summary and investment highlights — five to eight bullets a buyer can forward to a partner or a lender.
• Company overview: history, legal entity structure, ownership, and location.
• Products and services with revenue mix by line, and the pricing model.
• Customers: count, retention, contract terms, and concentration expressed as the top five as a percentage of revenue.
• Sales, marketing, and lead sources — where new revenue actually comes from.
• Operations, facilities, lease terms and assignability, equipment, and key systems.
• Employees: headcount, org chart, tenure of key staff, and the owner's actual weekly hours and functions.
• Industry and market overview, sized to the company's real addressable geography.
• Growth opportunities, stated as things a buyer could do rather than things the seller wishes had happened.
• Historical and recast financials: three fiscal years plus a trailing twelve months column, with the full add-back schedule.
• Transaction overview: what is being sold, what is excluded, the seller's willingness to stay on, and the process timeline.
• Appendix: equipment list, lease abstract, redacted customer contracts, licenses and certifications.

The financial section is the part buyers actually read

Everything else in a CIM is context for the earnings figure. The financial section shows reported results as they appear on the tax returns and financial statements, then the adjustments, then the resulting SDE or adjusted EBITDA — with the reported column reconcilable line for line to the source documents a buyer will request in diligence.

A representative add-back schedule for a Main Street S-corporation, trailing twelve months:

Reported net income $410,000. Add owner compensation and benefits $220,000. Add depreciation and amortization $85,000. Add interest expense $35,000. Add non-recurring legal fees from a settled dispute $28,000. Add personal vehicle expense $14,000. Seller's discretionary earnings: 410,000 + 220,000 + 85,000 + 35,000 + 28,000 + 14,000 = $792,000.

The entity form matters to that build-up. An S-corporation pays no federal entity-level income tax, so its reported net income is already a pre-tax figure and no tax add-back is needed to reach a pre-tax SDE. A C-corporation's reported net income is after tax, and the income tax provision has to be added back explicitly or the SDE is understated.

At an illustrative 3.0x SDE multiple, $792,000 supports an asking price of 792,000 × 3.0 = $2,376,000. Every dollar in that schedule is worth three dollars of price, which is exactly why a buyer's quality of earnings analysis attacks the schedule rather than the narrative.

Two presentation rules pay for themselves. Show the reported column, not only the adjusted one — a CIM that presents only the recast number reads as something to be disproven. And label the trailing twelve months period by its explicit end date, because a CIM circulated six months after its TTM cutoff is stale and buyers price the uncertainty.

Where the CIM sits in the process

The CIM is the second document a buyer sees, not the first. A one- or two-page teaser, also called a blind profile, goes out first: industry, geography stated broadly, revenue and earnings ranges, and no company name. Buyers who respond sign a non-disclosure agreement, and only then receive the CIM.

From there the sequence is a buyer question round, a management meeting or call with the owner, then an indication of interest or a letter of intent. On a Main Street deal the CIM might go to 10 to 30 screened buyers; a broadly run lower-middle-market process may contact 50 to 200 parties at the teaser stage and release the CIM to a fraction of them.

Preparation is not trivial. Assembling a CIM — including recasting the financials, which is usually the long pole — typically takes two to four weeks after the broker has the tax returns and P&Ls in hand. Rushing it is a false economy, because the CIM sets the price expectation for the entire process and repricing after buyers have already seen a number is far harder than pricing correctly once.

CIM, teaser, and prospectus are not the same document

A teaser is anonymous and pre-NDA. A CIM is named, detailed, and NDA-gated. The distinction is practical as well as legal, because the teaser is what circulates freely and the CIM is what a seller can still control.

A prospectus is a different instrument entirely: the disclosure document required for a registered public securities offering under the Securities Act of 1933, with its content and liability standards set by statute and SEC rule. A CIM is a private document distributed to a screened list, and it standardly carries a disclaimer stating that it is not an offer to sell, that no representation or warranty is made as to its accuracy, and that the only representations the seller will stand behind are those in an executed definitive purchase agreement. That disclaimer is the reason a CIM can present management estimates at all.

A pitch book is a third thing: the banker's own credentials and process proposal, used to win the engagement rather than to market the company.

What makes a CIM fail

Over-adjusting is the most expensive error. An add-back schedule with a long tail of small, unprovable adjustments signals that the whole schedule is soft, and a buyer who disallows the tail discounts the rest of it too.

The others recur in a predictable order. No reconciliation to the tax returns — buyers and SBA lenders start from filed returns, and if the CIM's reported revenue does not tie, the conversation stops there. Stale periods: a CIM built on a fiscal year that ended nine months ago, with no trailing twelve months column, invites the buyer to assume the intervening months were bad. A generic market section, lifted from a research summary, is recognizable on sight and undercuts the credibility of every page the buyer cannot verify. Named customers or identifiable employees before a buyer has been screened — confidentiality leaks are the failure mode owners fear most, and the CIM is where they usually happen.

Growth claims with no mechanism are the quiet one. 'Significant opportunity to expand into adjacent markets' costs the seller credibility. 'The company turns away roughly $40,000 a month of service work for lack of a second crew, documented in the declined-job log' is a growth claim a buyer can underwrite.

Related terms

• Recasting
• Seller's Discretionary Earnings (SDE)
• Letter of Intent (LOI)
• Trailing Twelve Months (TTM)