What exactly is an Offering Memorandum and What role does it play in M&A? 

What Is an Offering Memorandum?

An Offering Memorandum (“OM”) or Confidential Information Memorandum (“CIM”) is a document that informs interested parties about the details of an investment opportunity, like a private placement of securities or a sale of a company. The OM serves as a comprehensive disclosure document that outlines the pertinent information related to the investment. An Offering memorandum is essential for providing potential investors with the information they need to make informed investment decisions and for ensuring compliance with securities regulations. The content of an offering memorandum may vary depending on whether it is written to attract investors for a private placement or potential buyers for a company.

Potential buyers should find that the OM outlines all of the basic information about the seller’s company, especially the unique selling points. It usually includes items such as a company's financial statements, management biographies, a detailed description of the business operations, and more. It is drafted by an M&A advisory firm or investment banker on behalf of the business owners and used in a sell-side engagement to market a business to prospective buyers.

 

Purpose of the Offering Memorandum in M&A

The Offering Memorandum serves to provide prospective buyers with information regarding the company for sale, enabling them to evaluate the investment opportunity and determine whether they wish to pursue the acquisition. An M&A firm is responsible for finding and reaching out to potential buyers for a company that is up for sale. During the initial contact, the M&A firm only provides limited information about the company to avoid disseminating confidential information. If the buyer expresses interest in learning more about the company, the M&A advisor will share the OM only after the buyer signs an NDA (non-disclosure agreement).

The Offering Memorandum is the best way to share essential information about the company for sale with buyers. The OM is designed to tell a story about the business and the narrative must be carefully tailored to pique the interest of the audience. The OM should present the company to potential buyers accurately, professionally, and positively. The M&A advisor will create an OM that highlights the company's strengths and provides necessary information for potential buyers to evaluate the business. When reading the OM, investors should gain a clear understanding of the company's operations, offerings, and investment potential.

The Offering Memorandum is one of the crucial documents during M&A process that helps sellers showcase their attractive aspects and set the stage for maximizing their value during negotiations. It also plays an essential role in streamlining the sales process by organizing and gathering key information that the buyer may request during the due diligence process later. A well-crafted Offering Memorandum can effectively communicate the seller’s strengths and highlight its potential, ultimately increasing its chances of a successful sale.

The Offering Memorandum also presents a professional touch to the seller. Businesses that appear disorganized or unprofessional in their field of operation may struggle to secure investor commitment. The act of presenting a memorandum demonstrates a level of seriousness and professionalism within the business.

 

Content of the Offering Memorandum

A quality Offering Memorandum will give insight into the business and share basic information such as the company’s location, ownership, customers, employees, financials, etc. The content is important for potential investors as it provides valuable insights into the company and highlights opportunities for growth and increased profitability. Buyers rely on the content to make informed decisions about investing in a company and its potential for success.

The offering memorandum will contain detailed information about the company’s unique value proposition, informing buyers of how it could be a good investment. It will provide an in-depth analysis of the company’s history, performance, and financial projections. Additionally, the OM will describe the rationale behind the sale of the company so buyers can understand why the seller would want to exit. This document is extremely important as it allows sellers to generate interest in buyers, helping them understand the company's potential.

Offering Memorandums need to be highly detailed to share critical information with buyers, but they must not be weighed down with too many technological details. Buyers do not want to be bothered with reading a large document that is filled with unessential technical information. To keep the interest of potential buyers, the OM needs to be succinct and address their various concerns.

 

The following list are items usually included in an offering memorandum:

• Confidentiality Disclosure
• Financial Advisor Information
• Guidelines for Purchasers
• Executive Summary
• Rationale for Sale
• Investment Considerations
• Company Details and Operations
• Photos
• Market Analysis
• Organization Chart
• Employee Information
• Financial Statements and Analysis

 

Safeguarding Confidential Information

Ensuring confidentiality during M&A is crucial as news of a potential sale can be harmful to the business. Once the offering memorandum is completed and the M&A advisor has reviewed it with the seller it is ready to be shared with the M&A firm’s exclusive list of business buyers. Although buyers will execute a Non-Disclosure Agreement (“NDA”) to receive the offering memorandum, it is important not to give out confidential information that could be used by competitors. Highly confidential information should only be shared with the buyer during due diligence after an LOI is executed and should not be included in the Offering Memorandum. It is important to have potential buyers sign a Non-Disclosure Agreement before they receive the Offering Memorandum as it helps to protect the seller because the buyer is agreeing to keep the information, they receive about the company confidential. The Offering Memorandum should include a copyright notice and a note stating that the reader is subject to the terms and conditions of the NDA.

 

Balancing Positive and Negative Aspects

It is important to highlight the aspects of the company to interest buyers. However, it is just as important not to leave out negative aspects of the company because the information in the offering memorandum should be accurate and truthful. All information in the OM needs to be accurate and verifiable because it is unethical to knowingly make misrepresentations about the company to buyers. Furthermore, buyers will lose interest if they discover hidden problems further down the line. Being transparent and including both the good and the bad in the OM will demonstrate that the seller is trustworthy and communicates to the buyer that there will not be any surprises later on.

 

Engaging M&A Advisors

The Offering Memorandum should be prepared by a well-experienced M&A advisor. A professional and experienced M&A advisory team will have expertise in structuring deals, negotiating terms, and understanding market dynamics. They are skilled at crafting compelling Offering Memorandums that highlight the unique selling points of a business while also addressing potential buyer concerns in a balanced manner. By engaging an M&A advisor, the seller can ensure that the Offering Memorandum conveys all the information a buyer will need to make an appealing offer. Additionally, M&A advisors have an extensive network of potential buyers and can target the right buyers for the particular company. Their involvement ensures that the selling process is managed professionally and efficiently, leading to a better valuation and smoother transaction execution. Overall, M&A advisors are invaluable in navigating the complexities of selling a business, making their engagement a crucial element in achieving a successful sale.

 

Conclusion

The Offering Memorandum plays a pivotal role, serving as a linchpin that not only introduces the company for sale to potential buyers but also strategically positions it for optimal valuation and interest. This document, crafted with care by seasoned M&A advisors, transcends being merely informative; it is a narrative that encapsulates the essence, potential, and vision of the business, designed to resonate with and captivate potential investors.

 

Written by Xueying (Gil) He

03 April 2024

 

Versailles Group, Ltd.

Versailles Group is a 37-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at  www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

 

What exactly is an LOI, and how does it play a crucial role in M&A transactions?

KEY HIGHLIGHTS

Definition 

A letter of intent (“LOI”) is a written expression, usually from buyers, that documents the buyer’s proposed price and terms including transaction structure, timeline, due diligence, confidentiality, exclusivity, etc. In many cases, the LOI is the first document negotiated between the buyer and seller.

Common Misconceptions

The LOI is the most misunderstood document by first-time sellers. Many think that it is a contract between the buyer and the seller. The LOI is a document that signifies acceptance and interest, similar to nodding your head. In other words, the LOI documents the intentions of the buyer and seller to complete a transaction. Sellers should be aware that there might be tricks hidden within the LOI like misleading language and concealed contingencies that require the expertise of both an M&A advisor and an attorney to identify and provide guidance on.

Binding vs. Non-Binding Nature

Typically, this document is non-binding and most LOIs clearly state that it is non-binding. Rarely, an LOI will contain a provision stating it's binding; however, it might be difficult to enforce a binding LOI as the nature of this document is non-binding. While the LOI is non-binding, all LOIs contain certain provisions that are binding, e.g., confidentiality, exclusivity, expenses, jurisdiction, etc. These binding provisions must be followed and, if not could result in the deterioration of the transaction and possible legal action if they are not. 

Key LOI Provisions Sellers Should Scrutinize

 

When a buyer is interested in purchasing a business, a typical first step is for a buyer to make an offer for the business via an LOI. Upon receipt of an LOI, a seller will consult their M&A advisor, attorney, and possibly other professionals to develop a response strategy. Most of the time, the seller will respond, via their M&A advisor, with a counteroffer which leads to the negotiation of the LOI’s terms by the buyer and seller. After negotiations are concluded and both parties settle on agreed terms, the next step is for the seller and buyer to execute the LOI. 

The signed LOI documents the buyer’s proposed purchase price and terms including transaction structure, timeline, due diligence, confidentiality, exclusivity, etc. Sometimes, the LOI is also called a Memorandum of Understanding (“MOU”), Indication of Interest (“IOI”), or a Term Sheet. Once the LOI is signed, due diligence begins, during which the buyer confirms the condition of the business. Before signing the LOI, the seller should confirm the buyer’s ability to complete the deal. This would involve the seller ensuring the buyer has the funds or capability to raise the funds to complete the purchase. 

One of the challenges that the LOI presents for a seller is the buyer’s valuation of the business.  Some buyers include an outsize valuation to entice the seller to accept. Once the buyer “locks up” the deal and the transaction progresses, they then will lean on complicated language in the LOI or use excuses like unreasonable working capital provisions to negotiate the valuation down. In other cases, the buyer will mention unsaid assumptions about performance expectations, etc. to lower the valuation. The price agreed upon in the LOI will almost always be negotiated throughout the entire duration of the transaction, so the seller needs to be aware of the buyer's incentives and tactics to drive the valuation down. Most importantly, the seller should rely on their trusted M&A advisor to help them achieve the purchase price they deserve for their business. 

When reviewing an LOI, sellers should always ask their M&A advisors about a buyer’s reputation and ability to complete the transaction. An experienced M&A advisor has the knowledge and tools to be able to evaluate if the buyer is capable of completing the transaction at the agreed-upon value and if they will be fair in the negotiations. 

Although LOIs establish expectations between buyers and sellers regarding the proposed transaction, they are non-binding documents. The terms may change during the due diligence phase as the buyer uncovers additional details about the selling company. It is therefore important not to confuse an LOI with a definitive purchase agreement, which is the binding contract signed only after due diligence is complete and both parties have agreed on all terms and conditions.

At Versailles Group, we often see sellers mistakenly view LOIs as binding agreements. To be clear, they are not. An LOI serves as a framework for negotiations, not a final contract. For a transaction to be successfully completed, both sides must remain mindful of the need for fair and reasonable negotiations throughout the process.

That said, any changes to the agreed-upon terms should be justified. During due diligence, the buyer will carefully verify and validate the seller’s information. Because the LOI leaves room for flexibility, negotiations may arise around certain issues—but with the right guidance, these discussions help keep the transaction moving toward closing. An experienced M&A advisor plays a critical role in this stage by facilitating the diligence process, reassuring buyers when appropriate, and negotiating any proposed revisions to the LOI’s terms.

While most of the terms in an LOI are non-binding, this important document may also contain some legally binding provisions, such as exclusivity, confidentiality, etc. It is worth noting that the terms of the LOI are subject to any confidentiality agreement previously entered into by the parties. If there is no prior agreement on confidentiality, the LOI may include confidentiality provisions such that any information shared between the parties will be held in confidence and not disclosed. In other cases, the LOI will contain stricter confidentiality provisions to protect the seller while disclosing much more data during the due diligence phase.

Exclusivity is one of the common binding terms in an LOI and is always demanded by buyers. The exclusivity provision prevents the seller from negotiating or seeking offers from other potential buyers during a specified period. This provision protects the buyer from losing the acquisition to another buyer during the due diligence phase. The buyer wants to have the protection that exclusivity grants as they will need to invest a significant amount of time and money into the diligence phase. The exclusivity period is a crucial term and often determines the timeline for the due diligence process and negotiation of agreements. However, the parties can agree to extend the exclusivity period if needed. M&A advisors know when and how to extend the exclusivity provision. 

Signing the LOI with an exclusivity period takes the company off the market, which means the seller should be sure to do due diligence on the buyer’s financial ability before signing. The deal will not close if the buyer cannot pay the purchase price. Thus, it can sometimes be advantageous to accept a lower price from a financially capable buyer as opposed to a higher price from a potentially financially unstable buyer. An M&A advisor will provide guidance and expertise in evaluating the risks and benefits of different buyers’ reputations, transaction timelines, and purchase prices. Thus, allowing the seller can be confident in their decision to engage with a specific buyer. 

For buyers and sellers, the initial presentation of an LOI and subsequent negotiations is akin to a “dance” between the two parties. This dance is a give-and-take between the buyer and seller and can be challenging due to the length of the exclusivity period. For buyers, the challenge is handling sellers who might play hard to get by offering a very brief exclusivity period because they have other suitors lined up. The buyer will contemplate if it is worth rushing through the due diligence phase and spending hundreds of thousands of dollars to avoid losing the potential acquisition.  

On the other hand, a buyer who casually issues an LOI but then asks for a lengthy 120-day or longer exclusivity period could scare sellers away. Sellers must be aware that a lengthy due diligence period means the company is off the market for a long time. This can be problematic for the seller because if the buyer withdraws after a lengthy due diligence phase, they may need to “relaunch” the company for sale as other potential buyers may have already moved on. Simultaneously, sellers are not keen on exceedingly long due diligence processes as they do not have a clear commitment from the buyer as the LOI is not binding. In these circumstances, an experienced M&A advisor will be able to navigate these complex challenges to mitigate risk and achieve an optimal outcome.

The exclusivity provision plays a significant role in understanding the LOI paradox. Both parties are expected to have trust in each other, guided solely by the brief outlines of the agreement presented in the LOI. Trust between the parties can be difficult to establish at first and will develop over time. The shared experiences of working through the due diligence period and continued negotiation of the terms of the LOI emphasize the delicate balance required as both parties navigate toward a closing. 

After negotiating the terms of the LOI with the assistance of an M&A advisor, it is critical to thoroughly review the LOI with an attorney before signing. The seller should also get advice from their CPA as to the financial structure to mitigate the tax impact. After the execution of the LOI, the sellers need to continue to seek advice and rely on their M&A advisor throughout the whole process. Most importantly, sellers should be careful not to focus only on the proposed sales price as many factors affect how good or bad the deal is for the seller.

In summary, a well-structured LOI protects sellers, preserves leverage, and sets the stage for a successful transaction.

 

Written by Xueying (Gil) He

Originally published: 13 March 2024.

Last updated: 21 August 2025.

 

Versailles Group, Ltd.

Versailles Group is a 37-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325