An investment memorandum is a key document in attracting finance. Here you will find what an investment memorandum is and what it should contain.

Meaning Investment Memorandum 

The investment memorandum is a legal document that is prepared for potential buyers. In principle, the investment memorandum contains all information about a company. This document gives the buyer a good understanding of the business to be purchased. 

An investment memorandum is the same as an information memorandum.

Be honest in your investment memorandum

In an investment memorandum you outline the most honest possible representation of the state of your company. There's no point in making things look better than they actually are. The buyer also carries out a due diligence himself, in which your company is examined legally and financially. 

If you are dishonest in your investment memorandum, the buyer will find out with the due diligence anyway. This has a negative effect on the selling price, your image and mutual trust. It may even be that the buyer forgoes the purchase altogether and asks for compensation because you have wasted his or her time. Honesty is the best policy. 

what is an investment memorandum

What is in an investment memorandum? 

There is no fixed structure for an investment memorandum. It differs per situation which information is most important, but certain matters are in principle always included in an investment memorandum. These are: financial information, business activities, legal structure, information about organization and employees and the future perspective. 

Most buyers find the financial information the most important part of the investment memorandum. Balance sheets, results and financial forecasts are all indispensable. Based on the financial information, the buyer makes his or her first offer.

Tip: what is EBITDA?

Furthermore, an investment memorandum always states what the business activities are. Which company is the buyer dealing with? In which market does the company operate and who are the customers? You can choose to anonymize customer data. If the sale does not go through, you do not have to worry that the buyer will go after your customers. 

In the legal structure, the buyer can find, among other things, which parts or activities of the organization are for sale.

The investment memorandum also deals with information about the structure of the organization and (briefly) about the employees. For example, how the contracts and employment conditions are arranged and what the salaries are. Please note that you anonymize personal data of employees, for privacy reasons. 

Finally, the future perspective of the organization. Here you can think of information about permanent contracts, degree of flexibility, and opportunities and threats in the market.

Investment Memorandum: An Important Document

An investment memorandum is an extensive document in which you inform the buyer as well as possible about the state of your company. On the basis of the investment memorandum, the buyer can estimate what his or her first offer will be. It is therefore an important document in the sales process of your company.

The investment memorandum is often followed by a Letter of Intent, in which both parties express their intentions to reach the purchase. This is followed by the Sales and Purchase Agreement.