Investment bank ‘books’ get shorter as M&A evolves

Lengthy and detailed confidential information memos, the standard in M&A processes, are heading for extinction, banking and private equity sources said.

To attract buyers, more banks are using punchier CIMs, some as short as one to three pages, sources said. Such CIMs target a new breed of investor, who wants more concise data and is used to communicating in 140 characters, sources said.

Christian Atwood, a partner at Choate, Hall & Stewart who advises PE firms in M&A deals and growth equity investments, welcomes the pithier CIMs because they save time. Investment banks often spend weeks or months producing a CIM, he said. These memos, sent at the beginning of a deal process, can weigh in at 100 pages.

“If the goal is to get to a single buyer, the quicker you can separate the wheat from chaff the better,” Atwood said. “Shorter CIMs are more quickly and efficiently produced and, therefore, lend themselves to better, more focused use of a target’s, and its management team’s, resources.”

Who’s using them

Shorter offer memos began gaining traction in Silicon Valley a few years ago and are more prevalent in tech-company auctions, sources said. Boutique banks like Qatalyst Partners, Financial Technology Partners, Cascadia Capital and William Blair have used shorter CIMs, sources said.

GCA Advisors is credited with pioneering the use of shorter offer memos, sources said. The investment bank rarely puts together “massive CIMs” but would if a process required it, a source said. That might involve a “broad marketing to financial sponsors,” this person said. Cascadia has received compliments on its “shorter, punchier” offer memos, a different source said.

Steve McLaughlin, FT Partners’ founder and managing partner, confirmed that the San Francisco firm uses shorter CIMs. FT Partners does as much, if not more, work as other banks to prepare clients for the sale process, he said.

Houlihan Lokey takes a “tailored approach” to M&A, a third source said. A broad auction process, where documents are sent to many buyers, will require a deeper offering memo, this person said. If the buyer universe is educated about the company up for sale, Houlihan will use a shorter CIM, the source said. “The broader you go, the more likely you need to use a longer CIM,” the person said.

The process

CIMs have evolved along with technology. They’ve been the standard in M&A auctions for years. Typically Word documents, CIMs provide detailed information about the company for sale, including its history, financials, business model and management. A CIM can go by many names but is sometimes referred to as an “offering memorandum” or “the book.”

CIMs evolved into confidential information presentations when PowerPoint became popular. CIPs are basically the same as CIMs but with PowerPoint slides. CIPs have become more prevalent than CIMs in M&A processes, sources said.

“The move from Word to PowerPoint was really the starting line for marketing materials to become shorter and more concise,” said Steve Wiesner, founder of Peloton Document Solutions.

Proponents of pithier offer memos claim the “documents” cater to changing attention spans. “What’s the point of a 75-page text-heavy CIM if no one actually reads it?” a fourth source said.

One GP said he prefers the “thinned-down information” because it could limit the number of competitive bidders. Other bankers said the shortened documents may not convey the subtleties of a business and could lead to an “average multiple” in an auction process.

“Yes, we have seen it, and there is no question it is laziness,” a fifth person said. “It makes the management team do the work of conveying the initial story in individual one-off meetings.”

Evolution

The need for more efficient CIP production spurred Wiesner to found Peloton nearly five years ago. Wiesner spent two decades as an investment banker and PE executive; he’s produced and reviewed more than his fair share of CIMs/CIPs. Peloton, he said, converts traditional CIMs or CIPs to HTML and makes them interactive.

“We give the bankers the process they need to tell the story,” Wiesner said.

Peloton “documents” provide everything a traditional CIM offers. Peloton even offers videos of executives, including the CEO, discussing the company.

It doesn’t aim to replace the management presentations but enables buyers to get an early look at executives. The software also lets sell-side bankers see when potential buyers are engaged by the material and can set up a bid date, Wiesner said.

“This can easily allow them to carve a week to 10 days off that standard marketing period,” he said.

Houlihan declined comment. Qatalyst, GCA and William Blair could not be reached for comment.

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