A buyer confidentiality agreement is a legally binding agreement to protect sensitive information that can be disclosed during the due diligence process of buying or selling a business. A buyer confidential information memorandum (CIM) is a marketing document designed to attract buyers and to provide a prospective buyer with general information about the business for sale, and acknowledges that the information the potential buyer will see is confidential, valuable, proprietary information owned by the seller that cannot be disclosed to anyone not covered in the agreement for the specified period of time. The CIM names the parties who are signing the confidentiality agreement and may also list all or some of a business’s assets and liabilities that are covered by an NDA (Non-Disclosure Agreement).
A CIM is not legally binding, and is the first step for a prospective buyer to determine if they are interested in a business that it is for sale. A potential business buyer needs sensitive information and data to help evaluate whether to buy the business, while the business seller wants to protect their trade secrets, financials, sales data, marketing strategies and other competitive information from 3rd parties or from prospective buyer misuse.
When To Sign A Buyer Confidential Information Memorandum
A potential business buyer should expect to see and sign a CIM early on, long before they make an offer for a business and have all the confidential and proprietary business information seen. Often sellers or their agents require a signed CIM before any information about a business is disclosed. Signing a CIM is often seen by the business seller as a sign of good faith on behalf of the potential buyer, where a buyer may see an NDA too early in the discussions as a sign of a difficult seller.
Therefore, the signing of a CIM is often an indicator of the buyer and seller’s likelihood to successfully negotiate a business deal – can the buy and seller do business together.
After an NDA is signed, a business seller should make all financials, marketing information, employee lists etc available to a serious potential buyer. Before an offer is made, a buyer can expect to see the following confidentials:
- Business Summary
- Profit and Loss Statements
- Balance Sheet
- Lease Overview
- Equipment List
- Sales Literature, Brochures, etc
After an offer is made, a buyer should expect to see the following confidentials:
- Customer Lists
- Employee Lists
- Marketing Data
- Sales Data
- Tax Returns
- Bank Statements
- Invoices and Receipts
- Full Leases and Contracts
- Full Financial Statements
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What is in a Buyer Confidential Memorandum?
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What is in a Buyer Confidential Memorandum?
A CIM can be 50 or more pages in length. Because a CIM is a marketing document, a prospective buyer should perform due diligence carefully. While a CIM is should be an accurate and truthful representation of a business, it is intended to feature the business in the best possible light in order to sell the business at the highest price.
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