Preparing sales documentation
All answers are for general guidance only. Each case must be handled on individual facts.
Q: What should be included in information memorandums and non disclosure/confidentiality agreements?
An information memorandum is an important tool in attracting potential buyers to a disposal opportunity. It contains the essential hooks to attract bids such as:
- an overview of the target business and the products/services it provides
- financial information
- details of the management team/key employees
- details of main assets
- projections and a strategic analysis
Clearly much of this information will be sensitive in nature and there is a fine balance to strike between disclosing too much information (which could leave a potential seller feeling too exposed) and too little information (which fails to generate interest.) In some cases a basic memorandum is prepared in the first instance which has only basic non-sensitive information and will not even mention the name of the target. This can be used to tease out genuine interest with a full information memorandum to follow.
At this stage proposed recipients of the information will be required to sign a confidentiality agreement. This should contain the following basic protections:
- a prohibition on the disclosure of any confidential information concerning the target and its business by the recipient and it's employees and agents
- a prohibition on the use of such information
- a provision stating that the recipient must not disclose the existence of any negotiations or discussions concerning the proposed transaction
- limited carve outs to enable confidential information to be shared with the recipient's key personnel and it's professional advisers
- non solicitation provisions covering employees and in some cases customers/suppliers
- indemnities in respect of any breach
It is also important that both the information memorandum and the confidentiality agreement contain appropriate disclaimers providing that the information supplied, whilst given in good faith, has not been independently verified and that no representations or warranties are given in respect of it.
It should be made clear that the information provided is to help the recipient decide whether it wishes to take negotiations further. If negoatiations do result in a transaction then the documents governing the transaction will contain appropriate warranties and indemnities concerning the target business and any buyer should rely on those as it's contractual protections.
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