Quick answer: A valuation report is a private, analytical document that tells the owner what a business is worth, to whom and why. A confidential information memorandum, or CIM, is a marketing document that presents the business to prospective buyers. The report is candid about weaknesses and the CIM is persuasive, so they should not be combined or shared interchangeably.
Key points
- The valuation report is written for the owner and stays confidential. The CIM is written for buyers who have signed a confidentiality agreement.
- The report states price ranges and risks plainly. The CIM presents strengths and a growth story while remaining accurate.
- The report is usually prepared first and informs how the company is positioned, which buyers to approach and what to fix before launch.
- Giving buyers the valuation report weakens the owner’s negotiating position, because it reveals the owner’s own view of price and risk.
Two documents with different jobs
A company that goes through a sale produces many documents. Two are often confused because both describe the business and its value, but they are written for opposite audiences and with opposite aims.
A valuation report answers the owner’s question: what is this business worth, who would pay for it, and what would change the answer? A confidential information memorandum, or CIM, answers the buyer’s question: why should I buy this business, and what will I be getting?
Treating them as one invites two problems. A valuation report written to be shown to buyers has to soften its conclusions, and a CIM written to inform an owner has to be more critical than a sales document can be.
What a valuation report contains
A transactional valuation report is an analytical document. It typically includes:
- A conclusion expressed as a range of enterprise value and an estimate of the amount that would reach the owners
- The adjusted earnings schedule with notes on each adjustment
- The reasoning for the multiple range and the evidence behind it
- An assessment of risks that would lower value, such as customer concentration, owner dependence or weak financial controls
- Strengths that would raise it
- A view of the likely buyers, strategic and financial, and what each could justify paying
- Sensitivity tables and recommended actions before going to market
Its tone is candid. The report is private and the owner uses it to decide. The overview of transactional valuation explains how it is built.
What a CIM contains
A CIM is a structured presentation of the business. Buyers receive it after signing a confidentiality agreement, and it is the main document they use to decide whether to submit an offer. It typically includes:
- An executive summary and the investment highlights
- A description of the company’s history, products or services, customers and markets
- Operations, facilities and people, including the management team
- Historical financial results with the adjustments explained
- Growth opportunities and how a new owner could pursue them
- A description of the transaction process and timeline
Its tone is persuasive within the bounds of accuracy. Every claim has to be supportable, because buyers will test it in diligence. An inflated CIM does not raise the final price. It damages credibility when the buyer’s review shows the gaps.
Side by side
| Valuation report | CIM | |
|---|---|---|
| Audience | The owner and the owner’s advisors | Qualified prospective buyers under confidentiality |
| Purpose | Inform the owner’s decisions | Generate informed, competitive offers |
| Tone | Analytical and candid | Persuasive but accurate |
| Price | States ranges and reasoning | Usually states no price |
| Weaknesses | Identified plainly | Addressed factually, not emphasized |
| Timing | Prepared first | Prepared during preparation for launch |
| Shared with buyers | No | Yes, after a confidentiality agreement |
How the two work together
The valuation report shapes the CIM in several ways. Knowing which strengths a buyer will pay for tells the advisor what to emphasize. Knowing which weaknesses will draw questions tells the advisor how to address them before buyers ask. The adjusted earnings schedule in the report becomes the financial presentation in the CIM, so the adjustments are already supported when buyers examine them.
The report also informs strategy. If the analysis shows that strategic buyers could pay a premium, the outreach list should include them. If it shows that the business is not ready, the owner may choose to improve key points first. The sell-side versus buy-side comparison shows where each document fits in an advisory engagement.
Common mistakes
- Sharing the valuation report with a buyer. It shows the owner’s private floor and risk list.
- Putting a price in the CIM. It anchors the negotiation and may limit the result.
- Using different numbers in different documents. Buyers compare the teaser, CIM and data room, and inconsistencies reduce trust.
- Omitting known weaknesses. Problems that a buyer finds in diligence cost more than problems disclosed early with context.
- Treating the CIM as the start of preparation. The work that makes a CIM strong, such as supporting the adjustments and organizing the customer data, takes time.
The seller’s due diligence checklist lists the support buyers ask for after reading the CIM. The guide to the sale process shows when each document is used. And the comparison of a transactional valuation and an appraisal explains why a transactional valuation is not interchangeable with a formal appraisal.
Frequently asked questions
Should I show the valuation report to buyers?
Generally no. The report reflects your private view of value and the risks you identified. Buyers should form their own view from the CIM, the data room and management meetings. If a buyer asks about value, a better answer is the process timeline and how offers will be compared.
Does the CIM include a price?
Usually not. The CIM describes the business and its financials. Price expectations are set through the process, often by asking buyers for indications of interest. Naming a price in the CIM can cap the outcome or turn away buyers who would have paid more.
Who writes the CIM?
Typically the sell-side advisor writes it with input from the owner and management, because it needs both sales skill and accuracy. The owner remains responsible for the facts, since statements in a CIM can become issues if they prove false.
How long does it take to prepare a CIM?
It depends on how organized the company’s information is. A business with clean financials, documented customers and clear descriptions of its operations can move faster. A business that needs the add-backs, customer analysis and market description built from scratch takes longer.
Thinking about a sale or an acquisition?
The Impetus Group provides sell-side and buy-side M&A advisory, from preparation and buyer outreach to negotiation and closing. A transactional valuation is often the first step, scoped and priced separately.
Related guides
- Transactional Valuation: What It Is and How It Works: A transactional valuation estimates what a strategic or financial buyer would pay for a business. Learn what goes into one and how it differs from an appraisal.
- Sell-Side vs. Buy-Side M&A Advisory: What Each Does: Sell-side advisors represent the owner selling a company. Buy-side advisors represent the acquirer. See what each does, how they differ and when you need one.
- How an M&A Sale Process Works: Stages From Preparation to Closing: A step-by-step view of a sell-side M&A process: preparation, marketing, bids, the letter of intent, diligence, the purchase agreement and closing.
- Due Diligence Checklist for Sellers: What Buyers Ask For and Why: A checklist of the documents and answers buyers request in diligence on a company sale, grouped by area, with the reason each request is made.
- Transactional Valuation vs. Appraisal: Which Do You Need?: A transactional valuation estimates what a buyer would pay. An appraisal estimates value under a legal or tax standard. See how they differ and which one fits.
- Strategic vs. Financial Buyers: Who Pays More and Why: Strategic buyers pay for synergies and fit. Financial buyers pay for cash flow and returns. See how each values a company and which is likely to pay more.
This guide is general education. It is not a valuation opinion, appraisal, investment advice, or legal or tax advice. How these guides are made.