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Offering MemorandumAn offering memorandum is a legal document that states the objectives, terms, and risks typically associated with private placements for public companies. However, an offering memorandum may also be used by buyers and sellers of private middle market businesses. This formal document is usually associated with transactions that are exempt from full registration under federal securities law, providing investors with valuable disclosure information.

What is the purpose of an offering memorandum?

An offering memorandum is a selling document that is created by an investment banker or intermediary to generate interest in a sale or otherwise raise capital. The purpose is to provide prospective buyers or investors with information on the offering, while simultaneously protecting the sellers from any liability that is associated with selling unregistered securities.

What is included in the offering memorandum?

The offering memorandum typically includes items such as a detailed description of the company’s operations, management biographies, customer data, and financial statements. Also included are details of the terms of the transaction, the minimum investment amount, investor qualifications, and deadlines for purchasing shares.

Other items that may be included in this document include:

  •      Customer diversification
  •      Future projections and goals
  •      Future growth opportunities
  •      Barrier to entry from competitors
  •      Opportunities in the marketplace

How is the offering memorandum different from a prospectus?

While a prospectus is generally offered when a company issues an IPO (initial public offering) or publicly-traded securities, an offering memorandum is reserved for the sale of equity to investors in a private placement.

Shine a positive light on your company.

While an offering memorandum is usually created by a hired advisor, the company itself should supply and thoroughly review all information included in the document to ensure its accuracy.  Many of its statements and financial data will likely be included in the Asset Purchase Agreement or Stock Purchase Agreement in the Reps and Warranties section.

The offering memorandum is also the company’s opportunity to describe any past issues the organization has faced, and explain the steps taken to correct the problems, plus any future strategies to increase revenue, improve cash flow, and protect margins.

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