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Complete Disclosure

Selling an aerospace and defense company requires a great deal of planning to assure a successful consummation of a transaction. Among the most important is the production of a Confidential Information Memorandum (CIM), to be made available to selected potential buyers after a signed confidentiality agreement is in place. The CIM is intended to describe the company in complete detail, including but not limited to financial matters, contracts, operations, facilities, human resources, information technology, environmental status, litigation, and much more.

It is essential that the company provide complete disclosure of all known information in the CIM, both positive and potentially concerning, so that potential buyers have all the information on the company necessary to formulate an informed offer. Information provided that is potentially negative (such as: environmental concerns, pending litigation, a key executive leaving, serious customer problems, or financial irregularities) should not be withheld. Such information must be disclosed so potential buyers can properly assess the company and make their bids based on complete information.

Withholding potentially negative information inevitably leads to worse problems later in a sale process. Buyers, in their detailed Due Diligence efforts, will verify all the information provided in the CIM and will discover any serious negative information that was not disclosed. Almost always, withholding negative information in the CIM will eventually lead to a larger reduction in price than would have been realized if the applicable information had been disclosed in the CIM. Often, it will lead a buyer to terminate their interest in pursuing an acquisition, due to concerns about the integrity of the information provided by this seller.

No company is perfect in all aspects of its finances or operations. The takeaway is – it is vital to the process that sellers properly disclose all issues of potential concern in the CIM, so buyers can make informed valuation decisions early in the process and gain comfort and confidence throughout the due diligence phase that they are dealing with reliable and complete information

Have a great rest of day.

Bruce Andrews
Managing Director, Defense