Self-funded Search Investing Report: Key materials to review in a data room

Once you identify an investment opportunity and express your interest in learning more, an acquirer is likely to give you access to their data room—a single digital location where important deal documents can be found to help you with your due diligence. 

These materials in their data room are designed to create transparency, reduce biases, and provide a repeatable review that allows you to make informed decisions. In this post, we’ll explore the key materials commonly prepared by acquirers, their purpose, and what you can expect from each document.

1. Teaser

The teaser is a high-level document prepared by the acquirer to broadly market the investment opportunity. Its purpose is to provide enough information to pique investor interest without disclosing sensitive details, such as the company’s identity.

What to expect:

• Overview of the acquirer’s background.

• High-level company overview and acquisition terms.

• A concise financial summary.

• Proposed investor terms.

• The process and transaction timeline.

This document serves as the initial pitch and sets the tone for more detailed discussions.

2. Confidential information memorandum (CIM)

The CIM is a comprehensive document that provides a deeper dive into the opportunity, exposing more sensitive information and specifics about the business. It’s an essential resource for investors evaluating the deal.

What to expect:

• Detailed information on the company, its customers, vendors, team, and financials.

• Market and industry analysis, including local market data.

• Detailed acquisition terms and deal financing structure.

The CIM is typically shared after a non-disclosure agreement (NDA) is signed, ensuring the confidentiality of the details provided.

3. Financial model

A detailed financial model is a critical tool for both acquirers and investors. It evaluates the financial viability of the acquisition and allows investors to analyze the deal through various scenarios.

What to expect:

• A sources and uses table detailing where capital will come from and how it will be deployed.

• Growth and margin assumptions, providing insights into the expected financial trajectory.

• Investor terms and waterfall, outlining returns across different funding layers and scenarios.

This model forms the quantitative foundation for decision-making and is often used to stress-test the investment’s financial assumptions.

4. Equity terms

Equity terms may be included in a term sheet (or section of the CIM) and outline the principal terms for equity investors. This ensures alignment between the acquirer and investors and establishes expectations for governance and returns.

What to expect:

• Key terms such as equity step-up, preferred dividend, and carried interest structure.

• Management compensation, including salary and bonus details.

• A summary of governance terms specifying roles, rights, and responsibilities.

This document is crucial for investors to understand how their equity investment will be structured and governed.

The value of a disciplined process

Investors should review a deal’s data room to gain clarity and reduce biases in the decision-making process. Doing so can ensure that you make well-informed decisions about where to allocate capital.

By preparing a teaser, CIM, financial model, and term sheet, acquirers demonstrate professionalism and transparency while providing investors with the information they need to evaluate the opportunity thoroughly.

Download our latest Self-funded Search Investing Report here.

Information posted on this page is not intended to be, and should not be construed as tax, legal, investment or accounting advice. You should consult your own tax, legal, investment and accounting advisors before engaging in any transaction.