Private Placement Memorandum (PPM) or Offering Memorandum - Explained
What is a Private Placement Memorandum?
Written by Jason Gordon
Updated at April 15th, 2022
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Table of Contents
What is a Private Placement Memorandum?How is a Private Placement Memorandum Used? Whats the importance of a Private Placement Memorandum? Contents of a PPM Academic Research on Private Placement MemorandumWhat is a Private Placement Memorandum?
A legal document containing the specifics of a security and its issuing business, provided to private investors is called a Private Placement Memorandum (PPM). Its a.k.a an Offer Memorandum, or, Offer Document.
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How is a Private Placement Memorandum Used?
When a company is looking for sale of securities in the private sphere - instead of in the publicly traded market, it creates a PPM to share with individuals and private investment firms interested in buying its stocks.
Since this is a private offer, it isn't monitored under Securities and Exchange Commission (SEC) guidelines. Private placements help small businesses raise capital without going public i.e., trading stocks in the public sphere via an Initial Public Offering (IPO).
Whats the importance of a Private Placement Memorandum?
PPMs include all the information pertinent to making a proper assessment of the investment opportunity. Investors need compelling reasons to buy securities in a firm and a carefully crafted PPM goes a long way in inspiring their confidence and trust in the potential of the firm.
Contents of a PPM
A standard PPM contains detailed information on the following topics:
- Specifics and summary of the securities offering - terms and conditions, pricing, dates, lot sizes, distribution plan, etc.
- Disclosures, disclaimers, and notices.
- Overview of company, history, founders, bios, management, shareholding pattern.
- Operational costs, overheads, potential, forecasts.
- Securities structure of the company, majority stakeholders, assets, liabilities, capital expenditure.
- Compliance and litigation procedures, legal obligations.
PPMs are used when companies are looking for private investments to raise capital but also want to safeguard company interests with carefully managed legalese, or have investors that aren't accredited.
PPMs are not necessary when the offering is too small and the costs of creating one are relatively prohibitive. A single angel investor or family friends investing in your firm also do not warrant the creation of a PPM. When all potential investors are accredited, a PPM might not be required.