Private Equity Investment Memo Template (LBO, IRR, MOIC)

Private Equity Investment Memo: [Project name]

Final investment memo for one private equity or venture transaction, written by the deal team for the general partner's investment committee: recommendation, transaction summary with sources and uses, thesis, market, company, management, quality of earnings, value creation plan, valuation, financing structure and returns (IRR and MOIC), key legal terms, diligence findings, risks, ESG, exit routes and fund fit. Based on common private markets practice, with regulatory references cited by number (EU AIFMD control provisions, merger control and foreign investment screening) and industry guidelines named only. Replace every [bracketed] value and every row marked Example. This is a document format, not financial, investment, tax, legal or accounting advice; obtain the law, the fund documents and any guideline for the normative text.

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Contents

1. Recommendation and approval requested
2. Transaction summary
3. Investment thesis
4. Market and competitive position
5. Company overview and business model
6. Management and governance
7. Historical performance and quality of earnings
8. Business plan and value creation plan
9. Valuation and entry price
10. Financing structure and returns analysis
11. Legal structure and key terms
12. Due diligence findings
13. Risks and mitigants
14. ESG and sustainability
15. Exit strategy
16. Fund fit, conflicts and approvals
17. Glossary and references
18. Standard and licence note

1. Recommendation and approval requested

State the recommendation, the maximum price the team asks authority for, the equity commitment from the fund and the conditions that must be satisfied before signing.

Example: Approve a binding offer for 100% of Heron Fleet Systems at an enterprise value of EUR 380m (9.5x LTM EBITDA of EUR 40m), with a walk-away at EUR 383m (9.6x), the highest price at which the sponsor base case still meets the fund's 20% target gross IRR. Fund III equity of EUR 162m (10.8% of EUR 1,500m commitments), alongside EUR 30m of co-investment from limited partners that opted in and management rollover of EUR 20m. The first-round bid of 10.0x (EUR 400m) is not renewed: at that price the base case returns 18.2% gross, below the hurdle, and confirmatory diligence found the open tax audit and the change-of-control clauses (section 12). Conditions: signed unitranche commitment letter and a clean confirmatory tax diligence report.

2. Transaction summary

Describe the seller and process (bilateral, limited auction, broad auction), the perimeter acquired, the pricing mechanism and the timetable.

Explain how the price was reached and what the team knows about competing bids, without speculation. In a limited auction the committee needs three facts: the price that is likely to win, the price at which the deal still meets the fund's return target, and the walk-away. When the first two do not overlap, say so plainly and either ask for an explicit exception to the hurdle with reasons, or lower the bid and accept the risk of losing the asset. The example does the second.

2.1 Sources and uses

Example check: 180 + 162 + 30 + 20 = 392 = 380 + 12. Equity of EUR 212m is 54.1% of total sources. A revolving credit facility of [EUR amount], undrawn at closing, supports working capital.

3. Investment thesis

Explain why the fund has an edge (sector experience, relationship with management, operating partners) and why the opportunity is available at this price.

4. Market and competitive position

Describe market definition, size and growth, segmentation, customer buying behaviour, competitive landscape and structural trends. Cite the commercial due diligence provider and the date of its report.

Test the market numbers against the company's own data: if the company grows faster than the market, the plan must explain which competitor loses share and why. In the example, 8% market growth against a 6.7% base-case revenue CAGR means the sponsor case assumes a slight loss of share, which is deliberately cautious because price increases (PET-002) may raise churn among the smallest customers. | [Competitor] | [Positioning] | [Strengths] | [Weaknesses] |

5. Company overview and business model

Cover history, products and services, customers and concentration, revenue model (recurring, re-occurring, project), pricing, go-to-market, operations, technology and people. For software and subscription businesses, show annual recurring revenue, retention and customer acquisition metrics; see Unit Economics Analysis (finance/unit-economics-analysis).

Largest customer (Example): 4.5% of revenue; top ten: 21%.

6. Management and governance

Summarise management references and background checks, the management incentive plan (pool size as a share of equity, vesting, leaver terms), board composition after closing, reserved matters and the reporting pack the fund will require.

Example: the management incentive plan is a sweet equity pool of 10% of ordinary equity (section 11), with 60% allocated at closing and 40% held back for the new CFO and later hires. The founder's rollover is modest against the proceeds, so retention rests on the sweet equity and on a two-year non-compete; the committee should weigh whether a larger rollover is a condition worth negotiating.

7. Historical performance and quality of earnings

Present three years of history plus LTM: revenue, gross profit, EBITDA, capital expenditure, working capital and cash conversion. Then show the quality of earnings bridge.

Example check: 37.2 + 0.9 + 1.4 + 0.5 = 40.0. Note any adjustments proposed by the seller and rejected by the team, with their value.

Review points for the QoE bridge: every add-back has cash evidence or a signed document; run-rate savings are accepted only when the cost has already stopped (the office lease in the example has ended); recurring "one-off" items (litigation, restructuring, recruitment fees that appear every year) are challenged; and capitalised development is reviewed so that EBITDA is not flattered by moving costs to the balance sheet. The entry multiple applies to adjusted EBITDA, so each EUR 1m of accepted add-back adds EUR 9.5m to the price paid.

8. Business plan and value creation plan

8.1 Cases

Example check: base-case EBITDA CAGR is (62 / 40) to the power 1/5 minus 1 = 9.2%; revenue CAGR is (221 / 160) to the power 1/5 minus 1 = 6.7%.

8.2 Value creation initiatives and 100-day plan

Detail the first 100 days in the M&A Integration 100-Day Plan (finance/m-and-a-integration-100-day-plan).

Keep the sponsor base case below the management case and explain the gap line by line. In the example, the base case reaches EUR 62m of EBITDA against EUR 72m in the management case: the difference is a slower pricing programme, a later hardware partner model and no bolt-ons. The identified initiatives (VCP-001 and VCP-002) add EUR 8.5m by year 5, and the rest of the EUR 22m EBITDA growth comes from organic volume at the current margin, which the commercial diligence supports.

9. Valuation and entry price

Example check: 11.5 x 0.85 = 9.775x, x 40 = 391; 10.8 x 40 = 432. LBO affordability: the base-case exit equity of EUR 535m (section 10.3) discounted at 20% for five years is 535 / 1.2^5 = EUR 215.0m of entry equity; plus EUR 180m of debt less EUR 12m of fees gives EV EUR 383.0m. The proposed price sits below every method; record why the seller accepts it (here, the price chip is tied to diligence findings). Methods and inputs are documented in the Valuation Report (finance/valuation-report) and the Comparable Companies Analysis (finance/comparable-companies-analysis). Where the fund reports fair value to its investors, state the valuation policy and guidelines that will apply after closing (for example the IPEV Valuation Guidelines, 2025 edition, effective for reporting periods beginning on or after 2026-04-01, named only).

10. Financing structure and returns analysis

10.1 Debt terms

Example check: year 1 interest of EUR 180m x 7.75% = EUR 13.95m; EBITDA interest cover = 40.0 / 13.95 = 2.9x on LTM EBITDA.

10.2 Returns formulas

Multiple of invested capital and internal rate of return for a single entry and exit:

where $E$ is equity value, $D_t$ interim distributions and $T$ the holding period in years. With interim cash flows, IRR is the rate that sets the net present value of all equity cash flows to zero:

10.3 Base case returns

Example check: 620 minus 85 = 535; 535 / 212 = 2.524x; 2.524 to the power 1/5 = 1.203, so IRR is 20.3%, above the 20% target. No interim distributions and no exit costs are assumed; show them when the model includes them. The exit multiple of 10.0x is half a turn above entry: it stays below the precedent median of 10.8x and rests on scale, since EBITDA above EUR 60m opens the larger secondary buyout market (section 15). With exit equal to entry (9.5x) the base case returns 2.38x and 18.9%, so the hurdle depends on that half turn; say so to the committee.

10.4 Value creation bridge

10.5 Sensitivity: gross IRR and MOIC

Net debt at exit held at EUR 85m for simplicity; the model recalculates it per case.

Also report the downside case (EUR 50m EBITDA at 9.0x gives exit equity of EUR 365m if net debt stays at EUR 85m, a 1.72x MOIC and 11.5% IRR; Example), the minimum exit multiple that returns the equity (1.0x: (212 + 85) / 62 = 4.8x on base EBITDA, 5.9x on downside EBITDA; Example), and net returns to limited partners after fees and carried interest if the committee requires them.

11. Legal structure and key terms

11.1 Regulatory approvals and fund-law obligations (as of 2026-10; check local law)

12. Due diligence findings

Give every finding a disposition and show the price effect where there is one. In the example the tax audit (DDF-003) and the change-of-control clauses (DDF-004) were the reasons for the reduction from 10.0x to 9.5x; the escrow and the consent condition then protect against the residual risk. A finding that is accepted without a price, structure or condition response should say why it does not matter.

13. Risks and mitigants

14. ESG and sustainability

Cover the screening against the fund's exclusion list, material sustainability topics for the sector (for example data privacy and security, energy use of hosting, labour practices), governance improvements, the data the fund needs to report to its investors and, for EU funds, how the investment fits the fund's sustainability disclosures under the SFDR as currently in force. Link the Responsible Investment Policy (finance/responsible-investment-policy).

15. Exit strategy

Test the exit multiple against the buyers named. In the example a secondary buyer at 10.0x on EUR 62m of EBITDA pays EUR 620m, which a mid-market fund can finance at today's leverage; a strategic buyer could pay more but is not assumed. State what happens to returns if the exit slips by one year on the same EBITDA trajectory: the IRR falls whenever the extra year adds less than the current IRR (20.3% in the example) to exit equity value.

16. Fund fit, conflicts and approvals

Example check: 15% x 162 = 24.3; 162 + 24.3 = 186.3, which is 12.4% of 1,500. Record the committee vote, recusals and conditions as in the Investment Committee Memo (finance/investment-committee-memo) section 12, and the post-closing monitoring cadence (monthly board pack, quarterly valuation, annual review against the value creation plan).

17. Glossary and references

17.1 Glossary

17.2 References

Standard and licence note

Based on common private markets practice and on public law cited by number: EU legislation on EUR-Lex (reuse authorised with acknowledgement), US statutes and UK legislation. Industry guidelines (IPEV Valuation Guidelines, ILPA Principles) are named only; none of their text, structure or templates is reproduced. Morrow Fell Partners, its Fund III and Heron Fleet Systems are fictional, and nothing here is investment advice. This template is original text written for this collection; check the current official versions of every cited law and guideline before use. Template licence: MIT.