# 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.

<!--
Guidance: How to use this template
- Use one memo per deal stage: a screening memo (sections 1 to 5 and 9,
  short form), then this full memo for final approval before signing.
  Record what changed since the screening memo in the revision history.
- Fill section 2 (sources and uses) and section 10 (returns) from the
  approved model and quote the model version. Every number in the memo
  must tie to that version.
- Keep detailed workstreams in their own documents and link them:
  Due Diligence Request List (`finance/due-diligence-request-list`),
  Quality of Earnings Scope (`finance/quality-of-earnings-scope`),
  Valuation Report (`finance/valuation-report`), M&A Integration 100-Day
  Plan (`finance/m-and-a-integration-100-day-plan`), Financial Model
  Specification (`finance/financial-model-specification`).
- The committee's vote, conflicts and conditions can be recorded with
  the generic Investment Committee Memo
  (`finance/investment-committee-memo`) sections 11 and 12, or in
  section 16 here.
- Worked example: fictional fund "Morrow Fell Buyout Fund III" (EUR
  1,500m of commitments, managed by Morrow Fell Partners, a fictional
  Luxembourg alternative investment fund manager) proposes to acquire "Heron Fleet Systems" (a fictional German fleet
  management software company). All names and numbers are invented.
- Conventions in the example: currency EUR, amounts in millions, LTM
  means last twelve months to the locked-box date, exit assumed at the
  end of year 5, returns gross of fund fees and carried interest unless
  stated.
-->

## Document control

<!-- Guidance: Code-name the project and keep the target's real name out of file names and subject lines until signing. Record the model version that all numbers tie to. -->

| Field | Value |
|---|---|
| Document ID | [PEM-YYYY-NNN] |
| Project code name | [Project name] |
| Target | [Target legal name, jurisdiction] |
| Fund | [Fund name and vintage] |
| Deal stage | [Screening / First round / Final approval / Post-signing update] |
| Deal lead | [@deal-partner] |
| Model version relied on | [Model file name, version, date] |
| Version | [0.1] |
| Status | [Draft / Submitted / Approved / Approved with conditions / Rejected / Withdrawn] |
| Owner | [@deal-team] |
| Approvers/reviewers | [@ic-chair], [@cfo-or-coo], [@chief-compliance-officer] |
| Last updated | YYYY-MM-DD |
| Classification | [Strictly confidential: subject to NDA dated YYYY-MM-DD] |

### Approvals

| Role | Name | Decision | Date |
|---|---|---|---|
| Investment committee chair | [@name] | [Approve / Approve with conditions / Reject] | YYYY-MM-DD |
| Managing partner | [@name] | [Decision] | YYYY-MM-DD |
| Chief compliance officer | [@name] | [Conflicts cleared / Not cleared] | YYYY-MM-DD |
| Fund CFO | [@name] | [Fund limits and liquidity confirmed] | YYYY-MM-DD |

### Revision history

| Version | Date | Author | Change summary |
|---|---|---|---|
| 0.1 | YYYY-MM-DD | [@name] | Screening memo |
| 0.5 | YYYY-MM-DD | [@name] | *Example:* First-round bid at 10.0x LTM EBITDA |
| 1.0 | YYYY-MM-DD | [@name] | *Example:* Final approval memo, model v7, after confirmatory diligence; price reduced to 9.5x for the open tax audit and change-of-control consents, so the base case meets the 20% target |

## Contents

<!-- Guidance: Keep this list aligned with the H2 headings. -->

1. [Recommendation and approval requested](#1-recommendation-and-approval-requested)
2. [Transaction summary](#2-transaction-summary)
3. [Investment thesis](#3-investment-thesis)
4. [Market and competitive position](#4-market-and-competitive-position)
5. [Company overview and business model](#5-company-overview-and-business-model)
6. [Management and governance](#6-management-and-governance)
7. [Historical performance and quality of earnings](#7-historical-performance-and-quality-of-earnings)
8. [Business plan and value creation plan](#8-business-plan-and-value-creation-plan)
9. [Valuation and entry price](#9-valuation-and-entry-price)
10. [Financing structure and returns analysis](#10-financing-structure-and-returns-analysis)
11. [Legal structure and key terms](#11-legal-structure-and-key-terms)
12. [Due diligence findings](#12-due-diligence-findings)
13. [Risks and mitigants](#13-risks-and-mitigants)
14. [ESG and sustainability](#14-esg-and-sustainability)
15. [Exit strategy](#15-exit-strategy)
16. [Fund fit, conflicts and approvals](#16-fund-fit-conflicts-and-approvals)
17. [Glossary and references](#17-glossary-and-references)
18. [Standard and licence note](#standard-and-licence-note)

## 1. Recommendation and approval requested

<!-- Guidance: One paragraph and one table. Questions: what price, what equity cheque, what conditions, what is the walk-away price? Pitfall: approving a price range without a ceiling, which lets the bid drift in the auction. -->

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.

| Field | Value |
|---|---|
| Recommendation | [Approve / Approve with conditions / Decline] |
| Headline price (enterprise value) | [Amount] ([x.x]x LTM EBITDA) |
| Walk-away price | [Amount] |
| Fund equity commitment | [Amount] ([x.x]% of fund commitments) |
| Co-investment offered | [Amount, to whom] |
| Target signing and closing | YYYY-MM-DD / YYYY-MM-DD |
| Conditions to signing | [Conditions] |

*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

<!-- Guidance: Show the deal in numbers: what is bought, from whom, how it is paid for, and the mechanism (locked box or completion accounts). Sources must equal uses. Pitfall: leaving transaction costs out of uses, which overstates returns. -->

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

| Item | Detail |
|---|---|
| Seller *(Example)* | Founder (60%) and a minority growth investor (40%) |
| Process *(Example)* | Limited auction, second round, four bidders |
| Perimeter *(Example)* | 100% of share capital, including the UK and Polish subsidiaries |
| Pricing mechanism *(Example)* | Locked box at 2026-06-30 with permitted leakage schedule |
| Exclusivity *(Example)* | Four weeks from bid acceptance |

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

| Uses | EUR m | Sources | EUR m | x LTM EBITDA |
|---|---|---|---|---|
| Enterprise value (cash-free, debt-free) *(Example)* | 380.0 | Unitranche term loan *(Example)* | 180.0 | 4.5x |
| Transaction fees and expenses *(Example)* | 12.0 | Fund III equity *(Example)* | 162.0 | 4.1x |
| | | Co-investment, LPs that opted in *(Example)* | 30.0 | 0.8x |
| | | Management rollover *(Example)* | 20.0 | 0.5x |
| Total uses | 392.0 | Total sources | 392.0 | 9.8x |

*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

<!-- Guidance: Three to five thesis points that explain why this asset, at this price, with this owner, will produce the target return. Each needs evidence from diligence and a value attached in the returns bridge. Pitfall: thesis points that would be true for any buyer, which means they are already in the price. -->

| ID | Thesis point | Evidence | Value creation lever | Link to returns bridge |
|---|---|---|---|---|
| PET-001 *(Example)* | Mission-critical software with 96% gross revenue retention | Cohort analysis in QoE | Organic growth | EBITDA growth |
| PET-002 *(Example)* | Price below peers by about 15% for comparable functionality | Customer interviews, price benchmarking | Pricing programme | EBITDA growth |
| PET-003 *(Example)* | Fragmented market with ten identified bolt-on targets | Market study | Buy-and-build | EBITDA growth (not in base case) |
| PET-004 *(Example)* | Strong cash conversion supports deleveraging | Cash conversion above 80% for three years | Debt paydown | Deleveraging |
| [PET-NNN] | [Point] | [Evidence] | [Lever] | [Bridge component] |

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

<!-- Guidance: Size the addressable market bottom-up where possible and position the company against named competitors (use code names in the memo if needed). Questions: how fast is the market growing, who wins share and why, what could disrupt it? Pitfall: a top-down market figure from a single paid report used as a growth assumption. -->

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.

| Metric | Value | Source | Date |
|---|---|---|---|
| Serviceable market *(Example)* | EUR 1.8bn | Commercial DD bottom-up model | YYYY-MM-DD |
| Market growth (5-year CAGR) *(Example)* | 8% | Commercial DD | YYYY-MM-DD |
| Company share *(Example)* | 8.9% (EUR 160m / EUR 1.8bn) | Calculation | YYYY-MM-DD |
| Top three competitors' combined share *(Example)* | 31% | Commercial DD | YYYY-MM-DD |

| Competitor | Positioning | Relative strengths | Relative weaknesses |
|---|---|---|---|
| Competitor A *(Example)* | Global platform | Breadth, brand | Price, slow mid-market service |
| Competitor B *(Example)* | Low-cost local player | Price | Limited product depth |

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

<!-- Guidance: Explain how the company makes money in terms an IC member can test: products, customers, contract terms, unit economics. Pitfall: describing products without showing revenue by type, which hides recurring versus one-off income. -->

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`).

| Revenue stream | LTM revenue (EUR m) | Share | Recurring? | Gross margin |
|---|---|---|---|---|
| Subscriptions *(Example)* | 128.0 | 80% | Yes | 82% |
| Hardware and installation *(Example)* | 20.0 | 12.5% | No | 25% |
| Professional services *(Example)* | 12.0 | 7.5% | No | 35% |
| Total | 160.0 | 100% | | |

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

## 6. Management and governance

<!-- Guidance: Assess the team that will deliver the plan and the governance the fund will put in place. Questions: who stays, who must be hired, how is management incentivised, what board and reserved matters will the fund hold? Pitfall: assuming the founder stays without a signed commitment and incentive. -->

| Person | Role | Tenure | Assessment | Plan |
|---|---|---|---|---|
| [@ceo] *(Example)* | Chief executive, founder | 14 years | Strong product and customer leadership | Stays; rolls EUR 17m of about EUR 228m sale proceeds (7.5%) into TopCo; the CTO and two senior managers roll the other EUR 3m |
| [@cfo] *(Example)* | Chief financial officer | 2 years | Solid controller, no sponsor experience | Hire a sponsor-experienced CFO within 6 months |
| [@cto] *(Example)* | Chief technology officer | 6 years | Credible platform roadmap | Stays |
| [Name] | [Role] | [Years] | [Assessment] | [Plan] |

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

<!-- Guidance: Reconcile reported EBITDA to adjusted EBITDA with each adjustment justified and attributed to its source (seller, buyer, QoE provider). Pitfall: accepting run-rate or pro forma adjustments that have no cash evidence. -->

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.

| EUR m | FY2023 | FY2024 | FY2025 | LTM |
|---|---|---|---|---|
| Revenue *(Example)* | 124.0 | 138.0 | 152.0 | 160.0 |
| Adjusted EBITDA *(Example)* | 29.0 | 33.5 | 38.0 | 40.0 |
| EBITDA margin *(Example)* | 23.4% | 24.3% | 25.0% | 25.0% |
| Capital expenditure incl. capitalised development *(Example)* | 6.5 | 7.0 | 7.5 | 7.6 |
| Cash conversion (EBITDA minus capex) / EBITDA *(Example)* | 77.6% | 79.1% | 80.3% | 81.0% |

| QoE bridge (LTM) | EUR m | Source | Accepted? |
|---|---|---|---|
| Reported EBITDA *(Example)* | 37.2 | Management accounts | Yes |
| Founder costs above market salary *(Example)* | 0.9 | Seller | Yes |
| One-off litigation settlement *(Example)* | 1.4 | Seller | Yes |
| Run-rate savings from office closure *(Example)* | 0.5 | Seller | Yes (lease ended) |
| Capitalised development reversed *(Example)* | 0.0 | QoE provider | Reviewed, no change |
| Adjusted EBITDA | 40.0 | | |

*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

<!-- Guidance: Show the management case, the sponsor base case and a downside case, then the specific initiatives that bridge from today to exit. Questions: which levers, which owners, which milestones, which costs? Pitfall: a base case that equals the management case. -->

### 8.1 Cases

| EUR m | LTM | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|---|
| Revenue, sponsor base case *(Example)* | 160.0 | 171.0 | 182.0 | 195.0 | 208.0 | 221.0 |
| EBITDA, sponsor base case *(Example)* | 40.0 | 43.0 | 47.0 | 52.0 | 57.0 | 62.0 |
| EBITDA margin *(Example)* | 25.0% | 25.1% | 25.8% | 26.7% | 27.4% | 28.1% |
| EBITDA, management case *(Example)* | 40.0 | 45.0 | 51.0 | 58.0 | 65.0 | 72.0 |
| EBITDA, downside case *(Example)* | 40.0 | 41.0 | 43.0 | 45.5 | 48.0 | 50.0 |

*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

| ID | Initiative | Owner | EBITDA effect by year 5 (EUR m) | One-off cost (EUR m) | First milestone (within 100 days) |
|---|---|---|---|---|---|
| VCP-001 *(Example)* | Pricing and packaging programme | [@cco] | 6.0 | 1.0 | New price list approved |
| VCP-002 *(Example)* | Shift hardware to partner model | [@coo] | 2.5 | 0.8 | Partner selected |
| VCP-003 *(Example)* | Sponsor-grade finance function | [@cfo] | 0.0 (enabler) | 1.2 | CFO hired, 13-week cash forecast live |
| VCP-004 *(Example)* | Bolt-on acquisition pipeline | [@deal-partner] | Upside only | n/a | Two targets approached |
| [VCP-NNN] | [Initiative] | [@owner] | [Value] | [Cost] | [Milestone] |

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

<!-- Guidance: Triangulate the entry price with at least two methods and explain the premium or discount to each. Pitfall: justifying the price only with the exit multiple assumed in the LBO. -->

| Method | Basis | Implied EV (EUR m) | Implied multiple of LTM EBITDA |
|---|---|---|---|
| Trading comparables *(Example)* | Peer median 11.5x LTM EBITDA, less 15% private company and size discount | 391 | 9.8x |
| Precedent transactions *(Example)* | Median 10.8x LTM EBITDA, eight deals 2022 to 2026 | 432 | 10.8x |
| Discounted cash flow *(Example)* | WACC 9.0%, terminal growth 2.5% | 380 to 440 | 9.5x to 11.0x |
| LBO affordability *(Example)* | 20% target gross IRR at 10.0x exit, same debt and fees | 383 | 9.6x |
| Proposed price | | 380 | 9.5x |

*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

<!-- Guidance: Show leverage, pricing, covenants and headroom, then returns for the base, management and downside cases with a sensitivity table and a value creation bridge. Pitfall: reporting only gross returns to the fund without saying so, or ignoring fees leakage at entry. -->

### 10.1 Debt terms

| Facility | Amount (EUR m) | Leverage | Pricing | Tenor | Amortisation | Covenants |
|---|---|---|---|---|---|---|
| Unitranche term loan *(Example)* | 180.0 | 4.5x | 3-month EURIBOR + 5.50%, floor 0%; all-in 7.75% assumed | 7 years | Bullet with cash sweep | One leverage maintenance covenant, 35% headroom |
| Revolving credit facility *(Example)* | [Amount] | n/a | [Margin] | 6.5 years | n/a | Springing at 40% utilisation |

*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:

$$
\text{MOIC} = \frac{E_{\text{exit}} + \sum D_t}{E_{\text{entry}}}, \qquad \text{IRR} = \text{MOIC}^{1/T} - 1
$$

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:

$$
\sum_{t=0}^{T} \frac{CF_t}{(1+\text{IRR})^{t}} = 0
$$

### 10.3 Base case returns

| Item | EUR m |
|---|---|
| Exit EBITDA, year 5 *(Example)* | 62.0 |
| Exit multiple *(Example)* | 10.0x (equal to entry) |
| Exit enterprise value *(Example)* | 620.0 |
| Net debt at exit after EUR 95m cumulative repayment *(Example)* | 85.0 |
| Exit equity value *(Example)* | 535.0 |
| Entry equity (Fund III, co-investors and management) *(Example)* | 212.0 |
| Gross MOIC *(Example)* | 2.52x |
| Gross IRR *(Example)* | 20.3% |

*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

| Component | EUR m | Calculation |
|---|---|---|
| EBITDA growth *(Example)* | 209.0 | (62 minus 40) x 9.5x entry multiple |
| Multiple expansion *(Example)* | 31.0 | (10.0x minus 9.5x) x 62 |
| Deleveraging *(Example)* | 95.0 | 180 minus 85 |
| Fees and expenses at entry *(Example)* | minus 12.0 | Leakage from equity paid in |
| Equity value gain | 323.0 | 535 minus 212 |

### 10.5 Sensitivity: gross IRR and MOIC

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

| Exit multiple \ Year 5 EBITDA | EUR 56m | EUR 62m | EUR 68m |
|---|---|---|---|
| 9.0x *(Example)* | 1.98x / 14.6% | 2.23x / 17.4% | 2.49x / 20.0% |
| 10.0x *(Example)* | 2.24x / 17.5% | 2.52x / 20.3% | 2.81x / 22.9% |
| 11.0x *(Example)* | 2.50x / 20.2% | 2.82x / 23.0% | 3.13x / 25.6% |

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

<!-- Guidance: Show the acquisition structure and the terms that move value or risk: price mechanism, warranties and insurance, conditions, management equity, shareholder agreement. Pitfall: leaving tax structuring and regulatory conditions to the signing week. -->

```mermaid
flowchart TB
  F["Fund III (limited partnership)"] --> T["TopCo (holding, management invests here)"]
  M["Management rollover and incentive plan"] --> T
  T --> B["BidCo (borrower under the unitranche)"]
  L["Unitranche lenders"] -->|"Term loan and RCF"| B
  B --> H["Heron Fleet Systems GmbH (target)"]
  H --> S1["UK subsidiary"]
  H --> S2["Polish subsidiary"]
```

| Term | Position | Comment |
|---|---|---|
| Price mechanism *(Example)* | Locked box, permitted leakage listed | Interest on equity price from locked-box date to closing not agreed |
| Warranty and indemnity insurance *(Example)* | Buy-side policy, limit 10% of EV | Known issues excluded |
| Specific indemnity *(Example)* | Open tax audit in Germany | Escrow of EUR 3m |
| Conditions precedent *(Example)* | Merger control and foreign investment screening (see 11.1) | Long-stop date 6 months |
| Management equity *(Example)* | Sweet equity pool of 10% of ordinary equity, good and bad leaver terms | Vesting over 5 years |
| Governance *(Example)* | Fund appoints three of five directors; reserved matters list | Information rights monthly |

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

| Area | Reference | Relevance |
|---|---|---|
| EU merger control | Council Regulation (EC) No 139/2004 and national merger control regimes | Check turnover thresholds for each jurisdiction |
| US merger control | Hart-Scott-Rodino Act premerger notification | Thresholds are adjusted annually; check the current FTC figures |
| EU foreign investment screening | Regulation (EU) 2019/452, to be replaced by Regulation (EU) 2026/1386 (OJ 2026-06-26, in force 2026-07-16, applies from 2028-01-17; check the number on EUR-Lex), and national regimes (for example the German foreign trade rules) | Software and data assets may fall in screened sectors |
| UK national security | National Security and Investment Act 2021 | Check mandatory notification sectors for the UK subsidiary |
| EU AIFMs acquiring control (and non-EU AIFMs marketing in the EU under Art. 42) | AIFMD (Directive 2011/61/EU) Art. 26 to 30, as amended by Directive (EU) 2024/927: notification of control, disclosure, and Art. 30 limits on distributions and capital reductions ("asset stripping") for 24 months after control | Plan dividend recapitalisations accordingly |
| US private fund advisers (if the manager or a co-investor is SEC-registered) | SEC Private Fund Adviser Rules (2023) vacated by the Fifth Circuit on 2024-06-05; Advisers Act fiduciary duty and Form ADV disclosure still apply | Fee and expense allocation per the limited partnership agreement |

## 12. Due diligence findings

<!-- Guidance: Summarise each workstream: scope, provider, date, key findings, red flags and how each is reflected (price, structure, condition, 100-day action, or accepted). Pitfall: findings listed without a disposition. -->

| ID | Workstream | Provider and report date | Key finding | Disposition |
|---|---|---|---|---|
| DDF-001 *(Example)* | Commercial | [Provider], YYYY-MM-DD | Market growth 8%; churn concentrated in smallest customers | Base case uses 6.7% revenue CAGR |
| DDF-002 *(Example)* | Financial (QoE) | [Provider], YYYY-MM-DD | Adjusted EBITDA EUR 40.0m confirmed; net working capital seasonal peak in Q4 | Normalised working capital target in locked box |
| DDF-003 *(Example)* | Tax | [Provider], YYYY-MM-DD | Open German tax audit for FY2021 to FY2023 | Specific indemnity and EUR 3m escrow |
| DDF-004 *(Example)* | Legal | [Provider], YYYY-MM-DD | Change-of-control clauses in two of the top ten contracts | Customer consents as signing deliverable |
| DDF-005 *(Example)* | Technology and cyber | [Provider], YYYY-MM-DD | Platform scalable; penetration test found two high findings | 100-day remediation |
| DDF-006 *(Example)* | ESG | [Provider], YYYY-MM-DD | No material issues; no emissions baseline | 100-day baseline project |
| [DDF-NNN] | [Workstream] | [Provider, date] | [Finding] | [Price / Structure / Condition / 100-day / Accepted] |

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

<!-- Guidance: Rank risks by effect on returns, quantify the downside where possible and link each to a mitigant and owner. Pitfall: generic risks ("macro") with no quantified effect. -->

| ID | Risk | Probability | Effect on base IRR | Mitigant | Owner |
|---|---|---|---|---|---|
| PER-001 *(Example)* | Pricing programme meets churn | Medium | About minus 3 points (EBITDA EUR 56m case) | Phase by segment, track churn monthly | [@cco] |
| PER-002 *(Example)* | Exit multiple compression | Medium | Minus 2.9 points at 9.0x | Entry at peer discount, deleveraging | [@deal-partner] |
| PER-003 *(Example)* | Key person dependency on founder | Low | Hard to quantify | Rollover, incentive plan, hire successor bench | [@chair] |
| PER-004 *(Example)* | Interest rate rise | Medium | Minus 0.5 points per 100 bp unhedged | Hedge at least 50% of term loan for 3 years | [@cfo] |
| [PER-NNN] | [Risk] | [Low / Medium / High] | [Effect] | [Mitigant] | [@owner] |

## 14. ESG and sustainability

<!-- Guidance: Report material ESG findings, the ownership plan and any fund-level commitment that applies (exclusions, product classification, reporting to investors). Pitfall: copying the target's own sustainability brochure. -->

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`).

| Topic | Finding | Ownership action | KPI | Deadline |
|---|---|---|---|---|
| Data privacy *(Example)* | Telematics data includes driver location | Data protection review and retention limits | Zero reportable breaches | Year 1 |
| Climate *(Example)* | No emissions baseline | Measure scope 1 and 2, estimate scope 3 | Baseline published | Day 100 |
| [Topic] | [Finding] | [Action] | [KPI] | [Date] |

## 15. Exit strategy

<!-- Guidance: Name realistic buyers and routes and test the exit multiple against them. Questions: who buys this in five years and why, is an IPO plausible, what must be true at exit? Pitfall: an exit multiple above entry with no buyer logic. -->

| Route | Likely buyers | Plausibility | What must be true |
|---|---|---|---|
| Sale to strategic *(Example)* | Global fleet and telematics platforms | High | Above 30% EBITDA margin, cloud migration complete |
| Secondary buyout *(Example)* | Larger mid-market funds | High | EBITDA above EUR 60m, clean reporting |
| IPO *(Example)* | Public markets | Low | Scale above EUR 300m revenue |
| Continuation vehicle *(Example)* | Fund III LPs and new secondary investors | Medium | Strong performance with further runway |

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

<!-- Guidance: Confirm the deal fits the limited partnership agreement and the fund's portfolio, and that conflicts were cleared. Pitfall: forgetting recycling, follow-on reserves and co-investment allocation rules. -->

| Check | Limit or rule | Position | Result |
|---|---|---|---|
| Single investment concentration *(Example)* | 15% of commitments (LPA), measured on initial cost plus follow-on reserve | 12.4% ((EUR 162m + EUR 24.3m) / EUR 1,500m); initial cost alone 10.8% | Pass |
| Geography *(Example)* | Europe at least 70% | Germany | Pass |
| Follow-on reserve *(Example)* | Fund policy 15% of initial equity | EUR 24.3m reserved | Pass |
| Co-investment allocation *(Example)* | Co-investment policy, pro rata to LPs that opted in | EUR 30m invested alongside at closing, same terms, no fee or carry differences beyond the policy (section 2.1) | Pass |
| Conflicts *(Example)* | No other Morrow Fell fund holds a competitor | Confirmed | Pass |
| LP advisory committee consent *(Example)* | Required only for affiliate transactions | Not required | n/a |

*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

<!-- Guidance: Define every abbreviation and list the documents relied on, with dates and versions. -->

### 17.1 Glossary

| Term | Meaning |
|---|---|
| LBO | Leveraged buyout: acquisition financed with a large share of debt |
| EV | Enterprise value: value of operations before deducting net debt |
| LTM | Last twelve months |
| QoE | Quality of earnings review of reported profit and adjustments |
| MOIC | Multiple of invested capital: total value returned divided by equity invested |
| IRR | Internal rate of return: discount rate at which the net present value of the cash flows is zero |
| Locked box | Price fixed by reference to a historical balance sheet, with no post-closing adjustment except leakage |
| Unitranche | Single senior loan combining senior and junior risk at one blended price |
| Sweet equity | Ordinary equity held by management at a lower entry cost to create leveraged upside |
| W&I insurance | Warranty and indemnity insurance covering breaches of seller warranties |
| LPA | Limited partnership agreement governing the fund |

### 17.2 References

| Reference | Version or date checked | Use |
|---|---|---|
| Directive 2011/61/EU (AIFMD), Art. 26 to 30, eur-lex.europa.eu | Consolidated text, check current version | Control notifications and asset stripping |
| Council Regulation (EC) No 139/2004 (EU Merger Regulation), eur-lex.europa.eu | Check current version | Merger control |
| Regulation (EU) 2019/452 and Regulation (EU) 2026/1386 (OJ 2026-06-26, applies 2028-01-17) | Checked 2026-10-25 (secondary sources; confirm on EUR-Lex) | Foreign investment screening |
| US Hart-Scott-Rodino Antitrust Improvements Act, ftc.gov | Annual thresholds, check current | Premerger notification |
| National Security and Investment Act 2021, legislation.gov.uk | Check current version | UK notification |
| IPEV Valuation Guidelines, 2025 edition (named only) | Effective for periods beginning on or after 2026-04-01 | Post-closing fair value |
| ILPA Principles 3.0 (named only) | Check current version | LP governance expectations |
| [Model file] | [Version] | All numbers |

## 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.