What belongs in a buyout IC memo that a venture memo leaves out?

Quality of earnings, the full financing structure with covenants, a costed value creation plan, and a downside case built to test the debt package. Venture memos underwrite growth and dilution. Buyout memos underwrite cash flow and capital structure.

How should return attribution be presented?

Split the base case return into earnings growth, debt paydown and change in exit multiple. Committees discount returns that depend mainly on multiple expansion unless there is a specific reason the next buyer pays more, such as scale, mix shift or a structural change in the business.

How severe should the downside case be?

Severe enough to breach or nearly breach a covenant, so the committee learns where the structure fails and what it would cost to cure. A downside that comfortably passes every test tells the committee nothing.

Is this template free to use?

Yes. The structure is free to use, adapt and cite. It is provided by Reuben Ventures Pty Ltd (t/a Reuben AI) and is not financial advice.

IC Memo Template for Buyout and LBO Deals

How to use this structure

A buyout memo has to answer a narrower question than a venture memo: will this business service its debt and still be worth more to somebody else in five years. Everything in the structure below exists to support or attack that question.

The discipline that separates a strong buyout memo from a weak one is attribution. By the end, the reader should be able to say how much of the return comes from earnings growth, how much from debt paydown, and how much from paying less than you sell for. If a memo cannot separate those three, the committee is being asked to approve a hope.

Section 1. Executive summary

The question: what is the deal and what does it return in the base case?

Include. Target, entry enterprise value, entry multiple, equity cheque, debt quantum and the base case return.
Include. The return attribution in one line: how much comes from earnings growth, debt paydown and multiple change.
Weak version. A base case whose return depends on exiting above the entry multiple, with no reason given for why a buyer would pay more.

Section 2. Company overview

The question: what does the business actually do, and for whom?

Include. Revenue by segment, geography and channel, with the mix trend over the available history.
Include. Customer concentration, contract length, pricing mechanism and whether prices can be raised without volume loss.
Include. Supplier concentration and input cost exposure, since these determine how margins behave under stress.

Section 3. Quality of earnings

The question: which of the reported earnings will still be there after completion?

Include. A bridge from reported earnings to the adjusted figure you are underwriting, with every adjustment itemised and each one marked recurring or one-off.
Include. Owner compensation normalisation, related party transactions, capitalised costs, and any revenue recognised on terms that will change under new ownership.
Include. Working capital: the normal level, the seasonal swing, and the peak funding requirement. The peak, not the average, sizes the facility.
Include. Maintenance capital expenditure separated from growth capital expenditure, since only one of them is optional.
Weak version. An adjusted earnings figure presented without the bridge. If the reader cannot rebuild the adjustment, they will not underwrite it.

Section 4. Industry and competitive position

The question: is this a good business, or a cheap one in a bad industry?

Include. Industry structure, barriers to entry, and where the pricing power sits between suppliers, the company and its customers.
Include. Cyclicality, and how this business performed through the last downturn if the history exists. If it does not, say so.
Include. Regulatory exposure, cited to the regulation and regulator rather than described generically.

Section 5. Value creation plan

The question: what will be different about this business under your ownership?

Include. Named initiatives, each with the cost to deliver, the timing, the owner, and the earnings effect in the model.
Include. The management change required, if any, and the cost and disruption of making it.
Include. The systems and reporting work needed before any of the initiatives can be measured.
Weak version. A margin improvement assumption applied to the projection with no initiative attached to it. If nobody owns it, it is not a plan.

Section 6. Financing structure

The question: what does the capital structure demand from the business?

Include. Sources and uses in full, including fees, rollover equity and any earn-out.
Include. Each debt instrument with its margin, amortisation, cash or payment-in-kind treatment, and ranking.
Include. Covenant package with the headroom at close and the projected headroom at the tightest point of the plan.
Include. The interest rate sensitivity, since the covenant position and the equity return both move with it.

Section 7. Base, upside and downside cases

The question: what breaks, and at what point?

Include. Named drivers per case, not a percentage haircut applied across the model.
Include. A downside case severe enough to test the covenant package rather than confirm it.
Include. The equity cure or sponsor support that would be required in the downside, and whether you would provide it.

Section 8. Exit

The question: who is the next owner?

Include. The named buyer universe: strategic acquirers, larger sponsors, or a public market route, with why each would want the asset in its improved state.
Include. The scale the business needs to reach to be relevant to that buyer, and whether the plan gets it there.
Include. Precedent transactions with disclosed terms, cited. Where terms were not disclosed, say so rather than inferring a multiple.

Section 9. Risks and mitigants

The question: what is the committee accepting?

Include. Operating, financing, cyclical, regulatory and key person risks, ranked, each with a monitoring signal and a trigger for action.
Include. The integration or carve-out risk if the target is being separated from a parent, which is routinely underestimated.

Section 10. Recommendation and conditions precedent

The question: what exactly is being approved, and what must be true before funds move?

Include. Equity amount, structure, approval limits, and the reporting cadence after close.
Include. Conditions precedent with an owner and a date against each one.

Errors that get buyout memos sent back

Adjusted earnings presented without the bridge that produces them.
Working capital sized on the average rather than the peak requirement.
Maintenance and growth capital expenditure combined into one line.
A downside case that never tests a covenant.
Return attribution missing, so the committee cannot see how much of the outcome is multiple expansion.
A value creation plan with no cost, no owner and no date.

How this maps to Reuben AI

In Reuben AI the memo and the model are not separate artefacts. Quality of earnings adjustments, financing terms, covenant definitions and value creation initiatives are structured entries, so the figure in the memo and the figure in the model are the same figure, and changing one updates the other.

Cases are held as named driver sets rather than as saved copies of a spreadsheet, so the committee can see exactly what differs between base and downside. Every input keeps its source and its edit history, which is what makes a post-close review possible rather than a reconstruction.

IC memo template: buyout