Assignment Instructions:

Investment Memorandum
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Instructions – Document Submission

§ Form of investment memorandum (IM) submission:
o The IM should be no more than 25 pages in PowerPoint and organized to emphasize major conclusions and
support, as opposed to mostly rehashing information from the seller. Assume the audience is comprised of the
senior members of an investment committee (IC).
o Use of charts, tables, and bullet outlines is encouraged. Data summaries and charts are most useful if they
support an argument and are accompanied with clear take-away points.
o Sections to include in the document: (1) situation overview and recommendation (one page), (2) company
overview (one to two pages), (3) investment merits, (4) major risks and mitigating factors, (5) key business
drivers (including level of economic sensitivity / cyclicality) and model assumptions, (6) summary output from
base case and downside LBO models (please upload models separately).
o Further diligence:
o You can include a one page description of critical business diligence items to confirm if the (IC) elects to
proceed with the transaction. The list should: (a) be limited in number, (b) have a specific “work plan,”
including with outside advisors, (c ) be achievable in up to 10 business days, and (d) be confirmatory in
nature (e.g. to confirm what you already believe to be true). Blanket caveats or large areas of diligence
without a position, will lead the IC to reject the team’s recommendation.
o The IC understands that confirmatory diligence reports from specialists have not yet been completed:
employment, legal, tax, insurance and environmental. It is understood that if an unknown diligence issue
is uncovered by specialist advisors, the deal team will come back to the IC for further discussion.
o Please submit the IM in pdf form and include your team name in the file name. Include a cover page in the IM
with the team name and the names of each team member. Also, separately submit the excel model as back
up to the IM.

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Instructions – Document Submission

§ Information in the IM:
o Distilling information from the target and industry sources into a concise assessment of investment
merits, risks, business drivers and probable outcomes is fundamental. There are no right or wrong
answers to the assignments; strength and clarity of argument and the quality of the logic and support
is paramount. Deal teams should avoid simply rehashing information in the IM and using generalities
when discussing merits/strengths and risks. The challenge is to focus on what matters most and be
resourceful in synthesizing independent information sources to improve the quality of the investment
decision.
o The target’s marketing information reflects typical marketing information provided by a company for sale,
including investment merits, aggressive growth projections, and basic industry information. Risks are not
mentioned. Further financial information will be provided in a follow up excel “databook.”
o Deal teams should seek a competitive edge by sourcing independent information and performing data driven
analysis to support an acceptable range of investment returns at the market clearing price. Please cite outside
information sources used.

§ Valuation and capital structure assumption:

o The case study overview includes valuation guidance regarding the expected market multiple to be achieved in
a competitive sale process. Team recommendations to proceed (or not) should be based on this guidance; an
IM supporting a lower price is a proposal to not proceed.

§ Timing assumptions:
o Assume this deal is being presented in early January 2018 and actual financials presented through fiscal year
end December 2017 reflect the most updated actual information.

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Guidance on Sections
1. Situation Overview:
o Please limit to one page and include a clear recommendation to proceed or not with the transaction (and
assumed valuation). Consider including a few bullets on why you want to proceed – major thesis points.
o Even if the deal team’s recommendation is to not proceed with the transaction, please complete the IM fully
and include the investment merits under the presumption that some IC members may push back on the deal
team and pursue the opportunity further.

2. Company Overview:
o Please limit to two pages. Include charts/tables on major business characteristic and some historical financial
trends as context for all views and projections that follow in the IM.

3. Investment Merits:
o The Investment Merits and Risk sections are critical as some IC members may only read these sections.
o First page of section should include a summary of the key merits - i.e. why this is a good investment and the
business outlook is positive. Do not simply create a long list of items and group related merits together. Make
sure to fully explain each merit and your rationale.
o Subsequent pages should be included to highlight a few key investment merits, including your logic and any
tables/charts that provide support (use internal and external information sources).
o If you think there are above-market opportunities for EBITDA growth under your ownership, included them as a
merit.

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Guidance on Sections
4. Risks and Mitigating Factors:
o Investment Merits and Risk section are critical as some IC members may only read these sections.
o Highlight the major risks and mitigating factors - i.e. what could go wrong and why you still want to move
forward. Do not simply create a long list of items and group related risks together. Make sure to fully explain
each major point and your rationale.
o Include mitigating factors related to each risk. Include an explanation on why each risk is acceptable, such as:
low likelihood, structural defenses, proactive or reactionary moves, quick recovery and/or low
magnitude/impact despite the fear.
o This section is often requires more than one page in order to provide depth of explanation. Where possible
provide support from internal and external information.

5. Key Business Drivers and Model Assumptions:

o This section summarizes rationale for your assumptions in the base case and downside case. Major drivers of
target’s performance should be consistent with previous sections – support does not be need to be duplicated
if already included elsewhere.
o Different segments or product / service lines that are material should be forecasted separately. Please explain
major assumptions of each segment and table/chart summaries are encouraged.

6. Model Output Summary:

o Please include the model output summary page in the IM for both the team’s Base Case and Downside Case.
Do not be “anchored” by management projections and form an independent view.
o Use the valuation and capital structure guidance provided in the case study.

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Class Discussion
§ Each deal team should prepare to present their PowerPoint recommendation on the deal in class. Up to 4
deal teams will be selected to walk the IC through the salient points. Each deal team chosen will have ten
minutes to present.
§ After presentations by the selected deal teams, other class members will ask questions and challenge the two
deal teams. Any member of a selected deal team can answer questions and defend the team’s findings.