IC Memo in Private Equity: How Deal Teams Write the Recommendation

An investment committee memo (IC memo) is the written recommendation a private equity deal team puts in front of the partners who can approve buying a company. It states what the fund would buy, at what price and with what debt, why cash flows should hold, which numbers the team does not believe, what work in the first hundred days could raise earnings, who might buy the company in year five, and what remains unproven. The associate usually drafts it. The vice president rewrites it. A partner owns the recommendation. The committee votes.

The same paper is also called an investment memo, an IC paper, or an investment recommendation. Those labels describe one buy-side document. They do not describe the banker's book, a fund-raising memorandum, or the committee as a body.

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What an IC memo is

A closed-end buyout fund calls capital from limited partners, buys a company, tries to increase equity value, and has to sell before the fund ends. The committee is the group with authority to commit that capital. The memo is the file those people are supposed to have read before they sit down.

It has three jobs at once. It asks for a decision (buy, pass, or buy only if named conditions are met). It is the record of why the firm underwrote this price, this leverage, and this operating case, which later partners and limited partners will reread when the company misses. It is also the handoff into ownership: the value-creation plan in the memo is supposed to be specific enough that the people who will run the company after close are not starting from a blank page.

Those jobs are why a stack of diligence PDFs is not a memo. Advisors produce findings. The deal team has to turn findings into a recommendation a partner can defend.

What it is not

A confidential information memorandum (CIM) is a sell-side book. The company's bank writes it to attract buyers. It puts the growth story first. The IC memo is the buyer's answer to that book. It is allowed to say the add-backs are not run-rate, the customer book is too concentrated, or the price only works if exit multiples expand. If the memo merely restates the CIM, the committee does not need the deal team.

A teaser is a short, often nameless, first look. A pitch deck is a marketing document, usually from a founder or a seller. A private placement memorandum is a legal offering document used when a fund or a company is raising capital from investors. None of those is the paper the partnership uses to decide whether this fund should own this company.

Venture capital firms write IC memos too. Public archives such as Bessemer's historical memos show what that document looks like: team, product, market timing, a priced round. A buyout memo is longer and more quantitative because the fund is usually taking control of a company that already produces cash, often with a loan on that company's balance sheet.

	Venture IC memo	Buyout IC memo
Core question	Can this company become much larger from here?	Can we own this cash-flowing company at this price and this leverage?
Evidence	Team, product, early traction, market timing	Historical financials, quality of earnings, debt capacity, customer concentration
Structure	Priced equity round, ownership, pro-rata rights	Sources and uses, senior debt, rollover, options, covenants
Length	Often a few pages of narrative	Often a long pack: Word or slides plus model pages

Total addressable market slides and founder video calls are the wrong core of a buyout memo.

Limited partners sometimes call a fund's own offering paper an investment memo. That document sells a fund. The deal team's IC memo is the paper for a company that fund might buy.

Who writes it and who votes

Stanislav Shamayev, then an associate in Apollo's private equity group, described the memo as a comprehensive summary of diligence and the final thesis, prepared after due diligence and before the final bid, with associates doing most of the content. That is the usual production line at a US buyout shop. The associate owns the file: the model, the data room, the first draft. The vice president owns the logic and the rewrite, so the paper is a recommendation rather than a binder of findings. A partner sponsors the deal. The investment committee votes. At some shops the associate or vice president presents a slice. They still do not write the check.

Middle-market teams are smaller, so the same person may draft, present, and sit in the room. Megafunds split the work more sharply. Growth-equity memos look more like company evaluation and less like a full leveraged buyout (LBO). Ask who drafts, who rewrites, who presents, and who votes. Those four answers describe the shop better than the filename.

Specialists contribute pages they do not own. Quality of earnings accountants, commercial consultants, lawyers, and tax advisers send reports. The deal team decides which findings change price, structure, or the decision to proceed, and which belong in an appendix.

When it is written

The memo is not one document written the night before a vote. It thickens as the process spends money.

A teaser or a CIM arrives. If the name is obviously outside the mandate, the file dies as a short screen: size, sector, customer concentration, a growth story the company has never earned. The ones that survive get a one-page view a partner can kill in a meeting (why this company, why this fund, at what price the math still works) and a first-pass leveraged buyout. That note is a screening memo. It is not the IC memo.

If the partnership wants to spend real time, the team writes a preliminary memorandum before a first-round bid or a non-binding letter of intent. That paper is the first full pack: thesis, company, market, financials, risks, valuation, and a budget for third-party due diligence. Some shops use a two- or three-page deal alert instead and save the long paper for later. The job is the same. The committee is being asked whether to spend diligence dollars and whether to bid a range.

After the data room, quality-of-earnings, customer calls, and debt conversations, the team writes the final memorandum. It has to answer the questions the committee asked the first time, update the model for findings that survived, and request approval to sign at a specific price and structure. Many processes die here. The team still wrote the paper. From the firm's side that is how the partnership learns what it will not buy.

What belongs in the memo

Formats vary. The questions do not. A committee that has an hour does not want a restatement of every consultant report. It wants the recommendation, the few facts that support it, the few facts that threaten it, and a model that ties.

Section	What the committee is trying to decide
Recommendation	Buy, pass, or buy only with named conditions. Price, equity check, leverage, headline internal rate of return (IRR) and multiple on invested capital (MOIC).
Thesis	Why this company, why this fund, why now, and which operating actions (not categories) produce the return.
Company and earnings quality	How it makes money, who the customers are, what share is recurring, and which add-backs survive.
Market and competition	Only the dynamics that can break or make the thesis. Channel checks beat a purchased industry overview.
Sources, uses, and structure	What the fund is buying, how it is funded, rollover, options, fees, working-capital mechanism, covenants that actually bind.
Returns and the ugly case	Base, downside, and upside with the assumptions written next to the rates. What happens if growth is flat and the exit multiple compresses.
Value creation and the first hundred days	Named levers, owners, sequence, and a magnitude that matches the model.
Risks the team is accepting	Each risk with evidence, a mitigant, and residual exposure. A mitigant is not a deletion.
Exit	Ranked paths and named buyers where the team has a real list. An initial public offering as the only path is usually a wish.
Open items and the ask	What is still unproven, what must be true before signing, and the exact approval requested.

Those rows are a map, not a slogan stack. The rest of this section walks one invented company through them so the table has somewhere to point.

Northline Controls is a made-up industrial-controls distributor the fund is looking at in a process. Trailing twelve-month revenue is $80 million. Reported earnings before interest, tax, depreciation and amortization are $14 million. Quality-of-earnings accountants support $12 million of run-rate earnings after dropping a one-time freight recovery and the selling owner's aircraft. The team is looking at 8.0 times that $12 million, or $96 million of enterprise value. Sources are $40 million of senior debt (3.3 times run-rate earnings) and $56 million of sponsor equity. Uses are the equity purchase, a small refinance of existing loans, and transaction fees. The numbers have to tie to the funds-flow at close. A memo that quotes $96 million of enterprise value and a different equity check than the model is not ready.

The recommendation belongs in the first paragraph, not the last. For Northline it would read as a decision: proceed at up to 8.0 times normalized earnings, with debt not above 3.5 times, subject to the largest customer's renewal and a signed quality-of-earnings bridge the team already believes. Pass if the seller will not move off reported $14 million. Conditional language is useful only when the conditions are testable.

The thesis has to name actions. "Margin expansion through operational improvements" is a placeholder. A usable Northline thesis says the company can take price in OEM replacement parts (the quality-of-earnings file shows historical price realization), fold two owner-operated branches into the existing warehouse network in year one, and sell a small bolt-on the management team has already approached, with the cost of that hire and warehouse move sitting in the model. If the return still needs the exit multiple to expand from 8.0 times to 10.0 times, say so. Value creation that exists only as a multiple-expansion hope is a market-timing bet.

Company and earnings quality is where files get dishonest. Northline's largest customer is 18 percent of revenue. The memo should say that, say how long the contract has to run, and say what the model does if that customer leaves. Add-backs that are not run-rate do not belong in the entry multiple. The ugly case uses $12 million, not $14 million. Back-solving the model so a partner's preferred rate still prints is how recommendations stop being true.

Market copy should be original enough that a partner could not have skimmed it from the CIM. For Northline, that is the replacement-cycle length in the installed base, two competitors adding capacity, and three customer references that either confirm or weaken the price thesis. A page of global industrial-automation totals does not change the bid.

Returns need a downside the committee would actually underwrite, not a base case minus a rounding error. Keep Northline's exit multiple flat at 8.0 times in the base. Year-five earnings of $18 million, remaining debt of $18 million, enterprise value of $144 million, equity value of $126 million is about 2.25 times invested capital in five years. The downside keeps earnings at $12 million, lets the multiple go to 7.0 times, and leaves more debt outstanding. If that case cannot service interest or returns less than capital, the committee is being asked to underwrite hope. Sensitivity tables that only flex entry and exit multiple hide the risks that break deals: gross margin, customer loss, integration delay, refinancing.

The first hundred days should be readable by the operating partner who will inherit the file. Who calls on the top ten customers. Who owns the branch consolidation. What management incentive pool is being granted. What is not in the base case (an unproven export push, a chief financial officer who has not been hired). Open items belong in the ask, not in a footnote.

Appendices hold the quality-of-earnings bridge, the full customer list, the legal issues list, and extra model cases. If a finding can change price, structure, financing, governance, or the decision to proceed, it belongs in the body.

How the meeting uses it

Members are supposed to arrive having read the paper. The meeting is a structured challenge: where the thesis is weakest, what the team is most worried about, what would have to be true for the investment to fail, and which conditions belong on a yes. A useful pre-meeting page is five lines. What changed since the last decision. Which model assumption moved. What evidence caused the move. What decision is needed tonight. What happens if the firm waits.

The presenter walks the recommendation and the two or three issues that can still kill the deal. They do not read the CIM aloud. Questions that should already be answered in the memo (how the quality-of-earnings bridge was built, who the named buyers are, whether the revolver is actually available in the seasonal trough) waste the hour.

Voting rules live in the firm's documents. Some rooms need a majority. Some need a supermajority above a dollar size. Some need unanimity. The memo should say what approval is requested so the minutes can record it: sign at this price, on this structure, with these conditions, or stop.

After the vote

If the committee says no, the paper still has a job. It is how the partnership remembers why it passed, so the next teaser in the same sector is not underwritten from memory.

If the committee says yes, the memo is the underwrite the hold will be scored against. Monthly flashes and board packs should be compared to the case the committee approved, not only to management's revised budget. A miss that is timing is not the same as a miss that is execution, a diligence miss, or a thesis that was wrong. Many memos go into a deal folder and are not opened until exit prep. The useful habit is a deal team that still owns the file: actuals versus the underwrite, the hundred-day items that slipped, the add-on the memo treated as upside and is now being sold as base.

Conditions attached to approval have to be watched through signing. A higher price, a lower normalized earnings figure, a heavier debt package, or a lost customer is a different deal. Material changes go back to the committee.

Interview memos versus a live IC memo

Recruiting often asks for a two-to-four-page write-up overnight or over a weekend, sometimes next to a timed LBO modeling test. That exercise tests whether you can recommend, not whether you can assemble a 30-page pack. Lead with buy or pass. Put three thesis points, the two risks you would actually underwrite, and a return that comes from a model you could defend in the interview. Do not pad it with a market overview you copied from a research PDF.

A live IC memo is the opposite problem. The work is already done. The danger is burying the recommendation under diligence. The same reader test applies. A partner who has ten minutes should know the ask, the price, the ugly case, and what is still unproven.

Common questions

Is an IC memo the same as a CIM?

No. The CIM is the seller's book. The IC memo is the buyer's recommendation.

Who writes the IC memo at a buyout fund?

The associate usually drafts. The vice president rewrites. A partner sponsors. The committee votes.

How long is an IC memo?

Long enough for the decision and no longer. Early-stage venture papers can be a few pages. Complex buyouts can run past 30 pages with exhibits. Some large shops keep the Word recommendation to a handful of pages and put the rest in slides and model output. Some shops cap the whole deck, including the appendix. Ask the firm. Do not copy a template length.

Does the associate vote?

Almost never. Presenting a slice is not a vote.

What is the difference between a screening memo and an IC memo?

A screening memo decides whether to spend time. An IC memo decides whether to spend capital (or, at the preliminary stage, whether to bid and hire advisers).