screening-memo

Screening Memo

This skill governs the screening memo — the document that closes a tuck-in first-pass analysis. It synthesizes the whole pipeline into a recommendation a deal lead can take into an internal discussion.

What the screening memo is, and is not

• It is the recommendation document for a first-pass screening decision: should the team spend more time on this target, take it to a screening discussion, advance to a letter of intent, or pass.
• It is not a confidential information memorandum or a teaser — those are sell-side documents.
• It is not a full investment committee memo. An IC memo is a later-stage, post-LOI document built on confirmatory diligence. The screening memo is the earlier, lighter document that decides whether a deal earns that later work. If the deal advances, the screening memo becomes the spine the IC memo is later built on.

Register and format

Write it as a written memo, operator-to-operator and financially literate — the register of an internal deal memo, not a slide deck and not generic business prose. Concise: a few pages, dense with the facts that matter, no padding. Tables for the financial summary and the returns; prose for the analysis. The memo should read as if written by an analyst who expects a sharp reader to challenge every number.

House style — a specific firm template, headers, and formatting conventions — is layered on top of this structure once a first draft has been reviewed. This skill defines the content and the structure; the styling is a later refinement.

Structure

1. Executive summary — half a page. The company in two sentences, the deal in one, the headline normalized financials, the proposed valuation range and structure, the returns headline, and the recommendation. A reader who stops here knows the call and why.
2. Company overview — what the business does, its service and product lines, end markets and customers, footprint, certifications and manufacturer relationships, scale, and the ownership and management situation. Drawn from the target intelligence brief.
3. Market context — the sector, its demand drivers and structure, and where this business sits competitively. Drawn from the market and multiples memo. Keep it tight — enough to frame the deal, not a sector report.
4. Normalized financial summary — the historical financials and the normalized adjusted-EBITDA bridge from the QoE findings memo, as a table. State the earnings base clearly. Carry the QoE add-back register's "scrutinize" flags and the accounting-quality limitations — the cash-basis flag if applicable — into this section; do not present a clean number over a caveated one.
5. Valuation and proposed terms — the multiple range and where the target is positioned within it, the implied enterprise value range, and the proposed deal structure against Vortex's norms (6-8x, no earn-outs, Class A rollover, delayed-draw funding). Drawn from the valuation thesis.
6. Returns summary — the entry, the capital structure, and the exit, with the IRR and MOIC and the key sensitivities, as a table. Drawn from the model.
7. Key risks and diligence items — a ranked list. Carry through every QoE red flag, every "scrutinize" add-back, owner-dependence and concentration risk, and the items that confirmatory diligence must test. Pair each material risk with a mitigant or a path to resolution where one exists.
8. Recommendation — a clear call: proceed, further diligence, or pass. If proceed or further diligence, name the specific next steps and the gating conditions. The recommendation must be unambiguous and actionable — not a hedged summary.

Method principles

• Balanced. Present the bull case and the bear case honestly. Do not minimize risks — a sharp reader finds them anyway, and a memo that buried them loses credibility on everything else.
• Every number traces. Each figure in the memo ties to the model or the assumption set. Mark every owner-provided figure as owner-provided. Carry every "reported, not verified" and "estimated" label through from upstream — the memo is where verification debt becomes visible to the decision-maker, not where it gets laundered.
• Decision-shaped. The memo exists to support a decision. Lead with the call, support it with evidence, and make the next step concrete.
• No false precision. The valuation is a positioned range with reasoning, not a computed single multiple. The returns reflect stated assumptions, labeled as such.

Worked example (illustrative)

For a target like a Nashville commercial door installer and servicer, a good screening memo would: open with a recommendation grounded in the high-quality service mix and the clean balance sheet; present the normalized adjusted-EBITDA bridge with the owner-compensation normalization and the PPP removal visible; position the valuation in the upper part of the analog-derived range while flagging that the cash-basis accounting and the owner's concentration of roles pull against the top; summarize returns at the proposed structure; and rank the diligence items — confirmatory quality-of-earnings on the cash-basis statements, the related-party rent question, customer concentration, and the owner-transition plan — as the gating conditions on any "proceed." The recommendation would be explicit about which of proceed / further diligence / pass it is and what the next step is.