The memo before the offer
Before an acquirer makes an offer, someone on its team writes a memo. It might be an associate at a private equity firm or a corporate development manager at a strategic buyer. The memo scores the business on a handful of dimensions and suggests where in the multiple range it belongs. By the time an offer arrives, that memo has already shaped it.
The memo is written from what the buyer can see: the CIM, the first calls, the numbers, and whatever the buyer already knows about your industry. Where the evidence is thin, the writer fills the gap with caution, and caution is priced.
The memo is also a first draft of the buyer's diligence plan. Whatever it marks as uncertain becomes a request on the diligence list and a question in the management meeting.
You will never read the memo. But you can write it first. Here is what is in it.
Six dimensions
The playbook's buyer lens scorecard sets out six dimensions a buyer scores, and what strong and weak look like on each. The thresholds are illustrative: they show the pattern buyers look for, not a formula.
| Dimension | What a 5 looks like | What a 1 looks like |
|---|---|---|
| Earnings quality | Accrual books, reviewed statements, revenue ties to the bank | Cash basis, mixed personal expenses, unreconciled |
| Owner independence | A management team runs it; the owner is optional | The owner is sales, operations, and the license holder |
| Customer concentration | No customer above 15% | The top customer above 25% |
| Revenue quality | Contracted or recurring | Project-based, one-time |
| Growth and margin trend | Three years up, margins stable or rising | Volatile, or declining |
| Transferability | Contracts assignable; leases and licenses move | Personal guarantees, non-assignable, key-person risk |
Illustrative. Each buyer weighs these differently. Together they suggest a preliminary position in the range: low, mid, or high.
How each line is scored
Earnings quality
Do the numbers tie to cash and survive a Quality of Earnings review? A buyer looks for accrual books, statements reviewed by an outside accountant, and revenue that ties to the bank. Personal expenses mixed into the business and accounts that do not reconcile pull the score down, because the buyer cannot trust the earnings it is about to multiply.
Owner independence
Does the business run without you? A management team that runs the business, with the owner optional, scores at the top. An owner who is the sales team, the operations lead, and the license holder scores at the bottom.
Customer concentration
Would losing your top customer matter? In the scorecard's illustrative thresholds, no customer above 15% of revenue is strong, and a top customer above 25% is weak. Between the two, the buyer looks at how long the relationship has lasted, whether there is a contract, and who at your business holds it.
Revenue quality
Is revenue contracted, recurring, or repeat? Contracted or recurring revenue scores high. Project-based, one-time revenue scores low, because next year's revenue has to be won all over again.
Growth and margin trend
Three years of growth with stable or rising margins scores well. Volatile or declining results score poorly, and so does growth the founder cannot explain.
Transferability
Will contracts, leases, and licenses move with the business? Assignable contracts and transferable licenses score high. Personal guarantees, contracts that cannot be assigned, and key-person risk score low.
What a 3 costs versus a 5
A score of 3 on a dimension is not a failure. It describes an ordinary business with some evidence and some gaps. But a buyer prices the gaps, and the difference between a 3 and a 5 shows up in three places.
- Position in the range. Taken together, the scores suggest whether the business belongs at the low, middle, or high end of the multiple range. A business with mostly 3s is a mid-range business in the buyer's eyes, whatever the founder believes.
- Structure. A buyer that is uncertain about a dimension protects itself with structure rather than walking away: an earn-out where the earnings or the owner's role are in doubt, a larger escrow where transferability is, a longer transition where the founder is central.
- Diligence. Every low score is something the buyer will dig into. The lower the score, the longer and more searching the diligence, and the more chances for a finding that becomes a reason to revisit the price.
Owner independence shows the pattern most clearly. On the playbook's owner dependency scale, an owner-managed business, a 3, sits mid-range with a standard transition. An owner-optional business, a 5, sits at the top of the range, and a clean exit is possible. The difference between them is not only the multiple. It is how much of the price arrives at closing, and how long the founder stays afterward.
The scores also interact. A buyer that sees a weak score on owner independence will read every other dimension more skeptically, because the founder's departure puts the whole business in question. A strong score on earnings quality does the opposite: it makes every other claim easier to believe. That is why fixing the weakest dimension usually does more than polishing the strongest one.
How to read your own business through it
You can score your own business on the six dimensions today. Be harder on yourself than a buyer would be, because the buyer will be.
- Score each dimension from 1 to 5. Use the strong and weak descriptions above, and write down the evidence behind each score, not only the number.
- Find your two lowest scores. These are what the buyer's memo will lead with, and they are where the work will pay most.
- Ask what it would take to move each one a point. Some move quickly: books can move to accrual, contracts can be written down and signed. Some take a year or more: customer concentration and owner dependency.
- Check the evidence, not the story. A buyer scores what it can verify. If a strength cannot be shown with a document, a report, or a track record, assume the buyer will score it lower.
The point of writing the memo first is not to argue with the buyer's. It is to make sure that by the time a buyer writes it, the evidence for every line is already in the data room.