Memo Generation Guide
Create professional due diligence memorandums that partners and clients will actually read. Learn how to structure findings, prioritize risks, and write effective executive summaries.
Types of Due Diligence Reports
Before generating a memo, understand which format your deal requires. Most modern M&A deals—especially private equity—prefer a Red Flag Report.
Red Flag Report
RecommendedFocuses only on material issues that affect deal value, structure, or executability.
- Fast to produce and review
- Partners read the whole thing
- Actionable recommendations
Descriptive Report
Summarizes every material contract and corporate document reviewed.
- Time-intensive to produce
- Common in IPOs, cross-border deals
- Required by W&I insurers
Writing the Executive Summary
The Executive Summary is often the only part of the memo the lead partner or client will read in depth. Use the BLUF method: Bottom Line Up Front.
Don't describe the process—describe the result
Bad
"We reviewed the litigation logs and analyzed pending claims across all jurisdictions..."
Good
"There is one pending class-action suit with potential exposure of $5M that requires specific indemnity."
The "So What?" Test: Every finding in the summary must include a specific recommendation on how to fix it. If you can't answer "so what?"—leave it out.
Executive Summary Structure
Transaction Overview
2-3 sentences on what is being bought (stock vs. asset) and the scope of review.
Top 5-10 Key Issues
Bulleted list of the most critical findings with quantified risk where possible.
Recommendations Matrix
Summary table categorized by action type: Price Reduction, Indemnity, Condition Precedent.
Prioritizing Findings
Don't list findings chronologically. Prioritize them based on how they affect the transaction documents. Mage automatically categorizes findings into these four buckets:
Deal Breakers
Issues so severe they could cause the client to walk away from the deal entirely.
Examples: Loss of top customer (COC), massive undisclosed regulatory fine, title defects on key IP
Valuation Items (Price Chips)
Issues that don't kill the deal but should lower the purchase price.
Examples: Underfunded pension liabilities, likely litigation payouts, deferred maintenance CAPEX
Purchase Agreement Protections
Issues that can be fixed by adding specific clauses to the SPA/APA.
Conditions Precedent: Must be fixed before closing (e.g., obtaining landlord consent)
Specific Indemnities: Seller pays if this risk materializes (e.g., pending lawsuit)
Covenants: Promises to do something (e.g., register trademark within 60 days)
Post-Closing / Integration
Housekeeping items that are messy but low-risk. Fix after the deal closes.
Examples: Updating employee handbooks, dissolving inactive subsidiaries, standardizing vendor contracts
Standard Memo Sections
Mage generates comprehensive memos organized into these standard sections. Each section includes specific red flags to look for:
Corporate & Good Standing
Valid formation, properly issued shares, complete board minutes
Financing & Liens
Existing debt, COC triggers in loans, unreleased UCC liens
Material Contracts
Top customers/suppliers, COC clauses, anti-assignment, MFN, exclusivity
Intellectual Property
Missing IP assignments, expired trademarks, open-source risks
Employment & Benefits
Contractor misclassification, golden parachutes, underfunded 401k
Litigation
Active lawsuits, threatened claims, pattern of small claims
Regulatory & Compliance
FDA, GDPR, Environmental—expired permits, history of fines
Real Estate
Expiring leases, landlord consent requirements
Formatting Best Practices
Define Materiality
State clearly at the beginning what threshold you used (e.g., "We only reviewed contracts with value >$50k").
Use Visuals
A stoplight chart (red/yellow/green dots) next to each section enables quick scanning by busy readers.
Hyperlink Sources
Link findings directly to the source document in the data room. Mage does this automatically.
Quantify Risk
"Material breach" is vague. "Potential termination of contract worth 15% of revenue" is actionable.
Export Options
Mage-generated memos can be exported in multiple formats to fit your workflow:
Word (.docx)
Editable format for further customization
Finalized format for client delivery
Excel (.xlsx)
Issues list for deal team tracking