The same criterion changes with scale
Management: In a founder-owned middle-market company, the question may be whether the team can operate without the founder. In a large enterprise, the question may be whether a complex transformation can be governed across divisions and countries.
Data: In the middle market, the team may need to reconstruct customer or margin data. In a large-cap deal, the data may exist but require extensive reconciliation across systems and entities.
M&A: A middle-market thesis may depend on many add-ons. A large-cap thesis may depend on a major carve-out, strategic combination, or global portfolio reshaping.
Screening output
End the first screen with one of three decisions: reject, monitor, or advance. State the reason, the one or two questions that control the answer, and the evidence needed at the next gate.
Mandate fit comes before company quality
A high-quality company may not fit the fund’s sector, geography, ownership, equity check, leverage, return target, or time horizon. The first screen should determine whether the opportunity can belong in the portfolio before spending resources on a full investment case.
Business quality
Review customer need, market structure, competitive advantage, recurring behavior, pricing power, unit economics, cyclicality, concentration, regulation, technology, capital intensity, and cash conversion. The analysis should identify the mechanism of durability rather than label the company “defensible.”
Transaction context
Ask why the seller is acting, how the process is organized, what information is available, who else can bid, and which terms matter beyond price. Founder succession, corporate divestiture, sponsor exit, public-market pressure, and distress create different risks and negotiation dynamics.
Management and organization
Determine whether the current team can execute the plan, which positions are missing, how incentives work, and whether the organization has reliable reporting and accountability. In a founder-owned company, the thesis may require institutionalizing relationships and decisions that currently reside with one person.
Cash and leverage
Analyze revenue stability, EBITDA quality, working capital, capex, taxes, fixed charges, seasonality, customer loss, and downside liquidity. Debt capacity is a cash-flow conclusion, not an industry multiple copied into the model.
Value creation
A value-creation thesis can include pricing, sales productivity, procurement, operations, working capital, management upgrades, systems, product expansion, geography, add-on acquisitions, or capital structure. Each initiative needs an owner, cost, timing, measurable impact, dependency, and leading indicator.
Price and terms
Separate business quality from investment quality. Entry price, rollover, seller financing, earnouts, indemnity, representations and warranties insurance, financing certainty, governance, and closing conditions can change the risk–return profile.
Scale-specific diligence
A middle-market screen may emphasize customer concentration, founder dependence, basic systems, management depth, and integration capacity. A large-cap screen may emphasize antitrust, financing markets, carve-out separation, international regulation, pensions, data migration, and stakeholder complexity.
The initial decision
End with reject, monitor, or advance. State the controlling reason, the few questions that determine the next gate, the maximum resources justified, and the evidence required before a price or bid can be approved.