Most buyers can tell you what they want to buy. Fewer can tell you why, at least not in a way that holds up when things get difficult.
This matters most on your first acquisition. It sets the tone for every deal after it: how you screen, how you diligence, how you structure, how you integrate. Get the first one right and you’ve built a repeatable process. Get it wrong and you spend the next several years either overcorrecting or avoiding M&A altogether.
Before you look at a target, before you talk valuation, before an LOI, you need to be clear on why you’re doing this at all. There’s no shortage of good reasons: market share, a new geography, a team or technology you can’t build fast enough, vertical integration, better margins. The issue is that buyers usually walk into a process carrying three or four of these at once and never rank them.
Four things worth getting right before the first meeting:
- Rank your rationales, don’t just list them. Score each one on strategic fit, financial impact, feasibility, risk, timing and synergy potential. Then have your board or investment committee approve the ranking, not just the deal. If you can’t say which reason matters most, you can’t say what you’d walk away over.
- Match your diligence to your reason for buying. Every deal gets the standard checklist, but the real risk sits wherever your thesis does. If you’re buying for the team, dig hardest into retention and key person risk. If you’re buying for cost savings, dig hardest into how the two operations will actually come together. Put your time and money where a miss would kill the deal, not where the checklist says to.
- Decide early on structure. Cash at close, vendor take-back, earn-out, rolled equity, minority or majority, each one changes what the deal is really asking of you after it closes. If the thesis depends on the founder staying engaged, an earn-out or rolled equity is part of the strategy. If you intend to fully integrate on day one, it will fight you. Settle this before you’re at the table, not in response to a valuation gap.
- Write the why down and keep it somewhere you’ll find it. Every deal hits a rough patch, in negotiation, in diligence or six months after close. That’s when you, and whoever signed off on the deal, go back to it. If the original reason still holds, you push through. If it doesn’t, you have your answer. Without it, you’re making the hardest decisions of the deal on emotion and sunk cost.
Buyers who do this don’t move faster. But they walk away from the wrong deals sooner and pay for the right ones with a lot more conviction.
Most buyers can tell you what they want to buy. Fewer can tell you why, at least not in a way that holds up when things get difficult.
This matters most on your first acquisition. It sets the tone for every deal after it: how you screen, how you diligence, how you structure, how you integrate. Get the first one right and you’ve built a repeatable process. Get it wrong and you spend the next several years either overcorrecting or avoiding M&A altogether.
Before you look at a target, before you talk valuation, before an LOI, you need to be clear on why you’re doing this at all. There’s no shortage of good reasons: market share, a new geography, a team or technology you can’t build fast enough, vertical integration, better margins. The issue is that buyers usually walk into a process carrying three or four of these at once and never rank them.
Four things worth getting right before the first meeting:
- Rank your rationales, don’t just list them. Score each one on strategic fit, financial impact, feasibility, risk, timing and synergy potential. Then have your board or investment committee approve the ranking, not just the deal. If you can’t say which reason matters most, you can’t say what you’d walk away over.
- Match your diligence to your reason for buying. Every deal gets the standard checklist, but the real risk sits wherever your thesis does. If you’re buying for the team, dig hardest into retention and key person risk. If you’re buying for cost savings, dig hardest into how the two operations will actually come together. Put your time and money where a miss would kill the deal, not where the checklist says to.
- Decide early on structure. Cash at close, vendor take-back, earn-out, rolled equity, minority or majority, each one changes what the deal is really asking of you after it closes. If the thesis depends on the founder staying engaged, an earn-out or rolled equity is part of the strategy. If you intend to fully integrate on day one, it will fight you. Settle this before you’re at the table, not in response to a valuation gap.
- Write the why down and keep it somewhere you’ll find it. Every deal hits a rough patch, in negotiation, in diligence or six months after close. That’s when you, and whoever signed off on the deal, go back to it. If the original reason still holds, you push through. If it doesn’t, you have your answer. Without it, you’re making the hardest decisions of the deal on emotion and sunk cost.
Buyers who do this don’t move faster. But they walk away from the wrong deals sooner and pay for the right ones with a lot more conviction.
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