How should I compare building a capability with acquiring it?

Compare the routes on risk-adjusted cost, time to capability, probability of success, strategic control and management capacity. Buying is stronger when the asset is scarce or speed has material value. Building is stronger when the acquisition premium and integration risk exceed that acceleration.

What must be validated before submitting an indicative offer?

Validate the strategic thesis, normalized earnings, cash conversion, working-capital profile, concentration, management depth and the main legal or regulatory deal breakers. Size synergies separately from standalone value and define the assumptions that would change or stop the deal.

How should I model the full cost of an acquisition?

Build a full sources-and-uses model, not only a purchase-price case. Include diligence, advisory and financing costs, taxes where applicable, working-capital funding, deferred maintenance, retention, separation and integration. Model contingent liabilities, delayed synergies and the cash required after closing.

How should I structure the purchase price and funding?

Combine equity, acquisition debt, seller financing, rollover equity and contingent consideration according to the target cash flow and the risks still being allocated. Debt service should work in a downside case without unproven synergies. Earn-outs need precise, auditable performance measures and dispute rules.

How should I decide whether to proceed after diligence?

Return to the original investment thesis. Proceed only if maintainable earnings are supported, identified risks are priced or allocated, financing survives a downside case and the integration plan has credible owners and costs. Reprice, restructure or walk away when the case depends on unverified synergies or risks that cannot be contained.

Should I invest in this business?

Invest only if the target fits your strategy, the evidence supports the return and the combined business is worth more than the full cost of buying, financing and integrating it. Test the standalone case before counting synergies.

For a corporate buyer, focus on strategic fit, management capacity, integration, financing and downside. For a financial investor, add governance, return thresholds and a credible route to exit. Price and structure must leave room for the plan to be wrong.

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Evaluating an acquisition

Questions to work through

Test strategic fit, standalone economics, full cash cost, financing and whether diligence supports the original thesis.

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Articles

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Guidance on target assessment, financial and non-financial diligence, red flags and building the acquisition case.

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Acquisitions11 min read

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Practical checklists for assessing target information and testing whether financial reporting can withstand diligence.

M&A

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Acquisitions glossary

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Six terms used when valuing, diligencing, financing and negotiating an acquisition.

Due Diligence

Due diligence is a comprehensive appraisal of a business undertaken by a prospective buyer to evaluate its assets, liabilities, and overall financial health. This process aims to confirm all material facts and assess the potential risks and benefits associated with a transaction.

Synergies

Synergies in Mergers and Acquisitions (M&A) refer to the potential financial benefits that are expected to arise from the combination of two companies. The idea is that the combined entity will be more valuable than the sum of its parts due to enhanced efficiencies, cost savings, and increased revenue opportunities. Synergies can be broadly categorized into operational synergies and financial synergies.

Leveraged Buyout (LBO)

A Leveraged Buyout (LBO) is a financial transaction in which a company is acquired using a significant amount of borrowed money. The assets and cash flows of the company being acquired usually serve as collateral for the loans. The goal is to enable investors, typically private equity firms, to purchase the company with a relatively small amount of equity and maximize the return on their investment by using leverage.

Control Premium

A control premium is the extra price a buyer pays above a company's standalone or minority-share value to acquire control in an M&A transaction or valuation.

Earn-out

An earn-out is a financial arrangement used in M&A transactions where the seller receives additional compensation based on the future performance of the acquired business. This contingent payment is typically tied to achieving specific financial targets or milestones over a defined period post-acquisition.

Representations & Warranties

Representations and warranties (R&W) are statements made by the seller (and sometimes the buyer) in a merger or acquisition agreement to provide assurances about various aspects of the business being sold. These statements cover a wide range of topics, including financial condition, legal compliance, ownership of assets, and operational status. They serve to inform the buyer about the true state of the business and protect against potential risks or misrepresentations.

How we help

Should I invest in this business?

Questions to work through

Tools for evaluating and financing an acquisition

Valuation Calculator

Debt Capacity Calculator

Lenders Directory

Articles

Outsourced Corporate Development for Mid-Sized Acquirers

11 Questions to Ask Before Buying a Business

Acquiring a Service Business: 8 Financial Diligence Tips

Financial Due Diligence (FDD): Scope and Seller Checklist

Non-Financial Considerations in M&A Due Diligence

Due Diligence Red Flags: Buyer and Seller Checklist

Checklists

Information Memorandum

Month-End Closing Process

Acquisitions glossary

Due Diligence

Synergies

Leveraged Buyout (LBO)

Control Premium

Earn-out

Representations & Warranties

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