Acquisitions
What should you check before pursuing a business acquisition?
A short initial screen can identify fundamental valuation, funding and commercial obstacles before significant fees are incurred.
Begin with the commercial fit
When I first look at an acquisition, a business can look attractive on paper and still be the wrong opportunity. Consider its customers, geography, recurring revenue, management depth and whether it fits your intended operating strategy.
Understand why the owner is selling, whether the business can operate without them and what responsibilities the buyer would inherit.
Establish the earnings you are buying
I start by reviewing several years of profit and loss accounts. Look for margin changes, exceptional costs, director remuneration, capital expenditure and possible normalisation adjustments.
I never treat all proposed add-backs as automatically maintainable. Separate documented adjustments from optimistic assertions.
Check whether the transaction can be funded
An indicative enterprise value is only part of my assessment. I have walked away from opportunities where the broker’s price expectations and available finance left no credible route to completion. I would rather screen that out early than spend weeks pursuing a dead end. Examine the cash and debt position, normal working capital, funding headroom and the amount a lender is realistically likely to advance.
I want completion cash, deferred consideration, vendor finance and earn-outs to work with the forecast cash flow. A plausible headline price can still produce an unworkable structure.
How I would approach this in practice
My initial screen needs to expose that problem before expensive diligence. I would establish what finance is genuinely supportable, what the vendor will defer and whether the business can afford the later payments.
I would use the evidence to identify the key commercial assumptions, test alternative outcomes and decide what could realistically be done next. The point is not to produce a precise-looking number in isolation, but to reach a conclusion that can be explained and acted upon.
Screen first; investigate in depth second
For me, the purpose of preliminary screening is to establish whether there is a credible route to a transaction. If fundamental obstacles are present, it may be better to move on before committing to full due diligence.
Where the opportunity remains promising, establish a proportionate information request, identify key risks and test the assumptions before agreeing binding terms.
General educational guidance only. Outcomes depend on the facts, evidence and transaction terms of each business. These are practical analytical perspectives, not legal, tax or regulated investment advice.