Your next acquisition is already going wrong

You might think that acquisition risk gets managed late in the process. Good lawyers, thorough accountants, proper due diligence - get the work done and you'll be protected.

But due diligence can only tell you whether a business is mostly what it claims to be.

It cannot tell you whether you should want it.

That second question is the one that decides whether your acquisitions build a group worth more than the sum of its parts - or just a collection of businesses that happen to share an owner. And it gets answered, one way or another, before you ever make an offer.

At Exitable and through my work with Synergy Groups - I've seen both outcomes up close. Two kinds of owners grow by acquisition, and the difference between them is smaller than you'd think.

The first kind collects businesses. Each deal made sense on its own - decent numbers, a motivated seller, a price that felt fair. But stand back and the group doesn't hold together. Different customers, different operations, different systems. Nothing shared, nothing compounding. The owner isn't running a group; they're running several companies at once, and each one still needs them.

If a buyer looked at that tomorrow, they'd struggle to see the logic. And they'd price it accordingly.

The second kind builds a group. Each acquisition slots into something - shared customers, shared capability, shared infrastructure, deeper management. Every new deal makes the previous ones more valuable, and a buyer can see the logic at a glance.

Here's the part worth thinking about: the difference between these two owners isn't capital, courage or deal flow. Both usually have all three.

The difference is a piece of thinking the group builder did before ever looking at a business for sale - and it takes about 20 minutes.

If you've ever browsed businesses for sale, you'll know the attraction. A competitor's customer base. A supplier with decent margins. Something two sectors across that looks underpriced.

Everything starts to look interesting. That isn't a lack of discipline on your part - it's what happens when deals are judged one at a time, each on its own merits.

And "on its own merits" is exactly the problem. A business can be well-run, sensibly priced and still be wrong for your group. Wrong customers, wrong operational shape, nothing for it to connect to. No amount of due diligence will surface that, because diligence tests the business - not the fit.

Without having a “buy box”, the market sets your strategy. Brokers send you what they have, not what you need. Deal heat does the rest.

The owners who build groups worth materially more, do something almost embarrassingly simple. Before they look at a single opportunity, they write an acquisition thesis - one page that defines what they are buying, why, and what every deal must do for the group.

Four questions get you there.

1. Where does your existing business give you the right to win?

Not "what industries interest you" - that's a question for someone buying their first business. You already have a platform. The real question is where that platform gives you an unfair advantage: sectors where your customers, reputation, capability, buying power or market knowledge would make an acquired business worth more in your hands than in anyone else's.

If a target sits outside that zone, someone else is its natural owner - and they will create more value from it than you can.

2. What can your group actually integrate?

Every acquisition is a claim on your management bandwidth, your systems and your leadership team. A deal you cannot integrate is not an asset - it's a distraction with a purchase price attached. Be honest about what your current structure can absorb, because the answer defines the size, complexity and number of deals you should be considering at all.

3. What gap is each deal filling?

Capability, customers, geography, margin, management depth - a disciplined acquirer can name the gap before the target appears, not after. If you cannot say what a deal adds to the group that the group cannot build more cheaply itself, you're shopping, not building.

4. What must the deal do to the numbers?

For an individual buying their first business, the maths is about replacing an income. For a group builder, it's about value creation - and it has two parts.

The first is the EBITDA the deal contributes. The second, less discussed, is what happens to the multiple. Smaller businesses tend to change hands at lower multiples than well-built groups command. Buy well, and every pound of acquired EBITDA can be worth more inside your group than it was outside it - before you've improved a single thing about the business.

That re-rating is one of the most powerful sources of value available at this level. But it only works if the deal fits - because buyers only pay group multiples for groups that hold together.

Write your minimum EBITDA contribution, your maximum price as a multiple, and the strategic conditions a deal must meet. Now every opportunity gets measured against the group you're building - not against how interesting it looks on its own.

I know you may be thinking: won't having a strict buy box mean walking away from good deals?

Yes - regularly. That is precisely the point. A buy box lets you say no in an afternoon instead of discovering the mismatch three months later and the opportunity cost of doing that deal - rather than waiting for another. Far from slowing you down, it speeds you up: the weeks you'd have spent on deals you should never have entertained get spent on the ones that compound.

A good business at a fair price can still be a bad acquisition. The buy box is how you tell the difference.

Before you open another listing, take 20 minutes and write the one-pager: where you have the right to win, what you can integrate, the gaps you're filling, and what every deal must do to group EBITDA and the multiple.

Then share it with the brokers and advisers who send you opportunities. You'll notice two things happen - the volume of deal flow drops, and the quality rises sharply.

The difference between a group worth more than the sum of its parts and an expensive collection of businesses is decided before anyone sees a listing. Achieve 20 minutes of clarity now, or years of running businesses that never quite fit together - the trade is not a close one.

All the best,
Gavin

P.S. If acquisition-led growth is on your agenda, this kind of thinking is where we start with business owners - shaping the group strategy, defining the buy box, then identifying, evaluating and structuring the right deals. If you'd like a second pair of eyes on your acquisition strategy or buy box once you've drafted it, reply to this email and I'll take a look.

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