Let’s say your CEO walks in and says, “We’re thinking of acquiring a business.”
Cue the internal audit alarms, spreadsheets, and heart palpitations. As CFO, your job isn’t just to model the deal—it’s to sanity-check whether the target is actually worth acquiring in the first place.
So, what should you look for before your executive team signs an NDA and dives headfirst into analysis and negotiations?
Let’s examine the seven signs that a business is acquisition-worthy (and yes, this includes more than decent EBITDA).
1. Profits That Actually Turn into Cash
A company can look great on paper—until you realise it’s a cash-eating monster. Sustainable, well-adjusted EBITDA is good. But consistent cash conversion? That’s the gold standard. If you have to unravel creative invoicing practices to see where the money actually is… walk away slowly.
2. Real Growth Potential (Not Just in the Pitch Deck)
“Scalability” is one of those buzzwords that shows up on every teaser. But can the business actually grow without hiring five more departments and a consultant named Brad? Check whether they’ve got systems that support expansion—or whether you’ll be buying a very expensive reinvention project.
3. Strategic Fit (a.k.a. Synergies That Actually Make Sense)
Yes, the S-word. But real synergies matter. Think supply chain savings, cross-selling to your customer base, or plugging tech gaps. If your ops team looks confused about how this target fits into your world, you probably don’t want to inherit their headaches.
4. Is There Life After the Founder?
It’s flattering when an owner is the face of the business, the sales engine, and the operations guru. It’s also a red flag. You don’t want a business that collapses the moment the founder takes their golf clubs and exits stage left. Strong second-tier management is your best friend post-acquisition.
5. Valuation: Fair, or Founder Fantasy?
Here’s where your valuation team earns their keep. A good valuation is more than slapping on a market multiple. What assumptions are baked in? Are risks accounted for? If customer concentration, key-man dependency or revenue volatility are lurking under the surface, the price should reflect that—or you’ll be the one explaining it to the board.
6. Financials That Don’t Make You Cry
If you need a forensic accountant just to read the financials, run. Clean books signal a well-run business. Bonus points if they’ve had a recent quality of earnings review—it saves you time and (legal) tears down the line.
7. A Seller Who’s Willing to Deal
An earn-out, transitional support, or minority retention can all be smart risk mitigators. If the seller insists on cash upfront and disappears the day after close, think twice. Flexibility in deal structure often signals confidence in the business.
Final Thought The best acquisitions aren’t just good deals on paper—they’re the ones that make strategic sense, complement your operations, and come with fewer sleepless nights. Start with a valuation, stress-test your assumptions, and remember: it’s not just about buying a business—it’s about buying the right one.
Let us know how we can help, whether with a valuation or the M&A process