We are fortunate to see hundreds of deals per year. For every one, we run through a 13-point checklist as a starting point for evaluation, and I shared that checklist in full on LinkedIn recently, along with some interesting discussion in the comments worth reading. The short version: we're looking for recurring revenue, low customer concentration, healthy margins, a below 5x entry multiple, and a seller who's motivated for the right reasons. Capital intensity, working capital dynamics, key person risk, deal structure, and industry cyclicality all factor in too. Real estate and franchise or union status round out the list - not dealbreakers on their own, but important to understand when present. No checklist is a substitute for judgment, and no two deals are alike. But having a consistent starting point keeps us from getting seduced by a great story before we've asked the right questions. Here's our list: 1. Revenue Quality - recurring or re-occurring is best, project-based and lumpy is worst. 2. Customer Concentration / stroke of pen risk - less is better. Too high is almost impossible to structure around and almost always a dealbreaker. 3. EBITDA & Margins - what scale is the business operating at, and is it a low margin, normal (for the industry) margin, or high margin operation? 4. Entry Multiple - we're looking for below 5x. 5. Capital Intensity - needing to sink a lot of money into equipment and inventory as a percentage of revenue is a negative. 6. Working Capital Intensity - how long does it take the business to collect cash and how much inventory do they need to hold compared to how much time they have to pay their bills? 7. Industry / Regulatory Risk - businesses that rise and fall with new construction cycles, natural resource prices, or interest rate cycles are less attractive. 8. Transition / Key Person Risk - can the searcher fill the gaps if one or more key people leave? 9. Seller Motivation - the best is "I'm 80 and it's time to retire." The worst is "I'm 25 and have other projects I want to focus on." 10. Deal Structure - the more skin in the game the seller keeps (seller note, earn out, rolled equity) the better. 11. Investor Terms - are they in line with market norms, or maybe even attractive for being slightly above those norms? 12. Real Estate - not necessarily good or bad, but important to understand if present. How expensive is the real estate relative to the operating business? Is there a sale leaseback? 13. Franchise / Union - these change the nature of the business and are crucial to make note of. I'd love to know what's on your checklist that isn't on ours - and if there's anything on this list you'd like me to dive deeper on, hit reply and let me know. Partner Perspective: Eli Albrecht, Albrecht Law: Five Must-Have Restrictive Covenants in Every Deal Six months after closing, a Family Office client called me with a problem: the seller's brother had started a competing manufacturing operation and was likely soliciting their customers and employees. It was exactly the scenario strong restrictive covenants are designed to prevent - and fortunately, we had insisted on them. I wrote about this in detail on my Substack recently, and it's worth sharing here because I see buyers underestimate this issue more often than almost anything else in a transaction. When a buyer acquires a business, we insist on five restrictive covenants in every deal: 1. Non-compete 2. Non-solicit of employees 3. Non-solicit and non-interference with customers 4. Non-disparagement 5. Confidentiality The non-compete is the most critical. Nobody in the world is better positioned to compete with your new business than the seller - they know your employees, your customers, and your suppliers. Five years and a geography broad enough to actually protect the business is our standard. If a seller pushes to carve out a specific side venture, be careful to make sure any carve-out is narrow and well-defined. It’s also crucial to get the key non-compete terms into the LOI before anything is signed. This is a material term and it is much harder to negotiate after the fact. The other four covenants are equally important to preserving the value of the business after closing and shouldn't be treated as boilerplate. A few things buyers frequently get wrong across all of them: • Employee non-competes are unenforceable in several states, but a non-compete tied to the sale of a business is enforceable virtually everywhere - don't let anyone tell you otherwise. • The covenant needs to be broad enough to cover competing through family members and affiliated entities - which is exactly what happened in our client's situation. • These covenants should survive until their full stated period. I have seen sloppy lawyering accidentally allow covenants to expire after justredactedmonths. • Restrictive covenants are sometimes included in a separate agreement rather than the purchase agreement itself. If so, make sure that separate agreement is enforceable through the indemnification provisions and isn't accidentally carved out through exclusive remedies. • Your lender and investors will require strong restrictive covenants - this isn't optional. If a seller does breach, move quickly. Equitable relief, such as a temporary restraining order or preliminary injunction, can stop the damage before it compounds. My partner Travis Ritter handles exactly this kind of post-closing M&A litigation. Reach out to us here. Plus: • Great points on an important piece of diligence that is often overlooked: key person risk. While you may not be able to deep dive into management interviews pre-sale, the questions in this post are a good starting point to figuring out who the key employees are - and where your risk lies. • Drew Eckman makes a compelling case that a seller note isn't really "seller financing" - it's seller alignment, and the distinction matters. If you've ever had a seller push back on carrying a note, this is worth reading. Full post here.redacted