What we look for in an operating acquisition

We look at a lot of businesses and pass on almost all of them. The ones we pursue tend to share three traits: founder-led operations with a clean succession story, a cost base we can influence directly rather than one dictated by a third party, and enough margin of safety that a slow first year does not put the acquisition at risk.

We are not underwriting market growth. We are underwriting our own ability to run the business better than its current owner, on a timeline measured in years rather than quarters.

This note walks through the diligence questions we ask before a term sheet, and the two deals we passed on last year that met every criterion except the last one.