M&A Questions to Ask
Questions to raise when a merger or acquisition is on the table. They cover why this target and why now, how the price was built, revenue quality and customer concentration, synergies and who owns them, liabilities and consents, financing and tax, who will run integration, and what would make you walk away.
The questions
Open any question for the note
Why this company, and why now?
Why ask it
Ask both halves separately. Most teams can answer why the target is attractive and far fewer can say why the deal has to happen this quarter, and when the timing answer turns out to be a banker's process or a bonus year, you have learned that the deadline is internal rather than commercial. A rationale that changes depending on who is presenting is the clearest early warning there is.
What does this company have that we could not build ourselves for less?
Why ask it
Forces a comparison with the build option, which acquisition cases usually skip. Defensible answers involve time, an installed customer base, a license, a team that cannot be assembled, or a patent position. If the answer is capability that three good hires would give you, the premium is buying speed, and it is worth pricing that explicitly.
How was the price arrived at, and what growth does it assume?
Why ask it
Work backwards from the number to the assumptions holding it up, then test the two or three that matter most. A model that needs the target to grow faster after acquisition than it ever grew independently is the standard way deals get justified. Ask what the price would be on last year's actuals with no improvement, and treat the gap as the size of the bet.
How much of last year's revenue is recurring, and how much happens once?
Why ask it
Two companies with identical revenue can be worth very different amounts, and sellers present the mix favourably. Watch for one-off implementation fees counted as run rate, contracts up for renewal in the next six months, and revenue that depends on a single reseller relationship. Ask for the retention rate by cohort rather than as a single figure.
Which customers make up the top quarter of revenue, and are those contracts assignable?
Why ask it
Concentration is a risk you can measure and consent clauses are a risk you can miss entirely. Some contracts terminate or require permission on change of control, which hands a customer leverage at exactly the wrong moment. Also ask which relationships sit with a named person at the target rather than with the company.
What is normal working capital for this business, and how was that level set?
Why ask it
This is where value quietly moves after signing. A seller who runs receivables hard and stretches payables in the final quarter delivers a business that needs cash the day you own it. Ask for monthly working capital over two years rather than a year-end figure, because seasonality is usually the whole story.
Which synergies are in the model, and who has personally signed up to deliver each one?
Why ask it
A synergy without an owner is an assumption. Ask for the list with a name and a date against each line, and note the reaction: operating managers who are hearing their targets for the first time in this meeting will not hit them. Revenue synergies deserve more skepticism than cost synergies, since they depend on customers behaving as planned.
What will it cost to achieve those synergies, and when does that cash go out?
Why ask it
Cost to achieve is frequently omitted or buried, and it lands before the benefits do. Severance, system consolidation, site closures, retention bonuses and duplicate running costs during migration all fall in the first eighteen months. If the answer is a single percentage of the synergy figure, the work has not been done.
What are we assuming about the management team staying, and what is keeping them?
Why ask it
Ask what each key person receives at close and what they receive if they stay two years, because a founder who is fully paid at closing has no reason to remain. Also ask who has already signalled they will leave: that conversation has usually happened privately before diligence starts.
Who actually holds the relationships and the knowledge in this business?
Why ask it
Often not the people on the organization chart. The answer might be a single engineer who understands the pricing system or a sales director whose customers follow them. Once you know the names, the retention plan can be built around them rather than around titles, which is where most acquisitions of small companies fail.
What is on the balance sheet that will not survive close inspection?
Why ask it
Asked directly, and best asked of your own diligence team rather than the seller. Capitalised development costs, related party transactions, aggressive revenue recognition, inventory that has not moved in two years and deferred revenue with no cost attached to serving it are the usual candidates. Each one changes both the price and what you thought you were buying.
What liabilities come with the company: litigation, tax positions, pensions, environmental?
Why ask it
Ask for what is disclosed and then ask what is threatened but not yet filed, since the second list is rarely written down. Pension and environmental exposures are the ones that outlive the deal and cannot be insured away cheaply. If the seller cannot produce a clean answer on tax positions taken in the last three years, budget for the review.
How is the intellectual property owned, and does anything depend on a license that could be withdrawn?
Why ask it
Ownership gaps are common in companies built with contractors or spun out of a university, and they surface late because nobody checked assignment paperwork at the time. Also trace dependencies on third party components and data sources: a product built on one supplier's terms of service is a product that supplier can change.
What does the technology look like underneath, and what would it cost to keep it running for three years?
Why ask it
Ask to talk to engineers rather than only to the person who presents the architecture diagram. What you are listening for is deferred maintenance: an unsupported database version, one custom system nobody can modify, or a release process that requires a specific person. That backlog becomes your capital expenditure in year one.
How is this being financed, and what does our balance sheet look like the day after close?
Why ask it
The structure determines how much room you have when the integration runs long, which it will. Ask what covenant headroom remains under a downside case rather than the base case, and what happens to the combined business if rates or trading move against you in the first year.
What are the tax consequences of this structure, for us and for the seller?
Why ask it
Structure is negotiable early and fixed later, so the question has a short window. Asset and share purchases differ in what you inherit and what you can deduct, and a seller's tax preference is often tradeable against price. Bringing this up after heads of terms are signed usually means paying for it.
Which approvals do we need, from regulators and from anyone with consent rights, and how long will they take?
Why ask it
Antitrust filings, sector regulators, landlords, lenders and key customers can each hold a veto, and the elapsed time between signing and closing is when businesses deteriorate. Ask for the longest path, who owns each filing, and what the target is contractually required to do while waiting.
Who is running integration, and what are they giving up to do it?
Why ask it
Integration handed to an executive as an addition to their day job is integration nobody is doing. Ask for the name, the percentage of their time, who covers their existing work and what decision rights they hold. If the answer is a steering committee, expect the first hard call to take a month.
What would we have to find to walk away, and who has the authority to make that call?
Why ask it
Agreeing your walk-away conditions before diligence starts is the only reliable protection against the momentum a live deal generates. Write them down, name the decision maker, and be specific: a concentration threshold, an unresolved tax exposure, a departure. Teams that have not done this rarely abandon a deal once fees have been spent.
If this does not work, what are we left holding and how do we exit?
Why ask it
Asked last because it is the question deal teams most dislike. Some acquisitions can be sold on or wound down, and some cannot once systems and staff are merged, and knowing which you are doing changes how fast you should integrate. An honest answer here also tells you how much of the price is genuinely at risk.
Working Through a Deal
Practical guidance for the conversation itself
Before You Put a Number on the Table
Write down the walk-away conditions first
Deal momentum is real: once advisers are engaged and fees are running, the internal cost of stopping feels higher than the cost of continuing. Agree in advance what findings would end this, in specific and measurable terms, and name who decides. Revisit the list at each stage rather than quietly editing it.
Price the build alternative honestly
Cost out hiring the team, writing the product or entering the market directly, including the time it would take. The comparison rarely kills a good acquisition, but it puts a number on what the premium is buying and gives you a reason to hold a price limit.
Separate the case from the advocate
Someone is usually championing the deal, and their reputation gets attached to it early. Ask a person with no stake in the outcome to argue the other side in writing, and read that document before the offer, not after diligence has produced its first surprise.
Diligence That Finds Things
Go below the people who present
The prepared management presentation is the most polished information you will receive and the least useful. Ask for time with the engineers, the controller who prepares the monthly numbers and a couple of departing employees. Exit interviews from the last year are more revealing than the culture section of the data room.
Test two assumptions rather than reviewing every schedule
There are usually two or three assumptions the valuation actually rests on: a retention rate, a price increase, a synergy line. Spend your diligence budget proving or disproving those instead of spreading it evenly across the checklist. Everything else is confirmatory.
Ask about the period between signing and closing
Regulatory waits are dead time in which staff leave, customers hesitate and competitors talk. Agree what the target may and may not do while waiting, who communicates with employees and customers, and how you will know if the business is drifting.
Integration Questions Worth Asking Early
- Which decisions will be made centrally on day one, and which are deliberately left alone for a year? Ambiguity here is what produces paralysis in the acquired team.
- What do employees at the target hear, from whom, and on what day? Silence in the first week is filled by the most anxious interpretation available.
- Which systems must merge before the first close of books, and which can wait? Attempting everything at once is the most common self-inflicted wound.
- What compensation and benefit differences will become visible when the two teams compare notes, and what is the plan for the ones that look unfair?
- Which customers get a call from a named person in the first week, and who makes it?
- What does the acquired team do better than you, and how will you avoid replacing it out of habit?
Where Deals Go Wrong
- Synergy targets with no named owner and no cost to achieve. They survive into the board pack and never into the accounts.
- Accepting a year-end working capital figure. Monthly data over two years shows what the business actually needs to run.
- Assuming the founders stay because they say they will. Read what they are paid at close against what they are paid to remain.
- Leaving contract consent rights until the legal review. A change of control clause in a major customer contract changes your negotiating position, not just your paperwork.
- Treating culture as a soft issue to address after closing. It shows up as attrition among exactly the people you were buying.
- Deciding the walk-away conditions after the first significant finding, when the sunk cost is already large enough to argue with.