The Biggest Risk in Any Deal Isn't the Business

This Week in ETA:

People often ask us what we look for in a deal - customer concentration, industry, EBITDA multiple, growth profile. Those things matter. But if I'm being honest, the business itself isn't what keeps us up at night. The searcher is.

With a business, you can run diligence, pull the numbers, stress-test the assumptions, and arrive at a rational conclusion. With people, you're working with something far less predictable. We use data where we can, but ultimately we're making a judgment call on a human being - and humans aren't always rational.

So we've gotten clear on what we're actually looking for. We need to see all of the following attributes in an individual we’ll invest in, and the absence of any single one is considered a red flag for us. It takes a unique person to successfully acquire and run a business, and those who do it well consistently exemplify these traits. What would you add?

• Grit & Work Ethic: Runs through walls. Demonstrates genuine determination in the face of obstacles, not just persistence when it's convenient. Stellar work ethic.

• Integrity: Non-negotiable. We are looking for evidence of honesty under pressure, not just in easy circumstances.

• Growth Mindset: Actively seeks to learn and improve. Humble enough to acknowledge gaps and take feedback without becoming defensive.

• Intellectual Horsepower (IQ): Can hold complexity, reason through ambiguity, and arrive at sound conclusions without being handed a framework.

• Emotional Intelligence: Reads people and rooms accurately. Manages relationships with employees, sellers, investors, and lenders effectively.

• Scrappiness & Practicality: Resourceful. Finds unconventional paths to results. Opposite of the classic corporate cog / MBA ivory tower thinker 

Partner Perspective:

Eli Albrecht, Albrecht Law: When AI Kills the Deal

I've been watching a new pattern emerge in M&A transactions, and it's worth talking about openly.

Buyers, sellers, and even opposing counsel are increasingly turning to AI for legal guidance on deal terms. In isolation, that's not surprising. These tools are accessible, fast, and confident. The problem is that confidence without nuance can be genuinely dangerous in an M&A transaction.

I shared a specific example in a recent LinkedIn post that illustrates this well. A seller received a standard, favorable LOI. Before responding, they ran it through ChatGPT. The output flagged a long list of issues, including recommending the seller reject a non-compete clause that was entirely standard and reasonable in context. The seller terminated discussions based on that advice. A good deal died because an AI system didn't understand what it was looking at.

This is happening more than people realize. The best way I've heard it described: AI is like someone at a dinner party who speaks loudly and confidently, but falls apart under scrutiny. It lacks the strategic and contextual understanding that experienced counsel brings to a negotiation.

AI can be a powerful tool in the hands of someone who already understands the subject matter. In the hands of someone who doesn't, it can be costly. If you're navigating a transaction and have questions about what's standard, what's negotiable, and what actually matters, that's exactly what we're here for. Reach out anytime.

Plus:

• Sam Mahmood shared a useful framework for evaluating how much upside is still sitting in a business before you buy it. It includes: 1) looking at whether the seller is capturing all available demand, 2) whether the operation can handle more volume without new investment, and 3) whether there's margin left to recover through better pricing and vendor terms. Worth a read for anyone in diligence.

• I've been thinking about AI's impact on the businesses we buy through the lens of chess - where computers have beaten humans for 30 years, yet skilled humans working with AI still outperform computers alone. For anyone evaluating AI risk in acquisitions, my current thinking is here. Would love to hear your thoughts!

Question:

Hit reply and tell us - What would you add to our list of “essential characteristics” for successful searchers?