Converting findings to deal terms

Connectivity map for the four-category severity framework

• 3.5 Concept: The four-category severity framework The core concept in findings to deal terms
• Walk-Away Findings: Walk-away findings Fatal flaws that make the deal impossible. Fraud in the financials, undisclosed lawsuit with exposure exceeding the purchase price, top customer already gone without disclosure, critical systems non-transferable and seller will not assist. (The distinction that matters: a finding that you cannot fix )
• Repricing Findings: Repricing findings Material issues that change the economics but do not make the deal impossible. EBITDA 20% or more below claim, major customer at high risk, hidden debt, working capital materially lower than represented. Reduce purchase price, increase sell
• Structure Or Protection Findings: Structure or protection findings Real risks addressable through deal terms rather than price changes. High but manageable customer concentration, owner dependency that is transferable with time, a regulatory gap fixable with escrow. Earnout tied to customer retention, incr
• Minor Findings: Minor findings Small issues that need documentation but do not materially affect value or risk. Small expense timing differences, a contract renewal in 18 months, lease expiring in two years. Document in the purchase agreement. No price change.

• The four-category severity framework feeds Walk-away findings: Walk-away findings supports the four-category severity framework.
• The four-category severity framework feeds Repricing findings: Repricing findings supports the four-category severity framework.
• The four-category severity framework feeds Structure or protection findings: Structure or protection findings supports the four-category severity framework.
• The four-category severity framework feeds Minor findings: Minor findings supports the four-category severity framework.

A 5-step process for the five-step structured renegotiation process.

• Step 1: Group findings into themes, not a list Do not present 47 individual findings. The seller will get overwhelmed and defensive. Group them into 3 to 5 major themes with estimated dollar impact. EBITDA is lower than claimed. Customer concentration creates retention risk. Owner depen (Step 1)
• Step 2: Schedule the findings call in week 4, not week 8 Early discovery is negotiating power. Finding a problem in week four gives you time to structure protection. Finding it in week ten means you are approaching the end of exclusivity with declining leverage and a seller who has mentally moved (Step 2)
• Step 3: Present findings as facts, not accusations Use neutral language. Do not say 'you lied about customer concentration.' Say 'the top customer represents 45% of revenue, which creates meaningful transition risk.' The seller will negotiate more constructively if they do not feel attacked (Step 3)
• Step 4: Offer structure options, not ultimatums Give the seller choices. 'We can handle this three ways: reduce the purchase price by $400K, add a two-year earnout tied to this customer staying, or extend your transition to 18 months. What works best for you?' Options create movement. Ul (Step 4)
• Step 5: Handle pushback by redirecting to structure When the seller says 'that customer will never leave,' respond with 'Then an earnout tied to them staying should be easy money for you, and it protects us if something unexpected happens.' If they are confident, the earnout costs them nothi (Step 5)

• Group findings into themes, not a list transforms Schedule the findings call in week 4, not week 8: Step 1 naturally follows from the prior action.
• Schedule the findings call in week 4, not week 8 transforms Present findings as facts, not accusations: Step 2 naturally follows from the prior action.
• Present findings as facts, not accusations transforms Offer structure options, not ultimatums: Step 3 naturally follows from the prior action.
• Offer structure options, not ultimatums transforms Handle pushback by redirecting to structure: Step 4 naturally follows from the prior action.