Before we write to a founder about their business, somebody on our team has usually spent a couple of days quietly looking into it. Company filings, sector reports, the odd conversation with somebody who used to work there. Not diligence exactly, but enough to know whether the business fits the shape we are willing to spend the next ten years running.
We are asked often what we actually look for. There is no secret formula, and every good acquirer weights things differently. But five qualities come up on almost every business we take seriously.
1. Revenue that keeps arriving
The first thing we look for is revenue that is genuinely recurring, or at least genuinely repeatable. Contracted service revenue is the cleanest version of this. A five year maintenance contract with automatic renewal is worth more than five years of one off jobs at the same total value, because the certainty of the cashflow is what makes the business ownable.
Repeatable is nearly as good. A commercial customer who has bought the same service every month for eight years is not under contract, but they are behaving like they are. That kind of pattern, held across a broad customer base, tells us the business will still be here in three years.
2. A customer base with no headline risk
We look at customer concentration second. If the top customer is more than twenty percent of revenue, we pay attention. If it is more than forty percent, we usually walk away. This is not because big customers are bad. It is because a single customer that could leave and take the business under with them is a risk we cannot underwrite.
The businesses we like tend to have long lists of small and medium sized customers. Nobody dominant. Nobody the founder cannot afford to lose. Boring in the best way.
3. A team that does not need the founder in the room
Every business we look at has a founder who has been there since the beginning and knows how everything works. That is normal. What we are looking for is whether the business can function for two weeks without them.
The signs are practical. Is there somebody who runs operations on the days the founder is away. Are there written procedures for how the core work gets done. Do the senior team members make decisions without checking upward. If the answer to those questions is yes, the business is transferable. If the answer is no, the founder is the business, and no acquirer can buy that.
This is not a criticism. It is often the single biggest thing a founder can work on in the years before they sell.
4. Financial history that does not need a footnote
Clean accounts are not glamorous. But when we look at management accounts and see a consistent trend, revenue moving in a defensible direction, gross margins that hold their shape, working capital that behaves the way you would expect, it tells us the business is being run properly.
What worries us is the opposite. Numbers that jump around without an explanation. Owner drawings routed through the profit line. Assets on the balance sheet nobody has looked at in three years. These do not kill deals on their own, but they make the diligence process much longer and much more painful for both sides.
A well run set of books is one of the most under appreciated things a founder can hand to a buyer.
5. A sector where being new is genuinely hard
Finally we look at the sector. Not for growth, exactly, though growth is welcome. We look for barriers. A sector where anyone with a laptop can turn up next week and undercut you on price is a sector where margins slowly disappear. A sector where you need certifications, or capital equipment, or years of insurer relationships to be taken seriously, is a sector where the businesses that already have those things get to keep them.
This is why we spend most of our time looking at businesses that are compliance driven, asset heavy, or built on decades of accreditation. The moat is not marketing. It is the paperwork nobody wants to do, done well for twenty years.
What it means for a business owner
If you own a UK business and you looked at that list and thought that describes us pretty well, we would very much like to hear from you. If you looked at that list and thought we have four out of five, that is often more interesting to us than a business that ticks every box on paper.
Great businesses are rarely perfect. What matters is that the fundamentals are there, and that the gaps are the kind of gaps a serious operator can close.
