In a non-control deal, an investor cannot fire management. Therefore, the primary diligence focus must shift from the business itself to the founder's character and the potential for a strong partnership, as this relationship is the ultimate determinant of success.

Most technical problems discovered during diligence can be fixed. The real deal-killer is a loss of trust. When a company actively hides major issues, like a failed penetration test, it signals a fundamental dishonesty that makes a future partnership untenable, leading to an immediate abort.

Early-stage deal diligence often fails due to inconsistencies in the overall story. Red flags include a lack of transparency, financials that don't add up, and misaligned team vision. These narrative cracks signal deeper issues more effectively than any single weak KPI.

Many founders honestly commit to staying after an acquisition but underestimate the psychological shift from owner to employee. The loss of ultimate control often leads to their departure, despite their best intentions and contractual obligations. Diligence must assess this psychological readiness.

Progress uses an "orange flag" system to identify diligence issues that, while not immediate deal-breakers, are serious enough to warrant a discussion with the CEO and CFO. This allows for an early decision to walk away before expending significant resources.

An acquisition target with a valuation that seems 'too good to be true' is a major red flag. The low price often conceals deep-seated issues, such as warring co-founders or founders secretly planning to compete post-acquisition. Diligence on people and their motivations is more critical than just analyzing the financials in these cases.

Understanding a founder's real motivation for selling is crucial. Some want a partner for growth, while others are seeking an exit. A founder could take a partial earn-out and leave the day after closing, abandoning the business and becoming your biggest integration risk.

A deal with two founders was about to sign when the less-committed founder hired an independent valuation firm. The firm provided an unrealistically high valuation, which he used as justification to kill the deal. Acquirers should address founder reluctance early, as emotional attachment can override a logical deal process.

An M&A deal collapsed a week before close after a background check on a seller's husband, revealed late in the process, uncovered a criminal past. This highlights the need to vet all key stakeholders and their financially-tied partners at the NDA stage, not at the finish line.