To de-risk carve-out acquisitions, sophisticated buyers should recommend the seller commission a sell-side Quality of Earnings (QofE) report before a preliminary bid is made. A seller's willingness to invest in a QofE signals their motivation, and the report provides a more reliable financial perimeter, reducing the risk of later surprises and renegotiations.

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.

Instead of walking away immediately upon finding inaccuracies, quantify the risk. Rebuild your business case assuming the worst probable scenario based on the discovered misrepresentations. If the deal remains net positive even with these new, pessimistic assumptions, it may still be a viable investment.

To maintain objectivity in acquisitions, Bending Spoons separates assumption-setting from model output. The team rigorously debates and locks in all inputs without seeing the projected P&L or IRR. This prevents the common bias of tweaking assumptions to justify a desired outcome. The final model output is then treated as unchangeable.

When evaluating an acquisition, buyers weigh the financial profile and the clarity of the company's story. A compelling, data-backed narrative about future growth pathways can be more influential than raw numbers, as a lack of clarity introduces risk and makes it a "harder yes" for the acquirer.

From a buyer's perspective, founders should sell after they have demonstrated a strong growth trajectory and hit an inflection point. Pitching a 'hockey stick' forecast without historical proof is less compelling. Waiting until you have proof of the upswing optimizes both value and strategic interest.

Surprises are best uncovered during due diligence. Finding them after closing, even if they seem beneficial (like an un-negotiated supplier contract), indicates flawed homework and disrupts the integration plan, damaging credibility with stakeholders.

Three dangerous mindsets, or "coats of conviction," derail M&A deals. They are: reactive positioning (chasing auctions), integration negligence (delaying planning), and the model mirage (trusting an untested financial model). A disciplined, proactive process is the antidote to these common pitfalls.

Sellers often try to justify a higher valuation by projecting revenue based on the buyer's large user base. Buyers view their distribution as their own asset. The seller's team participates in that upside post-close through their new equity, not by inflating the initial purchase price.