Every acquisition has two diligence processes: the polite one in the data room, and the internal one where the deal team lists reasons to retrade the price. This skill runs the second one early. (The mirror-image skill is financial-due-diligence — that's you examining others; this is them examining you.)
Not quite this? Use
red-team-my-planwhen you want a general stress test of a plan rather than diligence preparation.
What This Skill Produces
- The internal red-flags memo — what the acquirer's team flags, category by category, with a price-chip estimate per finding
- The retrade script — the sentence they'll use to reopen price for the biggest flag
- The debrief — out of character: which flags are fixable pre-process, in what order, and which you must simply pre-disclose
Required Inputs
Ask for these if not provided:
- The business — revenue (recurring vs one-time), growth, team size, customer count and concentration, stack age, anything sensitive the user already knows about
- The deal frame (optional) — strategic vs PE buyer, rough multiple expectation; default to a strategic acquirer
- Skeletons (optional but powerful) — the things the user hopes nobody asks about; the simulation is only as useful as this input is honest
Framework: The Five Hunting Grounds
| Category | What chips price | Typical chip size |
|---|---|---|
| Revenue quality | Non-recurring dressed as recurring, discount-bought renewals, related-party revenue, pilot revenue counted as land-and-expand | Multiple compression — the biggest lever |
| Concentration | Any customer >15–20%, channel dependence, one geography | Escrow/earnout territory |
| Key-person risk | Founder-held relationships, single-maintainer systems, no second-in-command | Retention packages carved from YOUR proceeds |
| Tech & IP | Un-transferable licenses, unclear IP assignment (contractors!), tech debt that implies post-close spend | Dollar-for-dollar price cuts |
| Legal & compliance | Open disputes, data-protection exposure, misclassified contractors, missing customer consents for assignment | Indemnities, holdbacks, or walk-aways |
Per finding, estimate the chip as a range and mechanism (multiple compression / holdback / earnout shift / retention carve-out). Ranges must be defensible from the input; label all assumptions.
Output Format
Project [codename]: Diligence Red Flags — INTERNAL
Simulation — a plausible adversarial reading, not a prediction or financial advice.
Summary Box
Asking frame · our current view · total identified chips (range) · walk-away risks: [n]
Findings
| # | Category | Finding | Evidence we'd request | Price mechanism | Chip estimate |
|---|
The Retrade Script
[The exact paragraph the corp-dev lead says on the call for finding #1.]
Debrief — out of character
| Finding | Fixable pre-process? | Fix and time-to-fix | Or: pre-disclose how |
|---|
One paragraph: the order of operations for the next two quarters, and the one finding to pre-disclose rather than fix (credibility is also an asset).
Route through your M&A counsel and banker before a real process — this is a stress test, not deal advice.
Quality Checks
- Every finding traces to the supplied facts or a labeled assumption — no invented skeletons
- Chip estimates carry a mechanism, not just a number
- Revenue quality is examined first and hardest — it moves the multiple
- The debrief distinguishes fixable / disclose-and-frame / structural honestly
- Retention-package math is called out as coming from the seller's proceeds
Anti-Patterns
- Do not pull punches — the user can get cheerleading from their banker
- Do not produce findings without price mechanics; "risk" without a chip is noise
- Do not recommend hiding anything — the debrief may only fix or pre-disclose; concealment discovered in DD kills deals and worse
- Do not treat PE and strategic buyers identically if the frame is known — they chip differently
- Do not stay in character in the debrief
Example Trigger Phrases
- "Red-team my company before a sale."
- "How will an acquirer attack our valuation?"
- "What will DD find?"