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name: acquisition-case
description: "Build an M&A investment case with stress-tested valuation and a narrative that survives board scrutiny — not just a number with a multiple attached."

/acquisition-case

A DCF with optimistic assumptions and a comparable company table isn't an investment case — it's a number looking for justification. Boards have seen that document a hundred times and know how to find the buried assumptions. This skill builds the case from the target's unit economics up: what the business actually earns, where the margins can expand, what the acquirer actually contributes, and what has to be true about the combined entity for the price to make sense.

Target Business Analysis

• Revenue trend: last 3 years, YoY growth rate, acceleration or deceleration?
• ARR vs services split — and what is the margin profile of each?
• CAC trend (last 4 quarters), LTV/CAC ratio, and whether LTV is increasing or being maintained by pricing
• Net Revenue Retention (NRR): above 110% is a compounding business; below 100% is a leaky bucket with growth painted over it
• Gross margin trend: software should be improving over time — flat or declining gross margins signal unit economics problems
• Churn: logo churn vs revenue churn. What is the churn pattern by customer segment and vintage?
• ACV trends: is the average contract value growing, and through price or through expansion?

Top 3 Margin Expansion Opportunities

For each: current margin, target margin, what operational change creates the expansion, and the timeline:

• e.g., "G&A redundancy post-integration: target's /yr finance and legal functions absorbed; 18 months to full synergy"
• e.g., "R&D consolidation: overlapping infrastructure teams; .3M annual savings, 12-month retention risk"

Acquirer Synergies — distinguish three types:

• Cost synergies: what you can eliminate (quantified)
• Revenue synergies: what cross-sell or up-sell becomes possible — with realistic adoption assumptions, not 100% capture
• Growth synergies: distribution or capability that changes the target's growth trajectory — what's the evidence this actually materializes post-M&A?

Valuation Analysis

• 5-7 comparable company multiples (revenue, EBITDA, ARR) — adjusted for growth rate and margin differential, not raw
• Precedent transaction multiples for recent comparable deals
• DCF sensitivity table: what does the price look like at ±2% on growth rate and ±3% on terminal margin?
• The multiple you're paying vs comparable comps — what premium are you paying and what's the justification?
• Recommended price range and the walk-away point (the price at which synergies can't make the math work)

Stress Test

• Base case: your central assumptions
• Bear case: revenue growth halves, NRR drops 10 points, synergies are 50% of forecast — what's the IRR?
• What is the break-even scenario — the worst case where you still don't regret the deal?

Key Risks to the Narrative — 3-4:

For each: the risk, the probability, the mitigation, and the impact on valuation if it materializes:

• e.g., "Key person risk: CTO owns core architecture and is not under retention agreement — loss probability post-close is high"
• e.g., "Customer concentration: top 3 customers are 42% of ARR — any single defection changes the bear case materially"

Rules

1. NRR is not optional. A business without NRR data doesn't have clean unit economics — price accordingly.
2. Revenue synergies must be discounted by at least 50% for the base case. History shows they materialize at 40-60% of projection.
3. Every valuation assumes a range, not a point. A point estimate signals false precision.
4. The walk-away price must be set before you enter exclusivity, not during.
5. Key person risk and customer concentration are the two most commonly underweighted risks in software M&A. Both require specific treatment.
6. Comparable company multiples must be adjusted for growth and margin — a 30x ARR multiple means nothing without those adjustments.

The output of this skill is a 5-page investment case: unit economics summary, synergy build, valuation range with stress test, the 3 key risks, and the recommendation — ready for the board investment committee.