By: Amanda Walsh
When most people think about acquisitions, they imagine big headlines, massive returns, and bold financial plays. What they don’t see is the careful work behind the scenes — the due diligence, the stress-testing of assumptions, and the discipline required to avoid mistakes. I’ve learned through experience that the real art of acquisitions isn’t about chasing the biggest deal. It’s about managing risk.
If you de-risk properly, you can turn a good acquisition into a great one. But if you ignore it, even the most promising opportunity can unravel. That’s why I always focus on de-risking as the foundation of my acquisition strategy.
Why De-Risking Matters More Than Chasing Returns
There’s no shortage of influencers who talk about big returns. They paint the picture of high-yield investments and overnight success. The reality, however, is that acquisitions are complex. Without proper safeguards, you can overpay, underperform, and end up holding a business that drains resources instead of creating them.
Returns don’t matter if you lose your principal. For me, protecting downside risk always comes first. When you manage risk effectively, the upside naturally follows.
My Core Principles of De-Risking Acquisitions
Over time, I’ve developed a structured approach to de-risking that I apply to every deal. While every acquisition is unique, these principles guide me consistently:
- Understand the True Cash Flow.
On paper, a business might look profitable. But are those numbers reliable? I always dig into normalized earnings, removing one-time events and inflated adjustments to see what the business really makes. - Assess Customer Concentration.
A business that relies too heavily on one or two customers is fragile. If a key client leaves, the revenue can collapse. Diversification is a must. - Evaluate Leadership and Culture.
Numbers only tell half the story. A toxic culture or weak leadership team can destroy value faster than any financial misstep. I spend time understanding the people, not just the P&L. - Examine Industry Durability.
Some industries are cyclical or vulnerable to disruption. I ask hard questions: will this business still be relevant in five years? Ten? - Scrutinize Debt Structure.
Over-leveraging is one of the quickest ways acquisitions fail. I ensure the financing terms match the cash flow realities of the business. - Plan for Transition.
The first 90 days after acquisition are critical. Without a clear plan, employees get confused, customers get nervous, and value erodes. Transition planning reduces that risk.
The Role of Due Diligence
Due diligence is often treated as a checkbox exercise, but I see it as the backbone of risk management. It’s not just about reviewing financial statements. It’s about asking questions that reveal the full picture:
- Are contracts enforceable and favorable?
- Are there pending legal issues that could surface later?
- Are systems outdated and costly to replace?
- Are there hidden liabilities, like environmental risks or unfunded pensions?
By digging deeper, you avoid the trap of buying a business that looks good today but carries landmines for tomorrow.
Operational Improvements as Risk Management
One of the most overlooked aspects of de-risking is the operational side. After acquiring a company, I immediately look for ways to strengthen the foundation:
- Standardizing processes to reduce errors
- Introducing better financial reporting for visibility
- Improving employee training and retention to avoid turnover risk
- Negotiating vendor contracts for stability and cost control
These improvements don’t just create efficiency. They create resilience, making the business less vulnerable to shocks.
Why Slow and Steady Often Beats Fast and Flashy
Some entrepreneurs want to rush through acquisitions, moving quickly to close deals and add companies to their portfolio. I take the opposite approach. A slower, more deliberate process ensures that risks are identified and mitigated before closing.
I’d rather walk away from ten deals than rush into one bad one. That patience has protected me from costly mistakes and allowed me to focus on businesses that are truly worth acquiring.
Case in Point: The 90-Day Rule
One of my guiding frameworks is what I call the 90-day rule. If I can’t clearly articulate how to stabilize and improve a business in the first 90 days post-acquisition, I won’t do the deal.
This mindset forces me to think beyond closing. It forces me to consider employee morale, customer communication, and operational continuity. If those things can’t be mapped, the risk is simply too high.
De-Risking in Today’s Market
In today’s economic environment, de-risking is more important than ever. Rising interest rates, labor shortages, and shifting consumer behaviors all add layers of complexity to acquisitions. Businesses that looked like easy wins two years ago now require sharper analysis and stronger execution.
That’s why I emphasize frameworks and discipline over hype. While others chase headlines, I chase stability. And stability, over time, is what generates wealth.
Final Thoughts
De-risking every acquisition isn’t glamorous. It doesn’t make flashy social media content. But it’s what separates those who succeed in business acquisitions from those who lose everything.
For me, acquisitions aren’t about rolling the dice. They’re about building sustainable companies that generate long-term value. Every decision I make is filtered through the lens of risk management, because I know that when the downside is protected, the upside takes care of itself.
That’s why I continue to teach, write, and practice disciplined acquisitions. It’s not the loudest path, but it’s the one that builds lasting businesses.
To learn more about my approach to acquisitions and risk management, visit drconnorrobertson.com.
Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as professional advice. Results from business acquisitions can vary based on market conditions, individual circumstances, and other factors.
