Deep Dive: The 7 questions that predict deal quality before diligence even starts
Key takeaways
Beyond the 140-point checklist: Experienced LPs don't win by collecting more data; they win by collapsing deal quality into 7 repeatable pattern questions that forecast the exit on day one.
The "founder heroics" trap: Most SMEs are personal extensions of the seller. LPs look for structural Moats and businesses that survive an average CEO
Filter fast: Searchers lose months to "deal momentum" on incoherent businesses. Thinking like an LP before the LOI prevents you from owning a value trap you can't compound
Most searchers treat diligence like a race to collect documents. More reports, more interviews, more tabs in the model. But the operators and LPs with the longest track records donʼt start with data volume; they start with patterns. They've seen enough acquisitions to know which movies end well. For them, 80% of deal quality can be predicted before the QoE team even schedules its kickoff call.
The danger for new searchers is simple: you can build an immaculate model around an incoherent business. Demand can be overstated. Revenue can be stitched together from heroics. Pricing can be fragile. Teams can be held together by one name on the org chart. A deal can look “cleanˮ and still be structurally unscalable. These gaps rarely show up in the CIM. They show up in the first ten minutes of a real conversation with the business.
What experienced LPs do differently is collapse the noise. Instead of treating every line item as equal, they ask a short set of questions.
Our 7 high-conviction questions
Is demand "mission-critical" or "discretionary"? Does the customer keep paying because they must (compliance, core infrastructure, "painkiller") or because they want to (vitamin)? In a downturn, "nice-to-have" services are the first line item cut. LPs buy painkillers.
Is there a "unit-economic" engine for growth? Does $1 of sales spend predictably yield €X of lifetime value, or is growth driven by the founder’s "heroic" sales ability? If the revenue dies when the founder’s Rolodex leaves, you aren't buying a company; you’re buying a high-stress job.
Is the pricing power real or imaginary? Has the company successfully raised prices in the last 24 months without losing volume? If the seller is afraid to touch pricing for fear of "breaking the relationship," the value proposition is thinner than the CIM suggests. Inflation is the ultimate truth-teller here.
Is the Moat "structural" or "behavioural"? Behavioral moats ("they like us") evaporate the moment a cheaper competitor arrives. Structural moats (high switching costs, embedded workflows, or proprietary data) endure. If a customer can switch to a rival overnight, you have no moat.
What is the "owner intensity" of the cash flow? How much energy does the CEO have to inject to keep the EBITDA stable? You want a business that "runs hot" on its own. Look at the second-in-command. Our diligence questions: How often do you/CEO go on vacation and the laptop is shut off?
Is the industry "fragmented" or "consolidating"? In ETA, you win by being the professional in a sea of amateurs. If you are competing against Tier-1 PE-backed platforms, your margins will be competed away. If you are competing against family-owned "local legends," you have an arbitrage opportunity.
Does the exit have a "natural buyer"? Never buy a company without knowing who will buy it from you in 7 years. Can you name three strategic buyers or mid-market PE firms who have bought this exact profile at a higher multiple? That is your "multiple expansion" insurance.
Deals succeed long before they close. In the European mid-market, the best searchers aren't just "analysts", they are pattern matchers. If a business fails two or more of these questions, it isn't a "fixer-upper"; it’s a structural risk.
Legacy Partners has worked across the ETA ecosystem for years, advising searchers, operators, and investors through acquisition, diligence, and operating transitions. Feel free to reach out by replying to this email! We’re always happy to help.
Insight of the week
A new Yale SOM case compiles 155 exited traditional search fund outcomes (sourced from six serial ETA investors, covering ~92% of the exited universe referenced in the Stanford study) and finds that most resume-level traits don’t provide a big “secret sauce” lift, the more important story is dispersion and downside risk.
Although the study is focused on the US/Canada market, we can still derive a few portable implications for European ETA. First, the dataset suggests most “resume signals” explain less than people think, outcomes are wide and driven more by deal/company realities than by demographic fine-slicing. Second, an MBA is associated with better outcomes in the sample, but prestige appears to matter less than assumed (top programs vs other MBAs look broadly similar on medians), which points to skill formation and network effects rather than brand alone. Third, software is not a free lunch: the study finds software outcomes are roughly in line with non-software on IRR, which is a useful corrective for Europe where “software solves valuation” narratives can creep into underwriting.
Reference
A Detailed Analysis of ETA CEO Demographics and Financial Outcomes (Yale SOM Case, Jan 30, 2026).
Deal watch
Launches
Emsco Partners - UK
UK-based Emsco Partners (Emma Margetts and Scott Winship) announced its launch on 28 January 2026, positioning the vehicle around UK SME succession. The raise is described as ~3× oversubscribed within three weeks. (Link)
Virrey Capital Partners - ES
Spain-based Virrey Capital Partners (Ignacio Jimenez de Laiglesia and Gonzalo Tomé Aróstegui) launched recently, targeting Spanish succession situations. The stated target profile is ~€10-50m revenue and €1-7m EBITDA. (Link)
AQUEDUCT - DE
Germany-based AQUEDUCT launched as a new SME investment/holding platform led by Frank Forster. (Link)
Transactions
Nutria Capital - ES
Spain-based Nutria Capital acquired 100% of Hincado Directo (specialist in deep foundations / piling). The announcement framed the target as ~€10m revenue and >€2m EBITDA, with the founders staying on in an advisory capacity. (Link)
For the commute
From podcast host to buyer’s perspective: Will Smith’s ETA journey (Retained Trust)
After getting to know Will Smith through his work as the host of Acquiring Minds, this episode of Retained Trust by Karl Hughes focuses on his operator perspective as a partner at Minds Capital. He explains how a niche podcast evolved into a business and investment platform, what “getting in the game” via ETA really feels like, and where acquisition risk actually shows up (personal guarantees, SBA-style leverage, and seller misrepresentation). Will Smith here additionally shares the mental balance he looks for in buyers, enough confidence to lead, enough humility to assume you’re missing something, and why buying smaller vs. bigger changes the difficulty curve more than most first-timers expect.
Was this email forwarded to you? Subscribe here to get ETA Europe delivered to your inbox every Thursday