A mid-market PE fund needed to test the thesis behind a £140m acquisition of a vertical SaaS target. Critical Deal ran the commercial diligence in a 6-week window and delivered a verdict that held with conditions.
The decision
The acquirer was bidding on a vertical SaaS company serving a regulated industry. The thesis on the IC paper rested on three claims: that customer retention was structurally sticky, that the category was growing at the published rate, and that the management team could execute a 3x revenue plan over five years.
What we tested
- Customer thesis. Twenty-three customers interviewed. Retention thesis held: switching costs were real and the regulatory framing made churn structurally unlikely.
- Market thesis. Bottom-up sizing from 11 segments. Category growth held in the base case but had material downside in a regulatory-policy scenario the IC paper had not surfaced.
- Team thesis. Senior-led interviews with ex-colleagues of the management team and operators in adjacent companies. Founder-CEO had a track record of building to £20m ARR but had never led a £60m+ business, the 3x plan was outside their executed range.
The verdict
The thesis held with two conditions.
- A structured earn-out tied to two years of retention and revenue performance, not a single closing payment.
- A management restructure post-close, bringing in a COO with experience operating a business at the target post-deal size.
The acquirer adopted both. The deal closed at a £128m enterprise value, 9% below the original bid, with the earn-out structured against the conditions surfaced in the research.
What's not in here
Sample details, named competitor reads, the precise financial model, and the regulatory-policy scenario that surfaced the downside, all available under mutual NDA.