What I look for when I walk into a business as a potential buyer
A buy-side perspective on why most Alberta businesses are not ready when they think they are.
I have spent most of my career on the buy side. Equity research, institutional sales, merchant banking, private equity — the common thread is evaluating businesses as someone who might invest in or acquire them. That background is what I bring to succession work at AJM. I know what a buyer is looking for, because I have been that buyer.
What follows is not a sanitized case study with a tidy outcome. It is an honest account of what I see repeatedly when I walk into an Alberta business that its owner believes is ready to transition. The details are composite and anonymized, but the patterns are real.
A $22M oilfield services business. Second-generation owner. Believed it was ready.
What the owner saw
The business had strong revenue, a loyal customer base, and an owner who had spent nearly two decades building it. He had spoken informally with two strategic buyers and one private equity group. The conversations were positive. He engaged a lawyer to begin structuring the transaction and assumed his accountant’s year-end statements would serve as the financial foundation.
From where he sat, the business was worth a multiple of normalized EBITDA somewhere between $8M and $12M. He was not wrong about the business. He was wrong about the data.
What I saw when I looked at it
The financial statements were accurate. They passed an audit. But accuracy and readiness for a transaction are not the same thing.
When I worked through the financials with an investor’s eye, four things surfaced immediately:
Owner compensation was understated
The owner was drawing below-market salary and taking distributions instead. A buyer normalizes for market-rate compensation before calculating EBITDA. That adjustment reduced the stated figure by $280K.
Related-party transactions were not documented
The business leased a yard from a holding company the owner controlled. The lease rate was below market. Buyers flag this immediately — it looks like hidden value extraction and creates uncertainty about what the real cost structure is post-transaction.
Two large contracts had personal relationships at the core
Approximately 40% of revenue came from two customers whose primary relationship was with the owner personally, not with the business. Both contracts were verbal. No buyer prices that revenue the same way they price contracted, transferable revenue.
One-time items had become recurring line items
Three consecutive years of “one-time” equipment write-downs. A buyer does not accept that characterization past the first year. The adjustments they made to normalized EBITDA were significant.
None of these were problems the owner had hidden. He simply had not been asked to look at his own business the way a buyer would look at it. That is the gap — and it almost always exists.
— Michael Yeung
What happened as a result
The combined effect of these four issues was a $1.4M reduction in normalized EBITDA. At a 5x multiple — conservative for this type of business — that is a $7M reduction in enterprise value. The buyer’s revised offer came in at $4.8M below the owner’s expectation.
The deal did not collapse. But it restructured significantly, the timeline extended by eight months, the owner’s lawyer had to renegotiate terms that had already been discussed in principle, and the owner ended the process with considerably less than he had planned for.
None of this was inevitable. Had the financial data been prepared properly before the process started — EBITDA normalized, related-party transactions documented, customer concentration risk quantified and disclosed proactively — the owner would have controlled the narrative instead of responding to a buyer’s findings.
What preparation actually looks like
The work AJM does before a succession process starts is designed to find these issues before a buyer does. Not to hide them — buyers find everything — but to address them on the owner’s timeline rather than the buyer’s.
For this business, that would have meant: normalizing EBITDA using the same methodology a quality of earnings analyst would use; documenting and repricing the related-party lease at market; formalizing the two key customer contracts or at minimum quantifying the concentration risk with a credible transition plan; and presenting the equipment write-downs with a clear explanation that removed the ambiguity.
Most of that work takes three to six months. It costs a fraction of what the valuation gap cost this owner. And it changes the entire dynamic of a sale process — from an owner reacting to findings, to an owner who already knows what a buyer will find and has addressed it.
The question worth asking before you start
If a buyer walked into your business today and ran a quality of earnings analysis, what would they find? Not what your accountant has filed — what a buyer would conclude after normalizing your EBITDA, reviewing your customer concentration, and evaluating whether your revenue transfers with the business.
The Data Diagnostic answers that question directly, before you are in a process and the clock is running.
Know what a buyer will find before they find it.
The Data Diagnostic gives you the buyer’s view of your business before the process starts. Fixed fee. Explicit deliverables. Usually completed in 30 days.
The business described above is a composite illustration based on patterns observed across multiple engagements. Details have been anonymized and generalized. It is intended to illustrate common issues in succession readiness, not to describe any specific client or transaction.