Is this acquisition worth the asking price?
Conceptual Case study. This is an editorial illustration of how RAZOOM is designed to approach the problem, written by the RAZOOM team. It was not produced by a working system, and the figures in it are illustrative.
The Case outcome at a glance
The price is justified only if retention of the top accounts stays above the level implied by the model. Two contract terms could break that.
- Next action
- Prioritize legal review of change-of-control clauses before further financial diligence.
- What could change it
- Change-of-control clauses allowing key customers to exit
Original problem
A mid-sized software group is evaluating a competitor that is for sale at eight times revenue. The deal team has a model that supports the price under base-case assumptions.
Why the question is hard
- The base case was built by the people who want the deal.
- Synergy and retention assumptions carry most of the value but have the least evidence.
- Diligence time is limited; not every question can be investigated.
How RAZOOM would reframe it
Which assumptions carry the valuation, how fragile are they, and which diligence questions would most change the decision?
The task is not to re-derive the model, but to find where it breaks and what evidence would settle it.
Problem graph
Decision
Pay eight times revenue?
Method: Regret analysis
Subproblems
Customer retention
Method: Assumption Attack
Synergies
Method: Assumption Attack
Downside scenarios
Method: Scenario-weighted valuation
Drivers
Contract terms
Method: Research
Feeds: Customer retention, Downside scenarios
Integration cost
Method: Value of Information
Feeds: Synergies
Selected methods
- Assumption AttackRetention, Synergies
- They carry most of the value with the least evidence.
- Scenario-weighted valuationDownside scenarios
- Price is judged across plausible worlds, not the base case.
- Value of InformationIntegration cost
- Ranks diligence questions by decision value per day spent.
- Regret analysisThe decision
- Compares the cost of overpaying with the cost of missing the deal.
Evidence needed
- Change-of-control clauses in the top 20 customer contracts
- Historical retention of acquired customer bases in this sector
- Integration cost from comparable acquisitions
- Churn of the target’s top accounts over three years
What could change the decision
- Change-of-control clauses allowing key customers to exit
- Synergies requiring a platform migration customers resist
- A competing bidder setting the price floor
