A private investor engaged Sun Bear Industries to conduct operational and commercial due diligence on a $2M electrical service business acquisition. After a top-to-bottom review, the recommendation was to walk. The client did.
The engagement
A private investor was evaluating the acquisition of a $2M electrical service business. The target was profitable on paper, had a working book of business, and came with a seller motivated to close. Sun Bear was engaged to answer one question: is this a good business to buy?
Sun Bear does not stop at the P&L. We conduct operational and commercial due diligence, which means we look at whether the business the buyer thinks they are buying is the business that actually exists.
What we reviewed
Over the course of the engagement Sun Bear conducted structured, hour-long interviews across every layer of the target company: executive leadership, sales, project management, install crews, back-office operations, and administrative staff.
Operations: SOPs, job roles, dispatch and scheduling, quality control, safety record. Commercial: book of business, customer concentration, sales pipeline, close rates, referral structure. Financial: quality of earnings, working capital, accounts receivable aging, one-time versus recurring revenue. People: compensation structure, hourly versus salaried mix, key-person risk, retention indicators. Assets: fleet, materials inventory, supplier concentration, vendor terms. Governance and legal: contract structure, licensing, pending disputes or exposure.
The scope was intentionally wide because the acquisition decision was binary. Half a diligence is worse than none.
What we found
“The most trust-building deliverable an advisory firm can produce is a well-supported no.”
The details are confidential. In summary, the diligence surfaced structural risks in the business that were not visible from the financials alone: revenue quality was weaker than the P&L implied, key-person concentration was material, and several operational systems the buyer was underwriting to were not in fact in place.
Sun Bear delivered a recommendation against the acquisition.
The outcome
The investor walked away from the deal. The capital that would have gone to a $2M acquisition stayed on the balance sheet and has since been redeployed. The cost of the diligence engagement was a fraction of the loss the deal would have generated.
Sun Bear is engaged to give buyers the truth about the business they are considering acquiring, not to validate a decision that has already been made. When the truth is walk, we say walk. That is the standard we hold ourselves to on every diligence engagement.
