Reframing the question
A seller's banker will always present a number, and a multiple that looks "fair" against comparables can still be the wrong price if the comparables themselves were chosen generously, or if the growth and margin figures backing them up won't hold. The useful question isn't "what is this company worth," it's:
Why should we pay this price?
Specific challenges, not vague doubt
That reframes diligence from confirmation to interrogation. Specific, answerable challenges for Meridian's 8× ask: is 118% NRR the trailing twelve months, or has it been drifting down and this is the best recent quarter? Are the "comparable" companies used to justify 8-10× actually comparable in growth and margin, or just in sector label? Is 20% EBITDA margin sustainable, or does it rely on underinvestment somewhere (a thin support team, deferred product spend) that will need catching up on post-close?
| Seller's claim | Number cited | What to check |
|---|---|---|
| Net revenue retention | 118% | Trailing twelve months, or the best recent quarter? |
| Comparable multiple | 8-10× | Matched on growth and margin, or just sector label? |
| EBITDA margin | 20% | Sustainable, or underinvested (thin support, deferred product spend)? |
Checkpoint
- The right diligence question: is "why should we pay this," not "what is it worth", the seller’s number always needs an independent challenge, not just a sanity check.
- Trend matters more than a single snapshot: is a headline metric stable, improving, or drifting the wrong way underneath a good trailing number?
If anything here still feels unclear, ask before moving to Lesson 15.