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Acquisition risk identifier

Produces a systematic pre-LOI acquisition risk assessment across six dimensions — commercial, financial, operational, regulatory, people, and integration — with each risk scored by likelihood and impact, flagged as a…

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Purpose

Surface and categorize the risks in a proposed acquisition before committing to an LOI — scoring each by likelihood and impact, separating deal-breakers from manageable issues, and attaching a specific mitigation or diligence action so the deal team enters negotiation knowing exactly what to probe and where the walk-away lines are.

When to Use

Invoke this skill when the user asks to:

  • Screen an acquisition target before signing an LOI or term sheet
  • Build a risk register for a deal committee, board, or investment memo
  • Pressure-test a deal thesis for blind spots before deeper diligence
  • Identify what to prioritize in confirmatory due diligence
  • Assess whether a target's red flags are deal-breakers or negotiable
  • Compare risk profiles across competing acquisition targets

Inputs Required

Before starting, collect:

  • Target overview: What the company does, industry, size (revenue/EBITDA/headcount), geography
  • Deal rationale: Why this acquisition — strategic, financial, or talent-driven thesis
  • Proposed structure: Asset vs. stock purchase, valuation/multiple, cash vs. stock vs. earnout
  • What's known so far: Financial summary, customer concentration, key contracts, management situation — whatever has been gathered pre-LOI
  • Acquirer context: Buyer's size, sector, integration experience, prior deal track record
  • Known concerns: Any red flags the team has already spotted
  • Regulatory environment: Industry-specific regulation, antitrust sensitivity, cross-border considerations

If financial detail or regulatory context is thin, flag the gap explicitly as a diligence priority rather than assuming a clean profile.

Instructions

Step 1: Establish Risk Scoring Conventions

Apply a consistent scale to every risk identified in the dimensions below.

  • Likelihood: Low / Medium / High — probability the risk materializes given what's known
  • Impact: Low / Medium / High — severity to deal value or post-close performance if it does
  • Classification: Deal-Breaker (could justify walking away or repricing materially) / Material (needs mitigation or structural protection) / Monitor (manageable, track in diligence)
  • A risk is a Deal-Breaker only when High impact combines with Medium+ likelihood and no viable mitigation exists. Be disciplined — over-flagging deal-breakers erodes credibility with the committee.

Step 2: Assess Commercial Risk

Demand-side and market durability of the thesis.

  • Customer concentration: Top customer / top 5 / top 10 as % of revenue — flag if top customer >15% or top 5 >40%
  • Revenue quality: Recurring vs. one-time, contracted vs. at-will, churn and renewal rates
  • Market trajectory: Is the target's category growing, flat, or declining?
  • Competitive position: Defensibility, pricing power, substitution threat
  • Change-of-control exposure: Contracts or customers that can exit on acquisition
  • Synergy realism: Whether revenue synergies in the thesis are plausible or optimistic

Step 3: Assess Financial Risk

Quality and durability of the earnings being purchased.

  • Earnings quality: One-time items, owner add-backs, aggressive revenue recognition inflating EBITDA
  • Working capital: Normalized level vs. peg, seasonality, hidden cash burn
  • Debt and off-balance-sheet items: Leverage, leases, contingent liabilities, deferred revenue
  • Margin sustainability: Whether current margins hold post-close or rely on under-investment
  • Valuation pressure: Whether the multiple assumes synergies or growth that carry execution risk
  • Tax exposure: Structure-driven tax leakage, prior positions, nexus issues

Step 4: Assess Operational Risk

Whether the business runs without the seller and current owners.

  • Key-person dependence: Founder/owner-operator concentration in sales, IP, or relationships
  • Systems and infrastructure: Tech debt, manual processes, scalability ceilings
  • Supply chain and vendors: Single-source dependencies, concentration, contract terms
  • Asset condition: CapEx backlog, deferred maintenance, asset obsolescence
  • Scalability: Whether the operating model supports the growth in the thesis

Step 5: Assess Regulatory & Legal Risk

Approvals, compliance, and litigation that gate or threaten the deal.

  • Antitrust / merger control: Market share overlap, filing thresholds, approval timeline
  • Industry licensing: Permits, certifications, or registrations that may not transfer cleanly
  • Compliance history: Investigations, consent decrees, environmental or data-privacy exposure
  • Litigation: Pending or threatened claims, IP disputes, employment matters
  • Cross-border: Foreign investment review (e.g., CFIUS-type regimes), data localization, sanctions

Step 6: Assess People & Culture Risk

Whether the talent and organization survive the transaction.

  • Retention risk: Key employees without retention packages or with weak non-competes
  • Cultural fit: Operating-style mismatch between acquirer and target likely to drive attrition
  • Compensation gaps: Misaligned pay, equity, or benefits requiring costly harmonization
  • Leadership transition: Whether the seller stays, and what happens to the business if they leave
  • Organizational structure: Hidden under-staffing or over-reliance on contractors

Step 7: Assess Integration Risk

Execution risk of capturing the value the price assumes.

  • Integration complexity: Systems, processes, and brand consolidation effort
  • Synergy capture timeline: Whether cost synergies in the model are achievable in the assumed timeframe
  • Day-1 readiness: Carve-out / TSA dependencies if the target is being separated from a parent
  • Acquirer capacity: Whether the buyer has the integration muscle for a deal this size
  • Cost-to-achieve: One-time integration costs that erode the deal's net value

Step 8: Build the Risk Register and Verdict

Consolidate every identified risk into a single ranked register.

  1. List each risk with its dimension, likelihood, impact, and classification
  2. Pair each Deal-Breaker and Material risk with a specific mitigation or diligence action — what to verify, what structural protection to negotiate (escrow, earnout, indemnity, reps & warranties, holdback), or what to walk on
  3. Rank the register by combined likelihood × impact within each classification tier
  4. Deliver a verdict: Proceed / Proceed with Conditions / Pause / Walk — with the 2–3 risks driving the call

Output Format

  • Structure: Six dimension sections, each listing scored risks; a consolidated ranked risk register table; a closing verdict
  • Length: 1,000–1,400 words
  • Format: Structured bullets per dimension; risk register as a table (Risk | Dimension | Likelihood | Impact | Classification | Mitigation/Action)
  • Sections: Commercial → Financial → Operational → Regulatory & Legal → People & Culture → Integration → Consolidated Risk Register → Verdict
  • Tone: Corporate development director — disciplined, skeptical, decision-oriented; flags what's unknown rather than assuming it's fine

Quality Checklist

Before delivering output, verify:

  • [ ] All six risk dimensions are assessed — none skipped even if low-risk
  • [ ] Every risk in the register carries a likelihood, impact, and classification
  • [ ] Each Deal-Breaker and Material risk has a specific mitigation, structural protection, or diligence action — not a generic "investigate further"
  • [ ] Deal-Breakers are reserved for High-impact, viable-mitigation-absent risks — not over-flagged
  • [ ] Information gaps are named as diligence priorities rather than assumed clean
  • [ ] A clear verdict is delivered with the 2–3 driving risks identified

Notes

  • Pre-LOI screening rewards finding the deal-breaker early — the cheapest "no" is the one made before legal and diligence spend begins
  • Customer concentration and key-person dependence are the two most commonly underweighted risks in founder-led targets; probe both even when the financials look clean
  • Tie mitigations to deal mechanics where possible — an earnout addresses synergy-realism risk, an escrow addresses litigation risk, retention packages address people risk — so the team can negotiate protections rather than just naming concerns
  • When comparing multiple targets, hold the scoring conventions constant so risk registers are directly comparable across deals

How to use this skill

This file is a Claude Code skill in Anthropic's standard format — markdown with YAML frontmatter at the top.

Installing in Claude Code:

  • ~/.claude/skills/<folder-name>/SKILL.md — auto-loads in every session anywhere on your machine (recommended for skills you'll use across multiple projects)
  • <your-project>/.claude/skills/<folder-name>/SKILL.md — auto-loads only when working in that project (recommended for project-specific skills)

Restart Claude Code or open a new session to register.

Using in Claude.ai, ChatGPT, Gemini, or other AI tools:

  1. Drag this file into a new chat, or copy and paste its contents
  2. Send your task or request as your next message — the AI will apply the skill where it fits

For Claude Code skill details: https://docs.anthropic.com/en/docs/claude-code/skills