MERGER & ACQUISITIONS INTELLIGENCE

The Conductor's Score

OCTOBER 1ST, 2026

ISSUE 1

The Inaugural View From The Conductor's Stand

OPENING NOTE

Most of what passes for M&A market intelligence is marketing collateral wearing a nicer suit. This isn't that.

You're one of a small group of people we trust to actually put this to use — not a list, a circle. Each month you'll get what buyers and sellers of businesses under $15 million in enterprise value are actually doing, what's killing deals before they close, and the questions that make you look sharper in front of your clients.

This issue explains itself a bit more than the rest will. Starting next month, we skip the preamble and get straight to it.

October Market Executive Overview

MARKET INTELLIGENCE

The “Silver Tsunami” has arrived. For years we have heard that Baby Boomers and late stage Gen X’ers are going to start selling their businesses. We believe that moment has arrived. Due to health, burnout, and family dynamics we expect more and more companies to come to market in the next three years.
The companies above are leaving money on the table. We are seeing the majority of companies we sell have material strategic and tactical gaps which are lowering the multiples they sell for. This is not a hypothetical warning anymore – this is daily deal reality.
New SBA guidelines are creating noise in the market. Effective October 1st, 2026, new Small Business Administration guidelines are now in effect. Overall, the changes are small but there is still confusion regarding the required Quality of Earnings report for deals valued over $3 million. Like all new regulations, banks are figuring it out as they go.
AI is decimating “pure play” software company valuations. AI is providing businesses the ability to code their own solutions to internal, small-scale problems. Multiples in the software space are tumbling…assuming deals happen at all. Lower prices are one thing; not being an attractive sector is another problem altogether.

The Deals That Never Happen

INDUSTRY COMMENTARY

You can’t have a cup of coffee these days without being asked “how is the M&A market doing? Are valuations up? Are buyers still active? Has lending loosened? Is private equity still buying?” Those are reasonable questions because this is what your clients are wondering about. They are also, in our opinion, slightly off target.

The market has always rewarded great businesses. Regardless of size, strong old-fashioned fundamentals are valued well. No customer concentration, a team in place, a growth strategy, clean financials, and documented processes will sell well forever. What we see changing is the market's willingness to forgive weaknesses. Over the last several years, buyers have become much less willing to pay more in the margins. They are spending more time in diligence, asking better questions, and placing greater emphasis on operational risk than they did when capital was abundant during the COVID years. Many sellers have either not realized this or refuse to acknowledge it.

The recent SBA decision to require a Quality of Earnings report gives us an interesting lens to view this through. Yes, it is a defensive reaction to their growing losses on larger deals. We will let them tell that story. What it is going to incontrovertibly highlight is the impact of the qualitative factors above. Weakness now has an official price tag attached to it.

The net of all this is that the most interesting trend isn't lower multiples or longer deal timelines. It's that more transactions are quietly dying before they ever reach the closing table.

One of the biggest culprits is customer concentration. Many owner-operated businesses grow around a handful of outstanding relationships. That's understandable. A founder lands a major customer, nurtures the relationship for years, and the company prospers. They likely even start hiring more account-management-focused sales teams to ensure good care. The most seductive part of that last step is that it makes absolute sense in the moment.

The problem emerges when that relationship becomes too important. If one customer represents 30%, 40%, or even 50% of revenue, a buyer no longer sees a growth story—they see a single point of failure. A good buyer will find it quickly. The new QoE will put it on a billboard.

The irony is that customer concentration rarely surprises the owner. They've lived with it for years. They “know” the customer is loyal. They know the relationship is strong. But buyers aren't purchasing yesterday's loyalty. They're underwriting tomorrow's risk.

Here is what your clients need to know. Simply looking at published market multiples or (heaven forbid) hearing stories from other sellers will no longer tell them the full story. Over the next 12 to 18 months we likely will not see material movement in multiples.

What will happen, and won’t be obvious in the official numbers, is that deals simply will not happen.

Take a contractor that performs work for hundreds of end customers. On paper, there is little customer concentration. But if 70% of those projects come through one or two general contractors, the business has simply exchanged customer concentration for referral concentration. Lose one relationship and the pipeline dries up, even though the customer list still appears wonderfully diversified.

The same dynamic exists in many industries. A manufacturer may sell to dozens of companies, but if nearly all of those sales are generated through one distributor, the distributor holds tremendous leverage. A professional services firm may have hundreds of clients, yet receive most new engagements from a single CPA firm or attorney. A medical practice may serve thousands of patients while relying heavily on one physician group for referrals. A software company may have hundreds of subscribers but acquire most of them through a single integration partner or online marketplace.

The insidious part of this problem is that it often doesn’t show up until late in due diligence.

Your client has paid for an attorney and likely an accountant – there are now hard sunk costs and your client has already started counting the post-close proceeds in their head. Negotiating leverage always shifts to the buyer the later in due diligence the process gets, and now the buyer has even more ammunition to fire.

The question buyers ask first is “how many customers do you have?”

The question you should be asking your client is “what happens if the relationship responsible for creating those customers changes tomorrow?”

Pipeline Concentration

RECENT MARKET DISSONANCE

When people hear “customer concentration,” they usually reach for a revenue report. They sort the spreadsheet from largest to smallest and look for a customer that represents 20%, 30%, or 40% of sales.

That's a good start, but it often misses the real risk.

Sophisticated buyers aren't just evaluating where revenue comes from today. They're evaluating where tomorrow's revenue originates.

The question buyers ask first is “how many customers do you have?”

The question you should be asking your client is “what happens if the relationship responsible for creating those customers changes tomorrow?”

What is S.E.T.?

S.E.T. FOCUS

S.E.T. stands for Strategy, Emotions, and Tactics. These are the lenses the Continuo team uses to view every strategic transaction. It is not a marketing slogan, although we do think it is pretty cool. Rather it is a fully developed methodology which breaks down the fundamental aspects of value underlying every company we work with.

Yes, we have a diagnostic and a scorecard and a development approach to fixing the problem. We are happy to go into all of those details with you and your clients, but for this inaugural issue let’s explain what S.E.T. actually IS and why it works for your clients.

At its core, S.E.T. looks for where dissonance exists at the intersection of strategy, emotions, and tactics. If you are reading this you likely have a good understanding of all three, both in isolation and how they apply to your business. Let’s apply this to a client example using customer concentration as the theme.

A client has 45% customer concentration. That leaps off the page to anyone looking at the business. Our question is why does it exist?

A Strategic Reason: The client has never defined who their ideal client is. They are chasing any business which looks promising and has never developed a clear message as to why they are the right fit for any one group. They are holding onto that large client for dear life because answering the strategic market fit question is both hard and time consuming.

An Emotional Reason: Despite all their flowery words to the contrary, the owner believes and demonstrates through their actions THEY are the only one who can sell their products. Salespeople are simply order takers. Independent action from business development teams (if they even exist) is non-existent. If the owner is on vacation – sales stop.

A Tactical Reason: The head of sales is a brilliant salesperson but is not a sales leader. Their compensation structure is not tied to team success but rather their own “book.” Maybe their base salary is higher but not enough for them to spend meaningful time building up the team. Guess who is responsible for the largest client…the sales lead.

In this example, what is often the case is the answer is never clear cut. The truth likely lies where two, and potentially all three, of the reasons intersect. The owner subconsciously might not WANT the sales lead to do anything else. The sales team might not have experience in defining a strategic market fit.

In upcoming issues we will dive deep into each of these three areas with the goal of giving you a view into how we think about it. In the meantime, here is something for you to ask yourself when sitting in front of a client:

“Is the challenge I am hearing where the challenge actually lies?”

LOI vs IOI

PROCESS POINT

Should negotiations begin with an Indication of Interest (IOI) or a Letter of Intent (LOI)? While the two documents are often used interchangeably, they serve very different purposes.

Understanding when to use each one can save both parties time, reduce unnecessary legal expense, and create a more productive negotiation.

An Indication of Interest is exactly what its name implies—a statement that says, “Based on what we know today, we believe there may be a deal here.” It is an invitation to continue the conversation, not a commitment to complete a transaction. An IOI typically outlines the proposed purchase price, broad transaction structure, financing assumptions, major conditions, and any deal-specific items that are important to the buyer. Because it is intentionally preliminary and non-binding, it gives both parties the opportunity to determine whether they are generally aligned before investing significant time and money into attorneys, accountants, and due diligence.

A Letter of Intent comes later. By the time an LOI is drafted, the buyer has usually completed enough investigation to become comfortable with the opportunity, and both parties have reached agreement on the major economic terms of the transaction. While most provisions of an LOI remain non-binding, it is a much more comprehensive roadmap for the purchase agreement. It often addresses working capital, representations and warranties, exclusivity, due diligence timelines, employment agreements, non-compete provisions, transition assistance, and other items that will ultimately find their way into the definitive purchase documents.

In practice, I find an IOI particularly valuable in privately negotiated transactions or management buyouts where there is still meaningful uncertainty. Rather than negotiating dozens of legal provisions before determining whether there is even a meeting of the minds on value and structure, an IOI allows both sides to establish that foundation first. If the economics don't work, everyone has spent very little time getting to that conclusion. If they do, the parties can move confidently toward a more detailed LOI.

Think of it this way: an IOI answers the question, “Should we continue talking?” An LOI answers the question, “Assuming due diligence confirms what we believe, how do we intend to complete this transaction?”

They are not competing documents—they are sequential tools. Used properly, an IOI simplifies negotiations, narrows the issues that truly matter, and allows the eventual Letter of Intent to become a document that captures an already-developed understanding rather than serving as the opening move in the negotiation.