How to Build an Acquisition Mandate

What an acquisition mandate is, and why it should be written as numbers

An acquisition mandate — a buy box, an investment thesis, acquisition criteria; the terms are used interchangeably — is the statement of what you are looking to buy, precise enough that someone who is not you could tell a fit from a miss. It exists because the most expensive mistakes in acquiring are made before the first memorandum is opened: reading opportunities that were never going to fit, and passing on ones that would have, because nobody had agreed in advance what a fit was.

The usual failure is a mandate written as prose. "Profitable, growing B2B services businesses in the UK with strong management and recurring revenue" is a sentence every deal team would sign, and it screens nothing, because every adviser's teaser satisfies it. A mandate that works is a list of dimensions, each with a range or a limit and a number attached. Numbers can be scored, compared across a team, and — the part that matters most — shown to be wrong later. A sentence cannot.

The dimensions of a mandate

Most mandates cover the same nine dimensions. Not every one needs a value; the discipline is to decide, for each, whether it is a hard limit, a scored preference or a genuine indifference, and to write that down.

Sector and sub-sector

Name the sectors at the level you actually mean. "Business services" covers facilities management, recruitment, testing laboratories and software resellers, whose economics have nothing in common. Write the sub-sectors you want, would consider, and exclude, and for a register screen carry the industry classification codes beside them, so a search returns the companies you meant.

Geography

Where the business is headquartered, where its revenue is earned and where its people are can be three different answers. State which one the limit applies to. A UK-headquartered business earning most of its revenue abroad is inside a "UK" mandate or outside it depending on why the geography was set — lending, management reach or currency — so record the reason beside the limit.

Size: revenue, EBITDA and enterprise value

Size is usually stated on three measures, and they are not interchangeable. Revenue bounds the kind of business; EBITDA bounds the debt it can carry and the equity cheque; enterprise value bounds what you can afford. Set the range on the measure that actually constrains you and state the other two as consequences. A mandate with a firm EBITDA floor and no view on enterprise value has not decided how much it can pay for a good one.

Margin and growth

Gross margin, EBITDA margin and revenue growth describe the quality of the earnings the size range admits. Write the floor you require and the level you would prefer, separately. A margin floor is a hard limit for a buy-and-build that needs a platform of a certain quality, and a scoring preference for most other strategies; the two produce different pipelines.

Ownership situation

Who owns the business and why they are selling shapes everything about the process. A retiring founder, a corporate carve-out, a fund at the end of its hold and a family with a succession problem sell differently, price differently and need different structures. State which situations you want and which you avoid, and if you will not bid in a competitive auction say so, because adviser-led processes frequently are one.

Deal type and structure preferences

Majority or minority; share purchase or asset purchase; platform or bolt-on; management staying, replaced, or backed in a buy-out. Then the structural preferences: how much deferred or contingent consideration you are willing to offer, whether you want the vendor to roll equity, whether you will use vendor finance, and how much debt you are comfortable carrying. These are preferences rather than limits for most buyers, but a buyer who cannot structure an earn-out should say so before a seller expects one.

Return hurdles

The hurdles are the mandate's connection to price. A target internal rate of return and money multiple over an assumed hold, a minimum cash cover on the debt service in every projected year, and a ceiling on the debt the structure may carry. Written down, they turn the question "what should we offer?" into an arithmetic one: the maximum price at which the projected returns still clear the hurdle under the structure you would actually use. Written nowhere, the hurdle is whatever the deal needs it to be on the day.

Exclusions

The last dimension is the list of things that end the conversation regardless of every other score: sectors you will not touch, jurisdictions you cannot operate in, a customer concentration above which you do not proceed, businesses in a formal insolvency process, a dependence on a single licence or regulator. Exclusions are the one part of a mandate that should be short and absolute.

Ranges, hard limits, and the difference between them

Every value in a mandate is one of two kinds. A hard limit is a boundary outside which you do not proceed, whatever else is true. A range is where you prefer to be, and a target outside it is scored down rather than rejected. The distinction sounds obvious and is routinely blurred: a mandate that says "EBITDA £1m to £5m" without saying which kind of number it is will be applied as a limit by one analyst and a preference by another, and the pipeline will reflect whoever screened last.

A useful test for each value: if a business arrived that missed this by ten per cent and was otherwise exceptional, would you look at it? If yes, it is a range. If no, it is a limit, and it belongs with the exclusions. Most mandates, tested this way, turn out to have three or four hard limits and a dozen preferences.

• State a range as a floor, a ceiling and a preferred point, so a target can be scored on distance rather than on a binary.
• State a limit as a single number and the direction it applies in.
• State, for every value, the measure it is taken on: adjusted or reported EBITDA, trailing or forecast revenue, largest customer or top five.
• Record the reason for each limit. A limit whose reason has gone should go with it.

How the mandate drives screening, scoring and the IC conversation

A mandate written as numbers does three jobs that a paragraph cannot.

Screening. Every inbound teaser, every marketplace listing and every company pulled from the register can be tested against the same values, by anyone, in the same way. That is what makes it possible to look at everything rather than the subset chosen by whoever sent it — how to screen acquisition opportunities sets out the funnel this feeds.

Scoring. With ranges rather than binaries, a target gets a fit score with the distance on each dimension visible, so "a strong fit except for size" and "a marginal fit on everything" are distinguishable, and two people reading the same memorandum reach the same score. The first pass on the document itself — how to analyse a CIM — then starts from a known position.

The committee. An investment committee paper that opens by showing the target against the mandate, dimension by dimension, has a short conversation about fit and a longer one about the things that matter: the price, the risks and the structure. Without it, the committee re-derives the mandate from scratch on every deal, usually in the direction of whichever member speaks first.

Keeping it honest

Unknowns are not misses

The most common way a numerical mandate goes wrong is treating a figure a document does not state as a failing score. An anonymised teaser omits the customer list; a marketplace advert states revenue and not EBITDA. If silence scores as a miss, everything with a thin document fails, and the pipeline fills with the best-documented opportunities rather than the best businesses. Score an unknown as unknown — a gap to close with a question — and rank on what is stated. Customer concentration is the usual example: it is rarely quantified before the memorandum, and it is the dimension that most often ends a deal later.

Review it against the record

At a fixed interval — a quarter is workable — put the mandate beside the list of opportunities you pursued and the list you passed on. Three patterns are worth looking for. Pursues that did not fit the written mandate mean the real mandate is different from the written one, usually broader on size or narrower on sector, and one of the two should change. Passes that did fit, with the reason recorded, tell you which dimension is missing: if you keep passing on businesses that fit for a reason that is not written down, write it down. And a dimension on which nothing ever scores badly is not constraining anything and can probably go.

A mandate is a hypothesis about where your returns will come from. The record of what you did with it is the only evidence you will get.

An illustrative mandate

Each dimension carries its measure, its kind — range, limit or preference — and, where it would otherwise be ambiguous, the basis. It fits on a page, and it could be handed to a new analyst on Monday and applied the same way by Friday.

How TrueValue holds the mandate

In TrueValue the acquisition mandate is a record of numbers rather than a document: the ranges, floors, sectors, geography, structure preferences and return hurdles are fields, and every target in the workspace is scored against them by one engine. A memorandum uploaded to AI CIM analysis is read into its financial fields and given a mandate fit score, and a figure the document does not state is reported as not stated rather than scored as a miss. Marketplace listings and companies from the Companies House register are scored against the same values, so the pipeline is ranked on one definition of fit whatever the source — the consistent screening across a fund that TrueValue for private equity describes.

The return hurdles do their second job too: the deal economics engine uses them to compute the maximum price at which a structure still clears the hurdle, so the committee conversation starts from the number the mandate implies. And the TrueValue Agent screens overnight — new listings, new register matches and new documents are tested against the mandate as they arrive, and what clears it is filed with the evidence for a person to decide on.