Founders often assume the exit process is about one thing: valuation.
But buyers rarely discount because they dislike the product or the market. They discount when they can’t see the business clearly enough to trust what they’re buying – and when they find surprises mid-diligence, they don’t just adjust the price. They slow down, add conditions, and start questioning everything else
The good news is that most of what triggers a discount is fixable. None of it requires perfection. It requires visibility and control – and it’s almost always better to surface it yourself than to let the buyer’s lawyers find it first.
1) Customer reality: concentration, churn, and founder dependency
The first thing a buyer models is revenue risk. That means understanding how much revenue sits with your top five customers, whether those relationships are contractually documented, and whether they depend on the founder being present after the deal closes.
If the business works because of you personally – your relationships, your knowledge, your presence – the buyer prices in transition risk. That discount is real and it compounds across every other part of the deal.
Fix this by producing a one-page customer summary covering top accounts, contract status, renewal dates, and who owns the relationship internally. Then build a transition narrative that doesn’t rely on founder heroics. The buyer needs to believe the business survives the handover.
2) Revenue quality: recurring vs once-off
Buyers price predictability. If your financials mix recurring revenue with irregular project income, a buyer will normalise it downward and call the difference “risk premium.”
The fix is to clearly separate revenue streams, show historical repeat behaviour, and document the pipeline that supports continuity. If there’s meaningful recurring revenue in the business, make sure it’s visible as a distinct line – don’t let it sit buried in a blended P&L where a buyer can’t distinguish it from one-off work.
3) Shareholder and governance position
This is one of the most common deal-killers in South African exits, and one of the least prepared for.
Buyers will review your shareholders agreement, MOI, and board structure. What they’re looking for is clean authority – clear decision-making, no deadlock mechanisms that could create post-acquisition complications, and no minority shareholder rights that could obstruct the transaction or create post-closing leverage.
If there are outstanding shareholder disputes, undocumented agreements between founders, or informal understandings about equity that were never properly documented, they will surface in diligence. Resolve them before the process starts – not during it. Shareholder friction mid-deal is one of the most reliable ways to lose deal momentum and give a buyer a reason to reprice.
4) Contract surprises: change-of-control, termination, and consent requirements
This is where many deals turn unexpectedly.
If key contracts – customer agreements, supplier arrangements, property leases, software licences – contain change-of-control clauses or termination rights triggered by a sale, buyers will either delay closing until consent is secured or price the uncertainty into holdbacks and escrow arrangements.
The fix is to summarise your top contracts before the process begins: term, termination rights, renewal mechanics, and any consent requirements on change of ownership. Don’t wait for the buyer’s lawyers to find it. Finding it yourself, early, gives you time to manage it. Finding it in due diligence gives the buyer leverage.
5) Employment and IP: the two areas that become liabilities fastest
Employment files and IP ownership are disproportionately impactful in South African due diligence, and disproportionately neglected in pre-sale preparation.
On employment: unresolved disputes, inconsistent contracts, missing signed documentation, and CCMA matters create visible liability. Buyers also scrutinise whether key staff are retained post-transaction and whether employment terms create change-of-control obligations or bonus triggers on exit.
On IP: if developers, designers, or contractors built core product, tools, or processes without signed IP assignment agreements, the business may not actually own what it thinks it owns. This is a common gap in founder-led businesses and a serious diligence flag. Fix it with IP assignment agreements before the process starts – not as a rushed clean-up during it.
6) Operational hygiene: what mess signals to a buyer
Founders often downplay operational untidiness. Buyers don’t – they treat it as a proxy for unknown risk.
Missing signed documents, undocumented policies, unresolved disputes, unclear ownership of assets or licences, and SARS compliance gaps all read the same way to a buyer: if they can’t control the visible things, what’s happening with the invisible ones?
A pre-sale clean-up sprint focused on high-impact gaps – employment files, IP assignments, a dispute register, key supplier documentation, and tax compliance – doesn’t need to produce perfection. It needs to produce evidence that the business is run with intention. That evidence protects value more than almost any other preparation step.
7) Warranties, indemnities, and what you’ll be asked to stand behind
Most founders don’t think about warranties and indemnities until late in the process – which is exactly when it’s most expensive to think about them.
A buyer will ask you to warrant the accuracy of the information you’ve provided, the state of the business, and the absence of undisclosed liabilities. Where gaps exist, they’ll seek specific indemnities – which means personal exposure, often for a period well beyond closing.
The best protection is a clean business and a disclosure process that is thorough, organised, and proactive. Every issue you disclose is an issue you control. Every issue the buyer finds that you didn’t disclose is an issue that becomes a warranty claim, a price adjustment, or a deal condition.
8) The story that holds under pressure
A good exit narrative is not a pitch deck. It’s a business story that survives diligence: why customers buy, why they renew, how value is delivered, what could break the model, and what you’ve done to reduce that risk.
If you can’t explain this simply and consistently – across your data room, your management presentation, and your conversation with the buyer – the buyer assumes complexity and prices accordingly. The narrative and the numbers need to tell the same story.
Bottom line: Buyers don’t discount because they enjoy negotiating. They discount when they can’t see – and in the South African context, the gaps are usually the same ones: undocumented customer relationships, unresolved shareholder positions, contract surprises, employment and IP gaps, and operational untidiness that signals hidden risk. Fix those things early, and you protect price, protect momentum, and protect the deal.
Caveat Legal works with founders, shareholders, and exit advisors to prepare businesses for sale and navigate transactions from term sheet through to closing. If you’re thinking about an exit in the next one to three years, the best time to start preparing is now. Get in touch.
