Your First Acquisition: What First-Time LSP Buyers Get Wrong

Many LSP owners who buy a company for the first time have one big advantage. They know the industry from the inside.

This is also their biggest risk.

An experienced owner recognises a good business quickly. The difficulty is to recognise, just as quickly, what is wrong with it. Confidence arrives in the negotiation much earlier than suspicion.

Over the years I have seen first-time buyers make the same few mistakes again and again. None of them is dramatic on its own. Together, they explain why many first acquisitions deliver less than the buyer expected.

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1. Paying for Revenue Instead of Margin

The first number a buyer sees is revenue. It is also the number that impresses most.

Two LSPs with €3 million in revenue can be very different businesses. One has a gross margin of 50% and an EBITDA margin of 15%. The other has a gross margin of 35% and an EBITDA margin of 5%, because half of its work is low-rate volume for a single reseller client.

On paper they are the same size. With the same multiple, one is worth three times the other.

A first-time buyer, often an LSP owner who wants to grow, tends to think in revenue because revenue is how our industry talks about size. “We will be a €10 million company.” It sounds good at the conference. It does not pay the acquisition debt.

What pays the debt is margin. Gross margin by client and by service line. How much of each euro goes straight to vendors. Which clients bring volume and which bring profit.

I wrote more about this in Big Revenue or Good Revenue? For a buyer the lesson is short. Value the EBITDA, and check where it comes from.

2. Underestimating Founder Dependency

In a small or medium LSP, the founder is often the whole sales department and the person every key client calls when something goes wrong.

A first-time buyer sees this and thinks: the founder will stay for a transition period, and then we take over.

It is rarely so simple.

Client relationships in our industry are personal. A procurement manager who has worked with the same founder for twelve years does not transfer that trust automatically to a new owner. Some clients follow. Others start looking around quietly, and leave when the founder leaves, even if the contract runs for another year.

Before buying, ask concrete questions. Who signs off the largest quotes? Who speaks with the top ten clients, and how often? What happens to sales if the founder is ill for three months? Is there anyone in the second line that a client would call directly?

Then put a price on the answers. Founder dependency is a cost, and its place is the deal structure. A longer transition period, and part of the price linked to client retention through an earnout.

3. Doing Due Diligence Yourself

Many first-time buyers, especially LSP owners, decide to do the due diligence themselves. They know the business, and they want to save money.

They know what to look for in operations. They often do not know what to look for in the accounts and in the contracts.

Some examples of what I have seen missed. Freelancers who in practice work as employees, with a real risk of reclassification. Client contracts that the client can terminate when ownership changes. Revenue on large projects recognised in advance. Translation memories that legally belong to the client.

None of these is exotic. Each one can move the value of the deal by more than the cost of the professional who would have found it.

An accountant for the financial due diligence and a lawyer for contracts and employment are the minimum. On larger deals, add a Quality of Earnings review. Your own operational review comes on top.

4. No Integration Plan Before Closing

A phrase I hear often from first-time buyers: “We will think about integration after closing.”

After closing it is too late to think. Clients are already asking what changes. Employees are already updating their CVs.

Integration needs a plan before signing. A clear answer to a few questions is enough. Which systems will we keep? Who leads the acquired team from day one? What do we tell clients, and who tells them? Which people must we keep, and what will we offer them?

Buyers also underestimate what integration costs. New TMS licences, migration of translation memories, alignment of vendor rates, some months of double management. In the first year, this can absorb a large part of the synergies in the business plan.

Many acquisitions fail in year two because of decisions not taken in year zero. I described this pattern in The Post-Merger Integration Trap.

5. Falling in Love With the Target

After weeks of meetings, a first-time buyer starts to imagine the company as already theirs. The new logo, the announcement on LinkedIn.

From that moment, every problem found in due diligence becomes something to solve, never a reason to stop. The price stays the same while the risk grows.

Experienced acquirers protect themselves from this. Before starting, they decide the conditions under which they walk away, and they respect them. I wrote about how these buyers think in The Buyer Has Done This Before.

Do the same. Before the first meeting, write down your maximum price and the findings that would end the discussion. Share this with your advisor, so someone holds you to it.

Walking away can be the best decision of the year. More on this in When to Walk Away From a Deal.

6. Forgetting Your Own Business

An acquisition takes time. A lot of it. Meetings, documents, lawyers, and then months of integration.

For an LSP owner buying for the first time, this time comes from somewhere. Usually from their own company.

I have seen buyers whose own sales slowed down during the deal, while their team waited weeks for decisions. The acquisition looked successful on paper. The original business was weaker than one year before.

Before starting, decide who runs your company while you run the deal.

If the answer is “me, in the evenings”, you are not ready yet.

7. What a Good First Deal Looks Like

A good first acquisition is usually smaller than the buyer wanted.

It is a company the buyer understands well, in a service line or a region close to their own. The margin is solid and someone has a plan for day one. The founder’s role after closing is written in the contract, with dates.

Rarely spectacular. Easier to digest, and it teaches the buyer how to do the second one.

If you are looking at your first acquisition, the companies currently available are in our M&A DealRoom. We prefer to meet buyers before the first conversation with a target. Most of the mistakes above can still be avoided at that stage.