Why Most Acquisition Models Are Too Optimistic

After enough deals, you notice a pattern: the model is never wrong in a random direction. It's wrong up. Revenue grows a little faster than history, margins expand a little more than peers, the exit multiple is a turn higher than the entry. Each assumption is defensible alone. Together they describe a company that has never existed.

This isn't because dealmakers can't do math. It's because every incentive in the process points the same way.

Who wants the model to be right?

Walk through the room. The banker is paid on close. The sponsor needs to deploy the fund. The CEO wants the strategic narrative. The corp dev team's job is doing deals, not not-doing deals. The lender's downside is capped and priced. The seller — the one person with perfect information — is the one person whose incentive is to confirm every optimistic assumption you bring them.

Nobody in that room is paid to make the model smaller. The skeptic's reward is that the deal dies and they get nothing — no fee, no headline, no war story. Optimism compounds through the process like interest.

Three corrections that actually help

1. Model the base rate, not the business plan. Before you touch the company's projections, ask: what happened to the median deal in this sector at this multiple? Start there and make the seller argue you up.

2. Separate the "is" model from the "could be" model. Underwrite to what the business does today, run by the people who will actually run it. The upside case is for sizing, never for pricing.

3. Make someone own the downside case. Not a sensitivity table — a person. Someone senior whose explicit job is to present the version where it goes wrong, with the same energy the deal team brings to the version where it goes right.

The market doesn't punish you for the deals you didn't do. The model that matters is the one you'd still believe if nobody got paid on Friday.