Deal killer

An established finding that no achievable price can address - because the asset stops being the asset, because the exposure has no floor, or because the counterparty has been shown to be unreliable.

Example

A licence generating 69.0% of revenue that terminates at a third party's option on a change of control.

Important

Most serious findings are price, not killers; a bounded liability is a negotiation. The expensive error is the reverse one - converting an unbounded risk into a discount because a discount is the only instrument in the room.

Related terms

  • Red flag — An observation with two plausible explanations, one ordinary and one serious, which the observation alone cannot tell apart.
  • Encumbrance — A registered claim over an asset - a charge, lien, mortgage or security interest - held by someone other than the owner.
  • Conditions precedent — Things that must happen before a transaction completes - a consent obtained, a licence transferred, a regulatory approval granted.

Lessons that explain it

  • Deal killers: the findings that end it — A deal killer is not a very large red flag. It is a fact that has already been established and that no price adjustment can reach. (8 min)
  • The list of things you have decided not to do — An anti-thesis is written in advance and costs nothing to write, which is exactly why it works when the attractive version of the thing you swore off finally shows up. (9 min)
  • The first forty minutes decide the next forty hours — A thesis is only worth writing if it changes what you do at intake. This is the mechanics of applying it fast enough to protect the time it was meant to protect. (13 min)
  • The company's name and inventions may already belong to someone else — Legal IP diligence checks registered rights such as trademarks and patents, and looks for claims by founders' former employers or universities over work the company relies on. (10 min)
  • A few clauses in a few contracts can decide an exit — Legal diligence reviews the company's most important customer, supplier and partner contracts for clauses that transfer risk or restrict future options: change of control, exclusivity, most-favoured pricing, uncapped liability and easy termination. (11 min)
  • The company must own its code and follow the licences it uses — Technical diligence confirms that everyone who wrote the product assigned their rights to the company, and that open-source components are used in ways their licences allow. (10 min)

All 578 terms in the Investing glossary