You don’t need perfect information if your downside is structurally capped.
Conventional wisdom in acquisitions says you earn certainty through diligence. You open every drawer, trace every contract, surface every risk, and price the deal accordingly. That approach makes sense when you’re buying a stable, well-run business where continuity is the goal.
But in special situations like short runway, operational debt, stalled growth, that logic breaks down. You’re not preserving a system. You’re about to replace it.
In those cases, exhaustive diligence is often the wrong tool. It’s slow, expensive, and frequently beside the point. If leadership, go-to-market, product direction, or capital structure are going to change immediately post-close, then spending months cataloging the flaws of the current state is mostly academic. You already know the business is broken. The question isn’t what’s wrong, it’s how much risk are you actually taking on.
This is where deal structure quietly does the work diligence is supposed to do. Instead of trying to identify and price every risk up front, you shift risk through the contract itself. Earn-outs and contingent consideration defer payment until performance materializes. Revenue shares and royalties align incentives without requiring full conviction on forecasts. Short-term licenses (especially exclusive IP licenses) let the buyer test control and economics before committing to outright ownership. You don’t need perfect information if your downside is structurally capped.
Post-termination tails and change-of-control provisions play a similar role. They acknowledge uncertainty explicitly. Rather than arguing over valuation today, the parties agree on participation later, when outcomes are clearer. Clawbacks, caps, and fixed buyout options replace forensic diligence with mechanical certainty. You may not know every risk, but you know exactly how much it can cost you.
There’s also a psychological benefit. These structures force honesty. If a seller insists on clean exits and upfront certainty in a visibly distressed situation, that’s a signal in itself. Conversely, a willingness to accept contingent outcomes often reflects confidence, or at least realism, about what the business actually is. Structure becomes a filtering mechanism, not just a risk mitigant.
None of this is an argument against diligence entirely. It’s an argument against misplaced diligence. In special situations, the goal isn’t to prove the business is sound. You already know it isn’t. The goal is to ensure that when you fix it, reshape it, or wind parts of it down, you’re not paying for problems you were always going to eliminate anyway. Smart structure doesn’t replace diligence. It right-sizes it.