In middle-market M&A transactions, few elements attract more attention or skepticism than the financial forecast. Among them, the so called hockey stick projection has become a familiar feature of deal materials. Historical performance appears steady or modest, followed by a sharp acceleration in projected growth shortly after acquisition.
For founders preparing to sell their businesses, these projections often reflect genuine optimism about untapped opportunities. For buyers, however, they frequently represent one of the primary sources of post-acquisition disappointment.
Understanding why hockey stick projections emerge, and how sophisticated acquirers evaluate them, is critical for owners seeking a successful transaction and a durable valuation.
The Appeal and the Problem
A hockey stick projection is visually compelling. Years of stable growth are followed by a pronounced upward trajectory driven by expected investments, expanded sales capacity, pricing improvements, or entry into new markets. The underlying message is straightforward: the business has performed well historically but is positioned for materially faster growth under new ownership.
In founder-led companies, this narrative often contains elements of truth. Many businesses operate with constrained capital, limited management depth, or underdeveloped sales infrastructure. Owners reasonably believe that additional resources could unlock growth.
The difficulty arises when projected acceleration exceeds what operating realities can support.
Most middle-market businesses grow incrementally rather than discontinuously. Sustained step changes in performance typically require structural shifts such as new distribution channels, differentiated products, regulatory change, or meaningful competitive dislocation. Absent these catalysts, sharp inflections rarely occur on the timeline suggested in transaction models.
When projections prove unattainable, consequences extend beyond valuation adjustments. Buyers may face impaired returns, strained management relationships, and integration challenges driven by missed expectations rather than operational weakness.
Why Sellers Gravitate Toward Aggressive Forecasts
The incentives surrounding a sale naturally encourage optimistic projections.
Valuations are influenced by expected future earnings. Higher growth assumptions often support higher multiples, particularly when buyers underwrite forward performance rather than trailing results. Even modest increases in projected growth can materially change perceived enterprise value.
Founders also carry deep conviction about their businesses. Years of operating experience create a clear view of unrealized opportunities: customers not yet pursued, geographic expansion delayed, or investments postponed to preserve cash flow. When presented to a well-capitalized buyer, these possibilities can feel immediately achievable.
Importantly, optimism is not usually intentional misrepresentation. It is more often a combination of belief, hindsight, and the assumption that additional resources will translate directly into execution.
Experienced buyers recognize this dynamic and focus less on intent and more on evidence.
Common Warning Signs Buyers Evaluate
Sophisticated acquirers rarely dismiss projections outright, but they do look for signals that forecasts may be aspirational rather than operational.
A primary concern arises when projected growth materially exceeds historical performance without a clearly observable catalyst. A company that has grown steadily at 10 percent annually may accelerate, but sustained growth above 25 percent typically requires demonstrable change already underway.
Another frequent issue is reliance on undefined operational improvements. Forecasts sometimes attribute growth to better sales execution, pricing optimization, or efficiency gains described as straightforward initiatives. Buyers often ask a simple question: if these actions are readily achievable, why have they not already been implemented?
Lack of operational detail is another indicator. Credible forecasts are built from specific drivers such as pipeline conversion rates, identifiable customer expansion opportunities, hiring timelines, and measurable capacity constraints. Broad references to market share gains or strategic positioning without supporting analysis tend to receive limited underwriting credit.
Buyers also scrutinize assumptions that imply performance exceeding established industry benchmarks. Middle market companies rarely leap from average operating metrics to best-in-class performance without sustained investment and execution risk.
How Buyers Test Growth Assumptions
During diligence, experienced acquirers rebuild forecasts independently rather than validating seller models.
Historical performance is analyzed at a granular level, including customer concentration, cohort behavior, pricing trends, and margin stability. Buyers develop bottom-up projections grounded in observed operating patterns, then compare results with management forecasts to identify gaps.
Customer conversations often provide the most reliable perspective. Discussions with key accounts help assess expansion potential, competitive positioning, and pricing tolerance. These insights frequently moderate expectations around wallet share growth or cross-selling opportunities.
Market analysis provides another reality check. Independent research into industry growth rates, competitive intensity, and customer switching behavior helps determine whether projected market share gains are achievable within normal operating constraints.
Scenario modeling then evaluates downside outcomes alongside base cases. Rather than asking whether projections are possible, buyers assess how sensitive returns are if growth arrives later or at a lower rate than expected.
Structuring Transactions Around Uncertainty
Because projections inherently involve uncertainty, disciplined buyers often structure transactions to balance risk between parties.
Earnouts and contingent consideration link a portion of purchase price to future performance. While founders may prefer certainty, these structures allow buyers to recognize upside potential without fully paying for unproven growth at closing.
Valuation frameworks also tend to emphasize current or near term earnings rather than distant projections. Cash flows beyond several years are discounted heavily, reflecting execution risk and changing market conditions.
For founders, this approach does not necessarily reduce value. Businesses that achieve projected growth typically deliver strong returns for buyers even when acquired at conservative assumptions. More importantly, realistic underwriting increases transaction certainty and reduces renegotiation risk late in a process.
A More Durable Path to Value
The most successful middle-market transactions align projections with operational credibility.
Buyers are not seeking pessimistic forecasts. They are seeking forecasts they can underwrite with confidence. Companies that present measured growth assumptions supported by clear execution plans often generate stronger competitive tension than those relying on aggressive financial narratives.
For founder-led businesses, disciplined forecasting signals maturity, transparency, and management quality. These characteristics reduce perceived risk, and reduced risk is often what ultimately supports premium valuations.
In M&A, value is rarely created by projecting extraordinary growth. More often, it is created by demonstrating that future performance is achievable, repeatable, and grounded in the realities of how the business already operates.
Written by Don Grava
19 February 2026
Versailles Group, Ltd.
Founded in 1987, Versailles Group is a boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies in the middle and lower-middle market. Versailles Group has closed transactions in all economic environments, literally around the world.
Versailles Group provides clients with both buy-side and sell-side M&A services and has been completing cross-border transactions since its founding in 1987.
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