When the Buyer's Question Has Nothing to Do With Your Sector
Introduction
Ruth built a planning and environmental consultancy in Somerset over nineteen years. Forty-one people, £6.8m of revenue, a little over £1m of EBITDA — earnings before interest, tax, depreciation and amortisation, the profit measure most buyers price from. No software, no platform, no product. Reports, site visits, expert judgement, and a client list that has largely stayed put since 2014.
In the second meeting with a private-equity-backed consolidator, the investment director asked how much of her revenue was exposed to AI.
Ruth's first instinct was that the question belonged in someone else's meeting. Her people walk sites, read local plans and put their names to submissions that carry professional liability. Nobody is automating that.
She said something close to that, briefly, and moved the conversation on. The offer that followed was materially below the number her accountant had prepared her for, with a third of it deferred over two years. When she pushed for the reasoning, the answer came back in one line: they could not get comfortable with the durability of the revenue.
The buyer wanted evidence that her earnings would still be there in three years. She had none to hand, so he priced the uncertainty.
1) Why the Question Is Being Asked at All
Something has shifted in what buyers are cautious about. Crowe's H1 2026 UK mid-market round-up, published on 15 July, puts AI as the market's main area of caution — concentrated in software and SaaS businesses, where investors are still working out what AI does to the underlying business model over a holding period.
The interesting part is where the money went instead. Crowe reports capital rotating towards traditional service sectors, including property services, where technology can make delivery more efficient but is unlikely to replace the human doing the work. Businesses with long-term contracts and sticky customer relationships have started attracting the kind of valuations that used to belong to software.
So the question has spread outwards. An acquirer who has spent eighteen months discounting software businesses for AI risk now runs the same test across everything they look at, including a consultancy in Somerset. They are asking whether a buyer holding Ruth's business in 2029 will still own the same earnings.
It sits inside a market Crowe describes as two-speed: businesses with scale, differentiation and resilience attract competitive interest and hold their valuations, while those without face a narrower buyer universe even as confidence improves overall. This question is one of the tests that sorts one from the other.
Founder Insight: "The question that sounds irrelevant." Most owners hear this as a technology question and answer it in one dismissive sentence, because they know their own business better than the person asking. That instinct is right on the substance but expensive in the room. The buyer is testing whether you have thought about the durability of what you sell, and a quick dismissal reads as someone who hasn't.
2) The Four Tests Underneath It
The headline question breaks into four smaller ones. They get answered in diligence whether or not you address them first.
Substitution. Could a competent operator deliver a materially similar outcome with software within about three years? Where the work turns on judgement, physical presence, regulated sign-off or personal liability, the answer is no, and that is a strength worth evidencing. Where the work is information handled at volume — collating, formatting, summarising, translating, first-pass drafting — the answer is less comfortable. Almost every service business contains both, and the buyer will find the second layer inside your service even if you have never separated it out.
Contract architecture. Buyers separate contracted revenue carrying a defined term and notice period from repeat revenue held by habit. They look for change-of-control provisions — the clause setting out what happens to a contract when the business is sold. A client who has come back every year since 2016 without signed terms is a relationship, not a contract, and it gets treated as one.
Retention evidence. Not the impression of retention, the record: revenue by client over five years, churn by year, revenue per client over time, and a stated reason against each departure. Buyers are considerably more comfortable with visible churn they understand than with a record nobody can explain.
Pricing power. Whether your prices hold because clients value the judgement, or because switching is a nuisance. The first is durable. The second is a shorter answer than it used to be.
Action step: Take your last full year of revenue and split it twice — contracted with a term, repeat but uncontracted, one-off; then judgement and presence versus information handling. Two lists, both uncomfortable, both necessary.
3) Contracted Revenue Is the Evidence That Answers It
Ruth's revenue was roughly 70% repeat and about 12% contracted. She had never seen a reason to paper the rest. Her clients trusted her, work came in, invoices got paid.
That gap is where the discount lived. Every pound of repeat-but-uncontracted revenue is a pound the buyer has to take on trust, at exactly the moment they have decided to stop taking service revenue on trust.
Contracting existing clients is slow, unglamorous work that rarely changes anything about how the business runs day to day. It changes how the business reads. A framework agreement with a twelve-month term, a notice period and a change-of-control clause converts an assumption into an asset — and Crowe's data suggests that is precisely what the market is now paying up for.
🚩 Diligence Flag: "The undocumented relationship." The buyer's advisers ask for the contract file. They get purchase orders, email threads and a schedule of rates from 2019. Revenue presented as recurring gets reclassified as at-will, and the multiple lands on a smaller base than the one in the information memorandum. Pre-empt it by auditing the contract file yourself well before a process starts, and by putting terms in place at natural renewal points — renewal-point contracting reads as housekeeping, while a sudden campaign across the whole client base tells everyone something is happening.
4) Where the Exposure Shows Up in the Offer
Rarely as a refusal. Usually in one of three places.
The multiple. Broker-side commentary published in June 2026 puts smaller UK SMEs at roughly 3–5x EBITDA, with strong performers in the £1m–£20m turnover band reaching 6–10x in sectors such as precision engineering and B2B technology. Those figures are indicative rather than authoritative — sector, scale and process all move them — but the spread is the point. Much of the distance between a mid-range and an upper-range outcome is a durability judgement.
The structure. Ruth read the deferred third of her offer as a negotiating position. It worked more like a risk instrument. Crowe reports increased use of earn-outs and deferred consideration through H1 2026 to bridge valuation expectations, and a June review of M&A legal trends by Paul Hastings estimates that 30–40% of European private equity deals now carry an earn-out or a deferred element — part of the price paid later, and only if agreed targets are met. Where a buyer cannot get comfortable with the revenue base, they move money behind a target rather than walking away.
The diligence load. Buyers are moving from exhaustive review towards a focused, risk-based approach, prioritising what is most likely to affect value or execution. If revenue durability is on that list for your business, the contract file and the retention data get examined closely, and early.
Action step: When deferred consideration appears, ask the buyer directly which part of the revenue base it is protecting against. Most negotiations focus on the size of the deferral. The assumption underneath it is the more useful thing to work on, because evidence moves an assumption and pleading does not.
Where This Leaves You
Ruth's consultancy is a good business. The judgement her people apply is not going to be replaced by software this decade, and the buyer probably knew that.
What the buyer could not do was price a business whose owner had never assembled the evidence. The discount was for the absence of an answer.
That is worth knowing now rather than in a second meeting, because almost all of the evidence is slow to build. Contracts renew when they renew. A five-year retention record takes five years of data you either have or you do not. Time is what converts the question from a problem into a strength.
Three things are worth starting this quarter, none of which commits you to a sale.
Split the revenue. Contracted with a term, repeat but uncontracted, one-off. Then again by delivery type — judgement and presence, versus information handled at volume. The second list is the one a buyer will build about you if you have not built it yourself.
Reconstruct the retention record. Revenue by client for as many years back as your system allows, churn by year, and a one-line reason against every departure. If the data is not in the system, rebuild it from invoices now, while the people who remember why a client left are still with you.
Take the largest ten clients to contract. At their natural renewal points, with a defined term, a notice period and a change-of-control clause. It is the single move that shifts the most revenue from assumption to evidence, and it takes a year or more to do quietly.
If you are planning a sale in the next couple of years and you are not sure how your revenue would read to someone running those four tests, that is a good conversation to have early, while every option is still open to you.
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Disclaimer
This article is provided for informational purposes only and does not constitute legal, tax, or regulated investment advice. Examples cited are based on composite scenarios for illustrative purposes. Exit Strategy & Solutions is not responsible for decisions made based on information in this article.
