Sellers often talk about growth opportunities. Of course, why wouldn’t they be optimistic about the future? But, when buyers say they want growth, they don’t mean a slide deck full of hockey-stick projections… they mean real, defendable potential. In Deal Note® 135 and 176, we covered projections; however, we want to cover how buyers view these projections and how that plays into the growth story.

There are a few types of growth that buyers look at. Historical growth is the cleanest: hopefully, your revenue and EBITDA are already growing, year after year, and the audit proves it. Buyers love to underwrite to actual performance. Contracted growth is looked at as well; this includes awarded backlog, IDIQ orders, or firm customer commitments (LTAs). This is clear program visibility. Buyers will pay for this. Lastly, potential growth is what sellers often lean on too heavily: “We think we’ll win this contract,” or “We see demand picking up next year.” Without hard evidence, buyers heavily discount it.

This doesn’t mean you shouldn’t talk about growth. It means that growth should be backed by evidence. Buyers have seen too many projections that didn’t materialize, especially in A&D. You can back a growth story by tying projections directly to awarded backlog or programs of record or by showing customer interest in writing (LTAs). The more you can connect growth to defendable drivers, the more buyers will pay for it.

Sellers often overlook a key point: you don’t necessarily need a growth story; a steady, inflationary-growth business can still be extremely valuable. In A&D, predictability can be just as attractive as growth. A business with reliable cash flow may not double in five years, but it gives buyers confidence. And confidence reduces risk, which supports higher valuations.

When buyers say they want growth, what they really mean is: show proof. Showing highly visible revenue is the safest way to protect value and achieve values above market. Avoid overselling hypotheticals. And don’t discount the value of being a consistent, steady operator—in this market, that’s worth just as much. Just remember, keep your hockey sticks on the ice.

Have a great day,

Max McFarland
Associate