A Discount Doesn’t Always Derisk the Deal

There is a business down the road you have been eyeing for years. You know their pricing, their hiring, and the things you would have done differently. You’ve told someone close to you how the place would be a winner under someone more competent.

Then it comes up for sale, you get inside the books, and the repair is worse than it looked from the outside. The customer list is thinner than you assumed, one supplier holds all the leverage, and the team isn't as harmonious as they post on social media. You pass, and rightly so.

Months later, nothing has changed but a lower price. You sign anyway. The purchase price turns out to be the smallest payment you make; the rest comes out of your attention, your best operators, and the part of your business that was already working. One phrase keeps justifying the decision: it's still early.

A public retailer ran this scenario live with a board, outside advisers, and a written list of everything that could go wrong. It walked away once, but couldn’t resist when the price dropped.

In March 2023, Foot Locker announced a turnaround plan called Lace-Up: new technology, refreshed stores, and a rebuilt loyalty program. Less than a year in, Ed Stack, executive chairman of DICK'S Sporting Goods, called Foot Locker CEO Mary Dillon to discuss a deal. Her board said no and kept running Lace-Up. Stack came back in February and told Dillon DICK'S had already been running its own "public diligence" on her company.

Then Foot Locker's Q4 report landed in March 2024, and the Lace-Up targets slipped two years. Stack wrote again six days later. By June he had a number on the table, and this time Dillon's board authorized a confidentiality agreement and a phased handover. In September he named $40 a share, called it best and final, and asked for sixty days to confirm it.

On November 15 he called Dillon to walk away from the deal. Diligence had shown a business that required a much more significant turnaround effort than DICK'S had anticipated, and his team could not validate Foot Locker's own financial case.

Four months later he was back, at $24 a share. By then, Foot Locker's directors were staring at weak apparel sales and international results running well below plan. They took the deal in May 2025 at an 80.3% premium to the prior close, according to advisors. The rationale was built around one word: derisking. The current themes in Foot Locker were vendor concentration and promotional pressure on margins, and a business that leaned on one product category and whichever shoe was in fashion that season.

The deal closed in September 2025. Eleven months later, DICK'S cut its full-year guidance and had its worst trading day since 2023. While the rest of the company grew, Foot Locker's comparable sales fell, and a segment DICK'S expected to turn a profit this year is now guided to lose money. Asked what had changed in ninety days, Stack pointed at a promotional market, aging shoe styles, and a cautious European consumer. He added, "This industry is going through a bit of a transition, but what we did with Foot Locker is absolutely the long-term right decision."

Execution took the visible hit. It isn't where this started.

Start with Mindset. Stack did the work of processing the reality in front of him. He ran diligence, believed what it told him, and walked away. Nothing about Foot Locker's position changed between that walk-away decision and his return months later, except the price. He had already put the cost of the turnaround in writing. A lower number didn't erase that cost; it just made the deal feel like a risk worth taking. That's the harder version of a Mindset failure: not skipping the diligence, but letting a discount conflate opportunity.

Market is the failure with a paper trail, because Foot Locker's own board wrote it down. Their list wasn't about management. It was about position: one category, a handful of suppliers, demand tied to this year's shoe. Foot Locker bought 85% of its 2024 merchandise from five suppliers. A cheaper price doesn't loosen that grip or widen that category. DICK'S bought the position exactly as it was.

Strategy is where the two collided. DICK'S carried a repair thesis and a bargain into the same deal, and once the bargain closed, nobody tested the thesis again. When guidance dropped in August, the company's own explanation pointed to Foot Locker's "greater exposure to legacy footwear silhouettes." That is the acquired business behaving exactly the way its own proxy said it would.

None of this happened suddenly. You can retrace the steps over the past three years and clearly see the Vital6 interacting on record.

Think about the last opportunity you looked at because you were certain you could fix it. Some of what you found described the business itself: the one customer everything depends on, the supplier you have no leverage over. Some of it described the people: the follow-ups nobody made, the price list nobody had touched in years. Most of us sort those issues on operator instinct, which tells us that these problems feel solvable.

DICK'S had all of that before signing. Its own diligence told it to stop, and it did, until the price came down. Your diligence is a QuickBooks export and a conversation with a motivated seller. That is where the size gap bites: the same misread costs more at your scale, because what you fund out of a year's cash flow may not have another business line to absorb it.

So build a second list on purpose. Before you buy the business or hire the person, write down what has to be true about the thing itself for your plan to work and what would prove you wrong. Put a date on it and allow someone to hold you accountable. "It's still early" is the easy answer every quarter for as long as you keep saying it.

Before you attempt to read other businesses, get a more accurate read on where your business stands with a Vital6 assessment.

Want to go deep on the Vital6? I wrote a book about it.