100% Seller Note
April 27, 2022
by a searcher from Arizona State University in Boston, MA, USA
Hey Search Fund Community,
I have a target co. in the education space, the seller is open and willing to do a 100% seller note and we get 100% of the equity. There are a couple of things about the business. 1) Much smaller than I would like. 2) It's a bit of a turnaround as it is poorly run. 3) Lot's of upside with current + new business model 4) Note is interest-only for 3 years, with discounts if paid off/refinanced earlier. 5) They are suggesting an operational agreement for 1 yr with the option of purchase at any time.
However, the premium they want associated with this deal structure is giving me heartburn. I am fine paying a hefty premium for this, but what they are asking is too much in my opinion, and am thinking about walking away. Any other thoughts around this? Do I walk away? Go for it? Open to ideas. Ping me if you want more color. redacted
from Universidade Católica Portuguesa in Lisbon, Portugal
Free is great, particularly if without guarantees, however, you will be investing your time to turn it around and so it may not be truly free.
If the price is too high, free will just become a waste of time for you.
I will give you a larger and very public example..
Certain public concessions were auctioned based on a payment paid over time, very little upfront, some variable and some fixed (just like you describe), but what people didn’t expect was that because of recession and covid the concession volumes/revenues came down. People have spent years trying to make the business work and ultimately they give up and returned the concessions to the government. Now you could say they didn’t lose much, but if you ask all the management that spent time on those assets they would strongly disagree with you.
So if the price is too high, even if it’s free, watch you….
from Texas A&M University in Johnson City, TN, USA
Smaller than you'd like. Amounts do matter. Even if terms are stellar. However, if this size and terms lets you do it yourself vs with investors, that is something that could be a good first acquisition depending on your personality.