Advice on Acquiring a Certification Business???

November 11, 2024

by a searcher from Massachusetts Institute of Technology - MIT Sloan School of Management in Seattle, WA, USA

My wife is looking at acquiring a coaching certification company and would love some advice on putting together a thoughtful and competitive offer. The company has strong operations and had adjusted SDE of ~$440K in 2022, ~$300K in 2023, and $370K TTM (end in October) with a ~30% SDE margins . The company has 40 year track record, 4 employees, and acquires most of its clients from B2C marketing (certification costs ~$5K). The company has recently raised prices ~15%, which will bolster SDE going forward (assuming it doesn't impact conversion).

My wife would run the business as the CEO as the current owner is retiring. The deal is off-market so we are dealing with the owner directly, which so far has been very positive thus far. My wife loves this business and wants to make a fair offer that will generate a reasonable salary (she is 15 years out from her MBA - though she took time off to raise our kids in between) and return on any equity investment we make.

Key Questions:

- Should we be using multiples to create an offer, and if so, what is a typical offer for a services business like this?

- We were thinking about a ~30% seller note with all or a portion forgivable. Is that market?

- Does the SBA 7a support a smaller deal like this? Any lenders interested?

Reply by a professional
from Bentley College in Miami, FL, USA

Multiples for a services business can vary based on factors like track record, profit stability, concentration, recurring revenue, and market positioning. Given the strong brand and 40-year history, you might consider a range of 2x–3x adjusted SDE, depending on your confidence in future growth. If there's some recurring revenue or repeat clients then a higher multiple may be warranted. A professional valuation can help narrow this down to make a competitive yet fair offer. Also, you have access to some comps data on Searchfunder (BVR) where you can get some more insights on multiples for these types of businesses.

In terms of the seller note, the most common is 10 to 20%. But I'm not sure there's such a thing as "market" for this type of transaction. Everything is negotiable. A 30% seller note seems reasonable is a good start, and considering a partial or full forgivable structure could be beneficial. This approach aligns the seller with future success and helps protect your investment.

The transaction is relatively small but I don't see why this business wouldn't be an SBA candidate. You may want to reach out to a few lenders directly and see what their thoughts are. Ping me and I can make a few introductions.

It might be worth connecting with transaction advisory experts who can assist with a valuation, due diligence and ensure the financials and operations align with your offer strategy. DueDilio has a network of vetted professionals specializing in this area who could guide you in validating assumptions and structuring a well-informed offer.

https://www.duedilio.com

Reply by an investor
from University of Texas at Austin in Bellevue, WA, USA

I'm interested and we're both in Seattle. Drop me a note to connect.

+4 more replies.

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