Alternative structures for larger self-funded searcher deal

September 27, 2023

by a searcher from The University of Chicago - Booth School of Business in Chicago, IL, USA

Self-funded searcher here. I have a larger deal close to LOI that will require a different structure than the typical 10% equity, 10% seller note, 80% SBA loan. I met with the seller over the past two days and it's a competitive situation (multiple interested parties), but we had a really great connection and I'm confident that I can get an LOI signed with an equal or even slightly lower bid than the other interested groups.

It's a unique deal (not a typical "owner is retiring" situation - feel free to DM for more details if interested). Some highlights are that it's a long-standing and profitable services business, very high recurring revenue, very low churn, mostly residential with some commercial work, tech-enabled operations and processes, and lots of opportunity for growth. They'll do roughly $2.8M in EBITDA this year, and I feel confident that I could get an LOI signed for a price in the 5.8x-6.25x range.

I'm wondering if it's even possible for a self-funded searcher to obtain financing for a deal of this size and at this multiple range. I'd love to connect with any self-funded searchers who have done a larger deal like this, as well as potential investors and lenders who would be interested in a deal of this size and profile. TIA!

Reply by a searcher
from Baylor University in Chicago, IL, USA

Hoping this is an off market deal, if so, it will make the financing conversation much more flexible and you can be more competitive with your offer. If you are not looking to fundraise in order to put a higher downpayment for a non-SBA loan, have you looked into maximizing the $5M SBA and then Seller financing the rest at a 10-11% interest rate over 7-10 yrs? I know it sounds crazy (and brokers will tell you it is), but I have seen this work WELL on deals of your size more than once. I would show it side by side with the other structures you come up with and show the amount of interest they would earn by doing nothing (which will be millions). There are also many ways to think about the pay back structure if they dont like the 7-10 yr note. For example, say the note is amortized over 10 years, but if you hit a certain profit goal the note will be paid out quicker (X % of the note in year 3, X % of note in yr 4, etc). That way the note could be paid out in 5 yrs instead of 10. Just one example though. Happy to brainstorm if you want to DM.

Reply by a searcher
from University of Pittsburgh in Tampa, FL, USA

Try contacting family offices. Maybe LMM PE shops but I don't know the 'secret situation'. Is 6x on <$3M really all that great? Can you be more specific on the business/industry? Is the residential piece NC or R&R? Is Commercial multi-families, high-rise, what?

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