My partner and I are negotiating an acquisition for a Party Rental Company, which has a large amount of equipment. They do about $650K on average for the past three years in free cash flow but have spent over $1MM in each of the last three years in new equipment to modernize their service offerings, and have around $10 MM in inventory for their equipment total. We wanted to know if anyone has experience in valuing or purchasing a similar style company and looking for advice on structuring this type of transaction, the seller is open to an earnout and other creative ways for closing the deal.
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Beyond that, unless the purchases are already accounted for in the cash flow numbers, that is a huge on-going cash flow drain to replace the inventory as it ages out. You need to know the new cost, age and useful life left to determine that burden.