Deal structure advice - self funded search fund

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by a searcher from IESE Business School
in Madrid, España

1yr ago

Deal structure advice - self funded search fund

Hello Searchfunder community!

I am looking for advice to structure a deal. Characteristics:

- LOI to be signed soon
- Terms (in negotiation):
a) EV/Price: 8M; 4x EBITDA
b) Company has income of 5M and 2M EBITDA
c) 1.5M Earnout
d) 2M seller financing
e) Sellers willing to reinvest
f) Banks are willing to finance at least 50% of deal

Questions:
1. I am looking for advice regarding a deal structure different to classic search fund structure (25%, subject to IRR Investor's return...) that could maximize searcher % equity/ returns.
2. Ideas/ advice to structure the LOI

Thank you in advance

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reply by a searcher 1yr ago
from Indian Institute of Technology, Delhi in Atlanta, GA, USA

When you say bank are you referring to SBA or non-SBA? If it's SBA then an earnout is a NO-NO
In a self-funded search you end up offering 2x step up and if you are raising $4M equity which is equivalent to 50% purchase price then traditional search terms might be a better option.

reply by an intermediary 1yr ago
from The University of Chicago in Chicago, IL, USA

It seems you have thought thru the structure well between you and the seller.
Seems like the deal is P=$8 M, $4.5 M Cash, $2 M Seller Note and $1.5 M Earnout. Cash is $4 M debt plus $500 k equity plus seller rollover. Am I correct?
I am guessing you are looking at a non-SBA, otherwise you would not have used the words "earnout". Assuming that, seems like this an asset intensive business.
Are you asking help structuring the capital stack between you and the investors? If so, that would have none/minimal impact on the LOI.
Happy t0 help.