I'm under LOI to purchase a pool and spa maintenance and service business. For the first 4 months of 2024, they are 35% behind on revenue compared to the previous year, which is very strange, given that their July through Dec of of 2023 exceeded that of###-###-#### So up until February of this year, things looked great.

The LOI proposed a 20% seller note. My initial thought is delay any payments, essentially placing it on standby, for the first 12 months, spending an amount comparable to the seller note payments on marketing and sales, and then determining the final seller note amount after 12 months on a sliding scale. If 2023 revenue is matched, then the entire seller note will be paid. If, say revenue is only 75% or less of 2023 numbers the entire note is forgiven, and there will be a sliding scale in there. Essentially 20% of the seller note amount tied to every 5% increment between 75% and 100% of revenue target on a continuous basis.

I'm curious what other suggestions folks might have.

I've read some of the outstanding posts on this topic, but haven't seen anything quite like this proposed.


Edit: Thank you everyone for the great input and suggestions. To add a little more commentary, current owners purchased in Feb/March of 2022 and then switched their operations software in March of 2023, so I really only have great job/customer data going back to April of last year.

I'm attaching a screenshot of the monthly comparison over the past two years. Note that the numbers have all been scaled by the same factor, so these are not actual numbers but again scaled, but relatively speaking, should illustrate what is going on. Also note that the current total of 2024 is a trailing twelve months total to compare to 2023.

As far as I can tell, service calls (repair) have been down in April of this year compared to last year. Last year also included a single large job that perhaps skewed financials upward. It of course still gives me pause. I'm getting it for a very decent multiple (well under 3x), but of course a 35% top line drop for the year could wipe out 50% or more of SDE.

This is very interesting from a timing standpoint. If I was closing on Feb 1, 2024, just 3 months ago, I would've felt so much better about the deal, when they seemed to be on the upswing from the previous year.