Fund Structure - Market Terms for $1-2mm EBITDA Acquisitions
June 07, 2024
by a searcher from Boston University in Brentwood, Los Angeles, CA, USA
Does anyone have some insight they'd be willing to share on what market terms look like for a search fund targeting companies in the $1-2 million EBITDA range? Specifically, the following things would be helpful to discuss:
- Equity conversion premium (%) on search capital for investors to roll into the acquired business
- Promote hurdle(s) for Management (if any)
- Annual yield on equity post-acquisition
- Management Fee charged to acquired company (either $ or as a % of free cash flow)
I should also be sure to note that this is my first time raising funds to acquire a business, and as such the risk should be more carefully considered (and rewarded) for any investors. Investors will come from my network, all of which I will have a pre-existing relationship with, and are likely going to be more willing to invest based on the kindness of their hearts and faith in me to succeed.
from Harvard University in Nashville, TN, USA
- 1.5-2.5x for investors for step-up (highly depends on you), esp. if you're looking to use investor capital to lever up.
- Promote ~20% +/- 5%
- Not entirely sure what you mean by annual yield on equity post-acquisition. If you're referring to a pref hurdle, it can range between 8-15%, typically cumulative but not compounding. Believe it or not, from an investor perspective, this doesn't make or break my IRR, esp. if you're looking to reinvest all cash flow into the business for a big exit later. It's mostly there as a downside protection on my capital to prevent GP from making money while investors don't. - Mgmt fees for independent sponsor deals are usually done on an EBITDA basis with a floor and the ceiling. Typical range is 5-8% of EBITDA with a reasonable floor and ceiling.
Long answer:
Each deal is highly negotiated, mostly depends on the quality of the deal, terms of the deal, and you.
Hopefully this is helpful!
from University of Massachusetts Amherst in Boston, MA, USA