How leveraged should your first acquisition be? - Searchfunder

Member resources:

Member directory

Searchfund list

Company contacts

Industry reports

Transaction multiples

Frequent asked questions:

What is Searchfunder.com?

Searchfunder.com is an online community of searchers, investors, lenders, brokers and other professionals. Over 80% of those involved in searchfunds maintain a Searchfunder account to help them network, hire, and mentor others.

What are the benefits of membership?

In addition to accessing the most active online network of business buyers, Searchfunder licenses research that is simply not cost effective for individuals. Access over 15,000 industry reports and 50,000 transaction financials. You also get monthly credits for contact information for your company sourcing campaign with the option to purchase more at drastically discounted rates. Searchfunder has pre-purchased access from these data providers in order to empower individual buyers and to help searchers level the playing field versus private equity.

Do you have deals?

While we are primarily a buy-side network, we do have hundreds of brokers that regularly post deals to the community.

Can I find an internship on Searchfunder?

Absolutely! We have the industry's largest intern job board. If you are considering a search, the first step is to help another business buyer so you can hit the ground running.

What does it cost?

Searchfunder is a subscription service. We offer flexible monthly, annual and lifetime memberships.

Monthly

$79 / month

Annual

$19 / month

Lifetime

$432 / once

Those who maintain an account with us for over 4 continuous years are permanently added to the community without the need for a membership.

Do I need an MBA to join?

While a large number of our members come from dedicated programs at Harvard Business School, Stanford GSB, Chicago Booth, and other top programs, searching is no longer reserved for the elite. With the current abundance of dry powder in private equity, and an increasing number of business owners reaching retirement age, good deals rarely go unfunded.

Post a question, deal, job, etc...

Make a post...

Complete registration to post.

by a professional from Williams College
in New York, NY, USA

2yrs ago

How leveraged should your first acquisition be?

For folks who have done acquisition or are going through the process, what are your thoughts on debt financing? I've heard of deals with 10% down payment, is that too little or totally acceptable (given that it's harder to get equity funding in this market)?

Share

0 Likes

396 Views

Login to read all 8 comments

reply by a searcher 2yrs ago
from The University of Michigan in 1075 Gills Dr, Orlando, FL 32824, USA

It all depends on the multiple, cash flow and DSCR so each deal is different. Personally I think 90% leverage is too high but lots of buyers do it. I had about 70% debt in my deal and that felt right to me. The lower leverage helped get through difficult times.

Also, I would not assume it's difficult to get equity funding right now. If it's a good deal, there are lots of active investors.

reply by a lender 2yrs ago
from University of Florida in Dallas, TX, USA

Every deal is different. Speaking from purely the SBA world (think $25MM rev and smaller; $10MM EV and lower), 10% is where we like to start, unless the buyer gets a screaming deal from the Seller. As a general rule of thumb, I tell all my customers to shoot for a minimum of 1.5x DSCR for the last two tax returns when looking at how much leverage their business can reasonably support.

Industry, customer flight risk, number of owners in the company's history, customer concentration, EBITDA multiple, the Borrower's PFS and affiliate business interests, to name just a few, are all taken into account when I determine how much down payment I want from my customer. At the end of the day, cashflow is king in SBA lending, so ensuring a company can support 1.5x - 2.0x DSCR should help you feel more comfortable as a buyer.

To contrast with SBA, I was at an M&A forum last month in DFW where a regional bank's Chief Lending Officer indicated they are requiringredacted% down on each deal with at least 1 Personal Guaranty required as well.

One thing to remember in the SBA world is that if you have a great deal, you should be negotiating with your lender. 80%+ lenders sell their loans, which means they are charging you the highest interest rate they can. The other 10% - 20% of lenders (myself included) portfolio all of our loans, which means we do risk-based pricing. If a customer brings us a good deal, we offer fixed rates, lower floating rates, longer interest-only periods, and additional benefits that "sell shops" do not provide.

More on Searchfunder