Looking for a little help regarding capital structure for a deal I'm considering.

February 14, 2026

by an investor in Grayson, SK, Canada

Hello All I'm currently reviewing a deal pre LOI stage. This Canadian operation is a legacy business that has had strong financials for 20 years. Highlights include; - 16 M million revenue with 2+ million in ebitda. - Large number of unique customers with very little concentration. - 5% CAGR(might be inflation driven, but ebitda has followed.) - Strong General Manager in place that will stay as well as junior managers. - Owner position is largely strategic and not hands on. - Very short CCC and low working capital requirements. - Low assets so majority of purchase will be goodwill/intangibles. - Low short term maintenance Capex as facilities have received full upgrades in the past 4 years. - CIM prepared by major accounting firm, unlikely to find issues during DD. - There are growth opportunities in the sector. I am currently an operator in this same sector in a different jurisdiction. I have long admired this particular operation as peer. With my experience in this industry, I feel that I am uniquely positioned to grow this business. I'm also have a strong eye for issues that may arise versus someone with business experience, but not industry specific experience. I'm still working with my accounting team on the valuation, but I am coming to the table with 10-15% of the purchase price. I'm looking for advice on the capital structure of this deal. I've chatted with a contact who is a business finance broker and was told the banks would come in a with favorable terms at 65% LTV. That being said, this is a cash flow rich but asset light business, so that might be high. A VTB with one of the owners is possible and they are open to discussion, but they would prefer a clean sale. I need to shop the 20ish percent gap. Looking for the best option to maintain as much equity myself. Let's hear your ideas on how to structure this.

Reply by an investor
from Columbia University in Fairfax, VA, USA

^redacted‌ - There's a lot to like about this deal. A few thoughts: > Equity Gap / Investors: The biggest lever you're going to have here is using the "Project Cost Method" (versus the "Equity Method") to calculate equity ownership split. The Project Cost Method is how self-funded Searchers retain 60-70%+ of the company while raising outside equity and still delivering strong returns (IRR / MOIC) to those investors. I’d prioritize HNW minority investors over institutional capital at this size. > Senior Debt: Keep pushing lenders and speak to several. Focus on true cash flow lenders, not collateral-based lenders. Most default to asset coverage, but the right ones will underwrite on DSCR and durability of earnings. Consider reaching out to ^redacted‌ to have a conversation - I'm not sure if his work expands to Canada, but worth checking. > VTB / Seller Note: I know you said the seller prefers a clean sale. But price + certainty of close often changes that calculus. Even a modest seller note can meaningfully improve your financing stack: A) it'll likely be your cheapest financing tool from a cost of capital standpoint, B) will improve deal optics from a lender and investor perspective, C) and if structured correctly, it'll add flexibility to your debt burden. And in the US, there can also be tax advantages for sellers depending on their situation. Not sure how that translates to Canada's tax law, but worth exploring.

^redacted‌ - It's unique to the Self-funded Search space (it's not a structure that's supported in Traditional Search, or really any other alternative asset class). Typically, the Equity Method is used where ownership (%) is calculated off of the total equity invested. The Project Cost Method calculates ownership (%) off of the total project cost calculation from the Sources & Uses table. Here's a deeper explanation of it (jump to 4:49 in the video): https://www.youtube.com/watch?v=ELUEm1fKNVA This financial model supports both the Equity and Project Cost Method – https://etaiq.com/ You can also model it yourself. Just make sure that the ownership calculations flow through to each investor group in your Cap Table, as the various distribution types (i.e., Preferred Return vs. Profit Distributions) will use different equity types for the investor waterfall (i.e., Preferred vs. Common Equity).

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