Partial buyout, minority stake valuation and funding structure

by a searcher from Harvard University

1 year ago

Hi everyone,

In my business acquisition search I came across an opportunity where an owner is looking to maintain majority control but sees the value of bringing in an additional partner.

I was wondering if anyone had any experience with buying a minority stake in an existing business - we loosely discussed a rough 3x valuation (I'm estimating the business would sell between 3-4x normally) but I'm also going to have to work on the business, although not full time (current EBITDA is roughly 600k, was planning on buying 30-49%).

I was wondering if anyone had any experience with a minority partial buyout w/o a change of control, and how that impacts the valuation - I'd also want to fund the partial buyout with debt- obviously SBA is off the table so I'm wondering if anyone has experience with financing options as well.

3 likes
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16 comments

searcher from Villanova University - Villanova School of Business

I understand from seller's perspective, but from your perspective you need to get a structure in place for the final buyout.

5 months ago | like reply | 0 likes

lender from Eastern Illinois University

With the new SBA partial buy-out rules, you could buy a minority interest in an operating company and get financing from the SBA to do so. However, if the seller continues to own 20% or more of the company they would be required to guarantee the loan as well and could be required to pledge personal assets to help back the loan if the deal is not fully secured by business assets. The SBA lender would also have a lien on the business assets and the business would technically be responsible for repaying the loan. So you would need a seller that sees this as an opportunity to bring someone in and leverage the business some and allow him to take some equity off the table, but also knowing full well he will need to step in and take the company back and payoff the debt if it does not work out. I have yet to see any deals get done where the seller retains more than 20%. This is still new territory in the SBA world. If you have questions you can reach me here or directly at --@----.com

1 year ago | like reply | 0 likes

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