Searcher Equity Structure with PE Partner
October 24, 2024
by a searcher from Rice University - Jesse H. Jones Graduate School of Business in Houston, TX, USA
All,
I am currently evaluating an acquisition opportunity in partnership with a Private Equity firm for the purchase of a $3 MM EBITDA business (Steep growth profile for search standards). Can people share typical equity structures between financial sponsor and myself?
For context, my full-time search has not yet started and the PE firm reached out to me about running the business for them. I will kick in a few hundred thousand as my "skin in the game" but would like to know if you think the traditional search equity structures are applicable hear (~15% equity based on vesting over multiple milestones).
Thanks!
from Oklahoma State University in Wichita, KS, USA
Plus PE will likely have a specific exit timeframe, that may be aggressive (3-7 yrs), so that may be a benefit depending on your goals.
Self-funded is a different game. More risk on the searcher by definition "self-funding" as well as likely providing a PG for an SBA loan (max out at $5mm + maybe pari passu so TEV ~$10mm on the higher end). So a smaller deal, with less equity and arguably a lot more risk on the searcher so they have earned the lions share of equity (50%+). $3mm EBIDTA should have less risk and more levers to quickly pull to create value. You have enough of a business to grow into a much bigger organization such as $5-6mm EBIDTA where multiples on liquidity may be fairly attractive which is valuable to you.
Risk adjusted, this could be a great deal for you.
Cheers to your success!
from University of Pennsylvania in Miami, FL, USA
Traditional single searcher ends up with up to 25% (usually 2/3 is in the bag and last 1/3 performance based)
In both above cases, searcher does a lot of work sourcing the deal, vetting deal, arranging capital and getting the deal across the finish line...and then operating
Based on the above, 15% for being called to be a CEO seems reasonable. Plus you will get a salary/bonus. Unless I am missing something, you have not done any of the lead up work I mention above so I would put this in the category of very reasonable and falling on the side of favorable to you.