I am a self-funded searcher and military veteran looking to acquire my first company. I have a potential off-market deal and recently met with the seller to discuss their business. We really hit it off, and he strongly believes I am the right person to take over.

There are a few risks in this business. First, there are brand licenses connected to the products he sells, and those contracts need to be renewed every few years. Next is sales channels through major retailers who buy these products and whether that relationship can be transitioned. I will likely tie the transition of the relationships, and revenue fluctuations to the seller note to ensure we are aligned and risk is mitigated.

These lead to the ultimate challenge of seasonality. This is a gift business, and 90% of its revenue comes in September/October for the holiday season. This means the first 10 months of the year are fronted by the seller using a line of credit (LOC) and their personal cash. They have to pay for all licensing, inventory, and overhead costs up front. They currently have a $9 million credit line and need a $15 million credit line so they aren’t pulling money out of their own pocket.

The business is doing about $2.5 million in EBITDA, and the seller wants a 5x multiple but is open to negotiation. My initial thought was a stock sale with a 4x multiple to ensure all the licenses and contracts transfer. I am still analyzing this.

My questions are:

  1. 1. Has anyone here acquired a business with high seasonality? If so, did you use bank financing for the deal?

  2. 2. How did you manage cash flow, considering the business earns the majority of its revenue in just two months while debt obligations are due monthly?
    3. Is securing a $15 million LOC feasible? Are banks open to offering a 1-year delayed payment on an LOC and business loan until the first revenue season is complete? The business has been growing every year so I’d look for LOC growth opportunities as well so I don’t get into his position of needing to use personal finances to fund growth.
    4. I’m considering a financing mix of SBA loan, substantial seller financing, potential mezzanine debt, and a large LOC. Any advice on this mix.

Any insights or experiences would be greatly appreciated!


Thanks in advance for your help.