Self-funded deal for a company with $3-5m EBITDA

searcher profile

October 08, 2023

by a searcher from Harvard University - Harvard Business School in New York, NY, USA

Hey everyone! Hoping to tap into the collective wisdom here :)

Has anyone pulled off a self-funded buyout of a company that's a bit bigger than the usual search-fund target? I'm currently looking at a company with c. $4m in EBITDA and no debt. Due to the industry's elevated multiples, the expected EV at acquisition could be around $30m.

How should I approach the financing for this transaction? My initial thinking was to ask the funders to conduct a recap with their existing bank, hoping they might secure around $20m and distribute this as cash dividends. Additionally, it might be feasible to negotiate a $3m seller's note.


Question 1: Does this financing structure seem viable thus far?

Question 2: How might I secure the remaining $7m? My primary objective is to ensure the deal's certainty, but I'd also prefer to retain as much equity as possible.

Big thanks in advance for any advice or insights!

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commentor profile
Reply by a searcher
in Rindge, NH 03461, USA
I don't see how this deal works with debt. The debt payments would be more then the earnings. You need to be at 3-4x earnings to fund a deal with debt. At 7x you are in PE land, where they are using equity funding, BUT that equity funding requires a huge return (30%/year+) so it has to be high growth company, and if a PE firm invests they will take 80% of the company and drive the bus completely, so you just are a deal source for them. (unless you want to work in hopes of getting the multi step earn in equity model they use, which is very risky). Why not find a $4MM EBITDA deal that you can buy for 3-4x? But even that is very hard to do and would probably require 50% seller note and SBA for $5MM. Banks don't want to fund goodwill as debt. Equity only invests for very high returns.
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Reply by a searcher
from Northwestern University in Madrid, Spain
Self-funded does not necessarily mean it should be smaller. However, the larger the deal, the harder it will be for you to get "better" terms than typical SF. (The larger the deal, the more weight of equity value vs. operator value) - however, it all comes down to the quality of the business, and terms (both acquisition and your own) if those are good, you should have no issues raising the capital
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