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

by a searcher from Harvard University - Harvard Business School

9 months ago

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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17 comments

searcher from Duke University

Good luck

6 months ago | like reply | 0 likes

searcher

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.

9 months ago | like reply | 0 likes

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