SELF-FUNDED SEARCHER - KEEPING 75% COMMON EQUITY OF $7.1MM SOFTWARE COMPANY

I have come across a very interesting company.  The goal is to buy this company and become the CEO and majority shareholder. The Company has $7.1 million of revenue and $3.6 million of Adjusted EBITDA per the company's financials. I can show a very clear and conservative path to how the company gets to $15-$20 million of EBITDA in 5 years. Enterprise value is $21.84 million. Cash at closing is $18 million - the seller is rolling $3.84 million for 17.6% of the equity.

 

The company has two main business lines: 1.) IT Outsourcing & Consulting ($4.5 million of revenue) and 2.) Software Development ($2.6 million of revenue).

The IT outsourcing business consists of approximately 70 developers offshore. It is not your typical project-based IT outsourcing, which fluctuates over time. The developers really are integral team members of these U.S. companies. They also have 6 people in the U.S. that generate $1.2 million of annual billable revenue. The company has 20 people offshore who are focused on developing software solutions for companies that need to integrate different enterprise software applications. 

The owner has already sold one company for eight figures and treats this business as a hobby. He spends a couple hours each morning speaking with his two-person sales team. The company doesn't do any marketing - his customers, who are 200 of the Fortune 500, find them through Google. The owner, his wife, and I have developed a very strong relationship in a very short period of time. The owner and his wife have really taken a liking to me and they want me to buy and run their business. The owner is excited about working with me and wants to roll his equity back into the company because he believes we can exponentially grow this business.

I’m looking to raise $19 million for this transaction very quickly. I will likely be under LOI by late next week.

To finance this transaction, I am looking to raise $9.5 million from high net worth individuals using a note with 10% cash interest, 4% PIK, and equity warrants (3-5% of the common equity) to get these investors to a 20-25% all-in return. 

I would then need an additional $9.5 million (2.5x leverage) from a traditional mezzanine firm (non-SBIC due to foreign investment restrictions) in the form of a note with 10% cash interest, 3% PIK, and no warrants. 

I'm willing to put in my entire liquid net worth into this deal and I'm not planning to take a transaction fee. 

This structure allows me to keep 65%-75% of the common equity. I've only had one conversation with a mezzanine lender, but they were receptive to this structure. I would sincerely appreciate any introductions to people that would be interested in investing in my deal. 

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