Sellers looking to cash out after 1 great year....

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by a searcher from Hofstra University - Frank G. Zarb School of Business
in Miami, FL, USA

3mos ago

Sellers looking to cash out after 1 great year....

I have been searching for a few months now and recently...I think start of 2026, I have seen several CIM's with 2025 financials being great and in the range I am looking for. Once the CIM hits the previous years SDE are nearly 40-50% lower than 2025 and the sellers want their premium to exit. I mostly walk away from these deals as 1 great year does not call for a higher selling price because they spoke to a broker. I wanted to see if I am looking at this correctly or this is normal in this space? I guess if I was to pull the trigger on a deal like this, I would need to allow for higher reserves. Also how does SBA and banks look at this? Do they take an average for DSCR or just use the 2025 numbers? Thoughts?

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reply by a searcher 3mos ago
from Bowling Green State University in Surrey, BC, Canada

Four words - reversion to the mean That said, you don't want to have to walk from all opportunities in the wake of a good year. That's where VTBs and earn-outs come in - bridge the gap between good-year premium and, say, 3-5year average. Up here in Canada, a lender did a study of change-of-ownership deals and found that ~75% experienced flat to down earnings in the two years following a transition - plan your capital stack accordingly.

reply by a professional 3mos ago
from Hampshire College in Pittsburgh, PA, USA

Speaking as an operator & someone who's done consulting with searchers after the close, what matters is what caused the numbers to change, and more importantly what levers will be available to you after to take the helm, given your skills & the gap the seller is leaving. That's less idiosyncratic for larger companies but it still requires looking beneath the numbers. I doubt the SBA and banks look at it that way but you should so you have a good story to tell them.