Sole Source Equity for Self-Funded Searchers

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by a searcher from Indiana University, Bloomington/Indianapolis - Kelley School of Business
in New York, NY, USA

1yr ago

Sole Source Equity for Self-Funded Searchers

Are there any sole source equity investors for self-funded searchers doing <$2M EBITDA / <$10M TEV deals? Is anyone aware of capital providers that will cover or split broken deal expenses for self-funded searchers?

For larger deals in the Independent Sponsor world, there are a handful of groups that will cover potential broken deal expenses in return for being the sole source equity or majority equity partner on the deal - i.e. they're sponsoring the deal and carving out economics for the independent sponsor. The self-funded searchfund (and searcher's goals) is a bit different, particularly given the SBA dynamics requiring a personal guarantee, but there are of course other ways of financing the transaction. I'm wondering if there are any investor groups that are interested in sole source equity deals, particularly those that would consider covering broken deal fees if the deal doesn't work out. Maybe Minds Capital, SIG, Slack Water?

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reply by an investor 1yr ago
from Washington University in St. Louis in Champaign, IL, USA

I wouldn't expect a solo investor partner to cover broken deal expenses unless is was something under their control with an out specifically. i.e. I would expect them to replace you and finish the deal if needed, but if you've set yourself up for a breakage or a deal can't be renegotiated then you've made a contract error and probably need to make your partners whole on cost.

reply by a searcher 1yr ago
from Oregon State University in Eugene, OR, USA

We manage our own diligence when partnering with an operator and thus control and assume the risk for any broken deal fees. I could see the challenge with an equity sponsor not assuming that risk if they’re not part of the process and the deal was broken due to circumstances outside of their control. Happy to discuss your specific instance if you’d like to. FYI, we tend to work larger opportunities, we don’t use SBA financing.