Structuring a deal for a growing business

Hey everyone, I posted anonymously but resurfacing as a real person!

Thanks for the valuable input, including the innovate employment to buy option, introducing real estate into the discussion, consideration of reduced spend in sale year, and making sure I review the macro trend and customer pipeline.

I have an offer out to the seller and will keep you guys posted on outcomes. Current offer is weighted average of trailing 2 years, with 25% forgivable note if this year’s performance is not duplicated in next three years. This would protect me if performance returns to pre-covid levels (razor thin protection).

Sounds like this business may have benefited from the recent growth in housing starts and renovations, and is now trying to capitalize on those recent earnings. During diligence, be sure to review 1) whether or not you feel this demand is likely to continue (if its new build-based, then what is the pipeline for next 6 months / how much are his customers continuing to build now that rates have ticked up....the amount of houses that his builder customers are starting now implies this company's pipeline in 3-6 months), and 2) whether the owner managed this business for a sale during the last year. On the latter point, what I mean is did the seller under-spend on tools, equipment maintenance, etc. versus previous periods - very common for owners to take this mindset in the year they intend to sell, which means the buyer is then forced to overspend in his first year of ownership. Look at whether these variable costs as a % of sales have declined this year; if so, pro forma earnings accordingly. Overall, I personally don't think earnings profiles like this are any automatic "no", I think they just need to be reviewed and scrutinized more closely.