Hey All, Thank you all @redacted‌ @redacted‌ and others for your feedback on this one, it was greatly appreciated. Would love your thoughts on this update and your thoughts on what determines your ceiling on a deal like this? I believe complexity could be the enemy of this deal, so I'm trying to construct the least complicated deal that protects on the known retail customer concentration risks. Would you lead with the Forgivable Seller's Note and use it as a negotiating lever on terms or just be ready to grow and accept the risk? Since I arrived at SDE myself, would you state your SDE multiple in your LOI or too small of a deal to worry (again, added complexity). Or do the details qualify a walk away to you? In response to some of your curiosity regarding revenue decline, the last 6 years showed a clear COVID bump in this wholesaler's industry, so normalization was expected. Recent years saw a continued decline and, from my analysis, has stabilized over the last 24 months to level, near pre-COVID levels. Some customer concentration did rear its head on this business in 2024, with a major retailer reducing SKU count (retail placement decision affecting many suppliers) while at the same time, recognizing this business's long-standing 100% fill rate relationship, this big retailer extended an offer of shelf space and a single private labeled SKU to this business. This is the primary cause of the 20% revenue decline from '24 to TTM. Concentration still a concern but mediated now with the decline and potentially in the forgivable seller note. This deal has been a slow burn since the Seller has been insistent on waiting for the other party to put forward a serious, structured offer. I'm actually glad for the time. With no sell-side broker and the Seller only recently securing M&A professionals, I've been left to calculate Cash Flow Statements, SDE, and COGS from raw Quickbooks reports, a risk that is only truly dawning on me. Since this is a 20-year wholesale business and the Seller's been using cash-based accounting, true accrual COGS has been difficult to determine. I arrived at the 82% gross margin through multiple years of beginning and end of year inventory plus the mid-year purchases from the tax records. This turned out to be inaccurate..... I was able to get my hands on a real Excel mess of TTM revenue by SKU # (sometimes over 10 SKUs related to the same item #) to do a bottom-up COGS calculation. ClaudeAI and I are best buddies by now and I was able to parse out by cross referencing against cost/item and freight that the true accrual COGS is higher than the tax documents revealed. The Seller's book values aren't lined up with the reality in the TTM. Gross margins are still strong at ~70+%, SDE ~520K+, but I almost put in an LOI that was too high on this one. I don't believe this seller to be deceptive, they just knew their margins were great (between 70 and over 80 depending on item) but never a major concern and operated to maximize tax reduction. For any buyer, true COGS is a critical piece of information and has brought my offer back to reality. I learned a very valuable (and thankfully free) lesson here. When dealing with unsophisticated Sellers (and brokers for that matter), you really need to get into the weeds on proving out the numbers, so you don't find yourself deep in expensive due diligence and find issues like this. @redacted‌ @redacted‌ really appreciated your inputs here and, on SDE, it surely has declined with revenue. With my extensive analysis of the data and conversations with the Seller, I fully understand the decline and stabilization. Thanks @redacted‌ @redacted‌ I also understand all the growth levers that are currently not being pulled and have priced the offer to allow survivability room in up to a 20%+ decline. @redacted‌ It seems my skillsets of sales, distributor sales channel building, major new account capture/account management, and logistics are a real fit for this one. Plus, I've always been drawn to the industry it operates in. My adjusted offer lands at an SDE multiple in the mid-2x, DSCR still comfortably above 2.5x. Forgivable seller note component with revenue weighted tranches for revenue retention on the 4 top customers where growth on some offsets any decline of another, a fair structure I feel. Thanks @redacted‌ @redacted‌ The consignment agreement will have to be buttoned up by my attorney for protection. In this particular case, the Seller has accumulated an overstock of inventory, almost 1/2 of which is slower moving or dormant (currently being liquidated). A clear consignment agreement allowing for agreed upon liquidation of slow items and dollar-for-dollar extraction of value is in both of our interests. Speed and conviction to close on a bankable deal (with the Seller's bank) with well thought out plans for a proper handoff and the Seller's oversized inventory are my advantages here. That competing buyer is still flailing a bit with offers that put way too much note risk on the Seller and a timeline that would likely lag beyond Seller's ideal transition. The DSCR on their offer must be barely above 1.25x, so I suspect they've certainly not done the deep analysis this deal requires. I'm not chasing their numbers. I may end up losing this one to a pie in the sky seller financed offer from a party who hasn't done the work, but we'll see. I feel like the analysis on this deal has been an advanced education. I also see this as a "buy small and build" situation where me and a very small crew will be growing this business and adding headcount with revenue. If I can get this LOI signed, that is! Previous Post: ---------------------------------------------------------------------------------------- Working through an SBA-financed acquisition of a small wholesale business (B2B, not retail) and want outside perspective before I finalize my offer. Deal snapshot, kept general: TTM revenue ~$1.2M, gross margin ~82% (double-edged sword, pronounced upside and downside potential) TTM SDE ~$630K Revenue decline of roughly 30-35% over the past 2 years, but TTM SDE has stabilized within ~2-3% of the prior 12-month period. No sales outreach from Seller aside from seasonal trade show participation. Asset-light — no real estate, fully depreciated equipment, majority of a Seller-recognized overstock of inventory handled via consignment (paid at seller's cost as units sell) rather than purchased outright at close Deal includes a reasonable inventory allocation purchased at closing (low-to-mid $200Ks) plus standard working capital (A/R + cash, mid-$100Ks) transferring with the business Two-person operation — contracts and accounts are with the business, but day-to-day relationship management and trust with key buyers/reps sits heavily with the owner; one other key employee, real retention risk of part-time employees Financing: SBA 7(a) through the business's own regional SBA-Preferred Lender, very strong rate (low 7%s), 10-year amortization Offer structure: ~10% down, ~70% SBA, ~20% seller note (6%, 10yr amort, 5-6yr balloon). SDE multiple landing high-2x to ~3x depending on final price, DSCR comfortably above 2.5x even at the higher end. My first LOI was in the high-1x to ~2x multiple. There's a competing buyer circling without committed financing yet, creating some price pressure, but I don't believe they can actually close given their financing situation and would involve moving the business out-of-state. Questions for the community: For asset-light deals like this, how much does a strong DSCR offset the lack of hard collateral in your own risk calculus on the personal guarantee? Or do you weight PG risk the same regardless of DSCR? Anyone successfully negotiate guarantee caps or release triggers on SBA 7(a) deals? How realistic is that vs. just lender boilerplate? Real experience with Personal Guarantee Insurance (the newer US products)? Worth it, or mostly theater? How do you weigh a multi-year revenue decline that's recently stabilized vs. a track record of growth, when SDE multiple and DSCR both look fine today? For consignment structures on inventory — anyone done this? Any gotchas on the legal/tax side or in practice operationally, especially around what happens if the relationship with the seller sours post-close? Single/dual-employee businesses where the seller's relationships drive most of the revenue — what retention/transition structures have actually worked for you?