Hi guys - I just submitted an LOI on Friday that will most likely get turned down due to value and I am thinking through my options on a response. The seller and broker are asking 3.91x 2021 SDE / 4.95x 2021 Adj. EBITDA, but my SBA lenders do not believe the business will appraise at this value. They are taking a 3-year average of SDE and the business had a large pop in growth in 2020 and backed it up with another very good###-###-#### The problem is 2019 numbers were significantly lower and are bringing down the lenders' value by a wide margin. Underwriting a Covid-affected business (positive or negative) could be a whole separate conversation, but in short I believe their current EBITDA levels will be sustainable.
My initial bid came in at 2.93x SDE /3.71x 2021 Adj.EBITDA and I would be comfortable moving up to###-###-#### 2x Adj. EBITDA, but at that price I will most likely lose support of my lenders. I think that higher price is fair, and I am actually putting two companies together, so with synergies it's really a pretty good price.
Has anyone wanted to bid higher on a company but their lenders were holding them back a bit? I've starting thinking through alternative means of financing but it will certainly come at a higher cost. I think I could get the deal signed at###-###-#### 2x but will lose my financing. Any thoughts or ideas? Thanks in advance.
Valuation discrepancies at LOI stage
by a searcher from Pennsylvania State University
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* How connected are you with the Sellers? Meaning, is there a good "DNA" connection?
* Are the Sellers willing to take a second (seller note) for the delta + structure some earnout (win/win scenario so that you can collectively get closer to their price (some give and take is required).
* Based on your synergistic play, if the ROI is there and you believe you can leverage that aspect of the deal, what will it cost you "not to do the deal"? Synergy is a powerful factor in longer-term deal ROI.
* If you acquire a "less than 100%" of the company, you can structure something that will allow the Sellers to phase out over a 3-5 year period (if you have the appetite for that).
I'm happy to further chat with you about this if you'd like to set up a call/Zoom.
Kindest regards and best of luck.
David.