Hi all,

I am currently evaluating an opportunity to acquire a lower middle market services business, and as part of that process, I have been contacting other businesses in the space to gauge add-on opportunities. I reached out to a business that turned out to be a one-person operation where the owner could be interested in selling. I am trying to assess how to value this business and structure a possible transaction. The company has ~$500k revenue; EBITDA/SDE would be provided post-NDA. Customer relationships seem to vary from sticky relationships to hiring the company one-off jobs. The company is fairly asset light.

It seems like this transaction would effectively be an acquisition of the seller's relationships. My thought was that the purchase price would be split into a flat payment and a variable payment that is contingent on the seller successfully transitioning his customers over to our platform. That being said, for that variable piece, it's difficult to think about how to consider a customer successfully transitioned, since I believe most customers are sticky and recurring but not under contract.

Has anyone come across a situation like this before? I would appreciate any guidance on how to approach this with the seller, in terms of valuation, deal structure, and customer transition.