What’s stopping me from making lower-middle market deals?

November 10, 2022

by a searcher in Burlington, VT, USA

I’m trying to put together my first deal and I have capital partners lined up already who are looking to transact with minimum deal sizes of $15m. I have also found businesses in this range (~$1m EBITDA). I’ve also got the DD professionals lined up as well.

My question now is: what are the concerns and requirements that lenders and owners have in this range of business? I only plan on acquiring businesses with existing management teams in place and a strong transition plan, but the bald honest truth is that I don’t have much experience running businesses: I’m just putting the deal together. I have short but excellent marketing and sales experience, and I also have done recruitment before.

What will I need to do to become a credible buyer in this range?redacted

EDIT: I meant $1m-7m EBITDA

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Reply by an intermediary
from Boise State University in 800 W Main St, Boise, ID 83702, USA

In my experience, an owner who wants to sell generally wants to know that the buyer has the skills, experience, operations, and financial management ability to run the business post sale. The lenders need the same assurance. If you don't have the background, then someone on the ownership team must. That person must be willing to work. While an owner wants to exit for the right price and terms, continuity of the business is generally a big concern too. An owner wants to know that the employees will have jobs, and that the customers will be taken care of post sale. This is especially critical if your deal includes an earn out or other provisions that require a seller to stand by for payout. It's a matter of pride for an owner to know that what he built (or grew) will continue on after he exits. In my opinion, the situation you are looking for has much competition from sophisticated buyers who do know how to run companies that have the experience to get the deal done. My question for you is: what makes you want to do this? Owning a business is all consuming and a big risk. Are you passionate about it? Or is this just what all your MBA cohorts say they are doing?

Reply by a searcher
from Keller Graduate School of Management of DeVry University in Centennial, CO, USA

I would like to know where you found the capital partners willing to put up $15M for you. How did you find them? That is no small feat in and of itself. I have been looking at businesses in an industry in which I have no experience. I admit to my shortcomings and have asked the sellers to stay on in an advisory capacity. I am also looking at making an owner of one deal I am currently negotiating an equity partner easing concerns from the lender on industry experience.

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