I’m in my final days before this roofing acquisition will have to be laid to rest, unless the sellers are able to satisfy the lender request of leaving AR post close…


Hoping to help whom I can with MONTHS of pain. Please feel free to respond with what I missed, over looked, or where I can be wrong.

To be specific in this deal it was a roofing business with $3.2MM EBITA on $18.5MM in sales with a $10MM purchase price ($500k cash at closing) BUT with the Hurricane Ian surge, the business is in track for $35MM in 2023 so it needs $2MM in WC.

Lessons and take aways:

1. Always need AR to come with the deal. Banks don’t like air balls/goodwill/ Straight cash flow businesses. They NEED as many assets and that’s including FFE+AR to strengthen the deal. Plus LOC on this is discounted to $.50 on the dollar at 15% interest post close.

  1. SBA banks are good with###-###-#### DSCR over the past 2 year period OR 2 DSCR over last year and it’s unique to find a lender over $7.5MM para pursue

  2. Brokers outside of the SBA charge 1.5% of the amount of capital they raise then the bank or lender may have another 1.5-2% fee.

  3. Conventional lenders use a multiple of 2.5X EBITA to determine their lending limits & will lend at 7-12% IO 5years/evergreen (with prepay options after 24 months) & can close in half the time of SBA. The rest would come from equity investors. They are also okay with seller earn outs/non recourse loans.

  4. Equity investors don’t come in to a deal with a 1:1 ($1 of project costs for 1% of the equity). There is usually an additional multiple on this that can translate to a $1:###-###-#### % in order to get to a###-###-#### MOIC in the first 3-5 years. EX: 25% of project costs raise will require giving away 40-60% of the business. If you have an SBA loan you can obtain 10% more for signing your life away (as it could be somewhat treated as equity on your end).