Looking at a business with $3M revenue and ~$750K in EBITDA. Seller wants ~7x. The business is entirely contracted and recurring revenue, a proprietary deal, and the company has grown consistently and steadily every year for the past 7 (including the COVID years). Seems very scalable with several opportunities for growth and strong fixed cost leverage as the topline grows. In traditional search, this seems like it might work.
Does anyone have perspective on doing a self-funded search deal like this?
Pretty rich multiple, but also a great business. Wondering if there's a thoughtful way to do it with seller financing, larger equity check than a typical self-funded deal, and potentially some equity rollover. May be just too high of a multiple for the size of business though.
6-7x for a Self-funded Search Deal?
by a searcher
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It would help if you looked at how the deal will get structured. E.g., let's assume you do this:
Upfront cash: $3million - Seller rollover equity: ~$1.3million (representing 25% ownership of the combined entity) - Seller note: $~900k payable over five years at 8% interest (you asking the seller to carry a ~18% note)
1. Your yearly interest-only payments on the note will be ~72k/yr. For the first five years, you will pay $218k to be a seller.
2. If you finance the loan (i dont think SBA is applicable), but let's say you get 8% 10-year terms, you are paying $390k to service your debt.
You did not provide growth numbers, but for a business at a 7x valuation, a large portion of the price is attributed to growth value. So this should be factored into your cashflow (not EBITDA)
Also, you did talk about cash flow and other important factors your consider in a valuation, so this should be considered in your model.
So before you walk away, model this out with terms similar to what i gave above and see how this deal fits in with your overall ETA strategy and then consider this:
1. If this is your first deal, does the company give you the foundation you are looking for to develop your platform company, and can the cash generated from the deal sustain you for an extended period while you develop your platform?
2. If this is not your first acquisition, you should look at the overall fit in your portfolio and how you get the network effect through this acquisition and model that out.
DM if you need help with modeling this out, and don’t walk away before you complete this model. Great recurring revenue businesses are hard to find, and if you genuinely found one, put a bit of effort into modeling this out