deal structure - stock purchase with low NCF - owner financing?

June 19, 2025

by a searcher from Texas A&M University in College Station-Bryan, TX, TX, USA

Question for those with some experience with this. I am working on a LOI for wine distributor and have some snags. Business is profitable, has needed cash flow after backing out SDE. Per the owners own explanations, he has run it for tax advantages, but not for transactability. Here is the issue and question. Buyer wants 4m, NCF will support maybe 2m. This cuts out the SBA due to DSCR and no ability to do an earn out. I am fine with the selling price, but half of that is based on future value and me cleaning up operations. What are some ways to structure the deal? Not sure what sort, or if any, investors would be interested in this sort of deal as it is atypical. a: Turn around for equity: I run it for 2 years, split the gains in NCF with owner, earn 20%ish equity for my time and them either refi via SBA or do a structured owner financing. b: 50% seller note, 10% rolled equity, and 40% earn out? maybe with a token 100k at close. i will still need to get a LOC for 500k or so. other ideas how to structure it? what are some people seeing in the market for things like rates for seller notes?

Reply by a searcher
from Stanford University in San Clemente, CA, USA

Not an answer to your question, but my 2 cents without knowing anything about the business. You think the business is worth "maybe $2m", and you're probably right (probably less). There's just so much fragility in businesses this size. I don't think there's any reason to force a complicated structure with little room for error and no capacity to invest in the growth required to create margin for error, just to get to an asking price that is disconnected from reality. Seller gets paid for what she/he built, not the future value that you are going to add after he/she sells it to you.

Reply by a searcher
from The University of North Carolina at Chapel Hill in Austin, TX, USA

Looks like the seller is trying to double-dip. He should not get the benefit of lower taxes and a higher selling price. He either has to show more profit and get a higher selling price, or show less profit, and get a lower tax bill, not both.

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