Does anyone have experience talking to owners of $100M companies?

searcher profile

June 22, 2023

by a searcher from Oregon State University in San Francisco, CA, USA

Got on the phone with a larger competitor this morning, he's 80 and is interested in selling.

He said he'll hand over the P&L and the let bank talk to CPA, but doesn't want to jump over a lot of hoops with diligence matters. It's his way or the highway. I know the space pretty well, have talked to his ex-employees and its a decent company. What would you guys do in this situation? Company make 50M in revenue, makes about 10M in EBIDTA and he wants to sell for about $100M. I know the space extensively know, having done diligence on it for over one year.

Should I raise all private capital for this type of deal, then consider doing leverage afterwards?

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commentor profile
Reply by a searcher
from Harvard University in 2003
I usually advocate for doing business at the speed of trust. "Doesn't want to jump through a lot of hoops with diligence matters" should be a yellow flag statement from a seller for a deal this size. That said, you might need to better understand the owners motivation. A fast sale might be needed and certainty of close is his main concern. I've seen this in owners whose health is deteriorating and they have not more broadly shared. If there are concerns from the seller "what if the deal doesn't close," or "will the buyer try and lower the bid using diligence against me", there are ways to mitigate and maintain trust through deal structuring. I have a few ideas if you'd like to chat offline. What you don't want is to be levered against a business that can't weather an unexpected 20% decrease in cash flows due to poor diligence or over optimistic forecasting. Given your knowledge of the industry, maybe you identify your top concerns around diligence and focus there with a like minded group of equity backers. I also agree with Nick that LMM PE might be looking at this in ways you are not if they are not participating.
commentor profile
Reply by a searcher
from University of Illinois at Urbana in Ann Arbor, MI, USA
"he'll hand over the P&L and the let bank talk to CPA." W.O.W.

Certainly, a good CPA can attest to validity of the stmts and the reliability of recent cash performance. And that's very mportant to the bank.

That said...and I mean no disrespect to CPAs. But I'd be stunned if his CPA actually knows: (1) how his company wins it's business, (2) how the company's positioned in the mkt, or (3) how that market might evolve over the next 5-10 years. THAT's the cash flow you're buying and relying on (or will be grieving if it declines).

So, what Steve said.

P.S. Oh. If you can raise 10x private equity sans diligence, I'll sell you my business, and discount to 9x! :-)
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