Evaluating a Carve-Out Opportunity in Canada

May 04, 2025

by a searcher from University of Toronto in Toronto, ON, Canada

Hi Searchfunder community, I've come across an intriguing opportunity, an acquisition of a small portfolio of recreational service businesses located across multiple provinces in Canada. The operations are being spun off from a larger U.S.-based parent company with a significant national footprint. These locations have been active for several years, led by experienced local managers. Post-Covid recovery appears strong, with stable margins and healthy cash flow. The asking price is in the mid-seven figures, representing a multiple of approximately 5x normalized EBITDA. I feel optimistic about the opportunity but would greatly value insights from operators who've navigated similar family entertainment/recreational deals. Specifically, I’d appreciate your perspectives on: Carve-out challenges: From experience, what were some unforeseen pitfalls or complexities you've encountered during similar carve-outs? What would you approach differently if you did it again? If you've invested in, operated, or exited similar deals, I'd genuinely appreciate a reality check. Happy to connect offline and eager to speak with those who’ve operated in the location-based services or consumer experience space. Thanks in advance for your candid insights!

Reply by a professional
from York University in Toronto, ON, Canada

Hi Kanisha, thanks for sharing, it sounds like a cool opportunity. A few thoughts that come to mind based on what I've seen: - Often there are deeply intertwined systems with the parent. Things like HR/payroll, insurance, software, etc. Part of due diligence is understanding all those systems and how feasible/expensive it will be to stand up those systems on their own - Care needs to be taken if the parent's brand has been a big driver of traffic and if you're not getting a license to the brand. Higher chances of customer churn if the brand goes away - Location-based businesses usually come with a bunch of physical assets and if the parent has been planning to sell, there's a risk they've held back on upgrades or repairs. Example: if this was an escape room that hasn't been refreshed in a while, you'd have to plan for a refresh as part of your capex budget Just a few things that immediately come to mind. Happy to chat further - redacted

Reply by a searcher
from Queen's University in Toronto, ON, Canada

Hi Kanisha - I received a number of insightful comments on a recent post RE: carve-out acquisitions that may be helpful for you: https://searchfunder.com/article/viewarticle/53462.

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