Investor Structure for Self Funded Search in SMB.

searcher profile

March 08, 2023

by a searcher from University of Wisconsin-Milwaukee - Sheldon B. Lubar School of Business in Hartland, WI 53029, USA

I am reaching out to seek guidance on how to structure a deal to attract investors for our acquisition. Search. We are a self-funded search looking to acquire a SMB that has an EBITA of $600k to $1.4m. We plan to use SBA financing in a LBO, which will most likely have a portion of seller financing.

We have noticed that most funds are only interested once we are under a LOI but we are not yet under LOI and would feel more comfortable having investor support before proceeding. We have also heard that some people shop the deal once under LOI for but we are uncomfortable with this approach.

Therefore, we would like to know if there are any suggestions or guidance on how to structure the deal to attract investors before getting under LOI. Our goal is to create a mutually beneficial agreement for all parties involved.

We appreciate any help that the members of this forum can provide. Thank you in advance for your time and consideration.

3
7
342
Replies
7
commentor profile
Reply by a professional
from Villanova University in West Chester, PA, USA
Hi ^redacted‌, there's a few ways you could approach this. You could seek indications of interest that show support and provide comfort but are nonbinding and provide the opportunity to invest, or other mechanisms like a SAFE (simple agreement for future equity) which can provide funding for your search and acquisition in exchange for future equity in newco or holdo, whichever your trigger event is. I'd be happy to discuss this further. I'll send you a DM.
commentor profile
Reply by a searcher
from Princeton University in California, USA
You could always just give a general overview of structure (preferred equity stack, target return hurdles) along with deal size and focus area for your target. I got backing mostly from former bosses who know what kinds of deals I like (because they taught me in private equity) so it was much easier. I think if you sell potential investors beforehand much like traditional search, you'll be able to get rough alignment and would give you more comfort in shopping around without committed capital.
commentor profile
+5 more replies.
Join the discussion