Minimize Due Diligence Costs for Smaller Deals ($100K-$200K SDE)?

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May 15, 2023

by a searcher in San Francisco, CA, USA

I'm looking at smaller deals in the Southeast and these are typically $1o0K -$200K in EBITDA and also only $300K-$500K in valuations. These are franchise and non-franchise independent businesses. I see typical due diligence services (QoE, legal DD) etc of the order of $20K-$50K each. While those fee ranges can make sense for bigger deals, it can have a big impact on the economics with such high closing costs for smaller deals.

Do I have any options for a more reasonable and simpler due diligence services for smaller deals? Has anyone here closed such very small deals, and if yes, how did you manage the due diligence services?

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Reply by a searcher
from Indian School of Business in Raleigh, NC, USA
You can do DueDilio for around 5k. Pay attention if it is your first time, maybe you can do it next time. But keep in mind there can be a lot of other pre-closing expenses like lawyers, SBA-related expenses (valuation, legal, tax verifications), insurance (prove to the bank before closing), etc. Its tricky to manage those small deals, but some of them could pay off if they have good good prospects.
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Reply by a searcher
from The University of Chicago in Dallas, TX, USA
At that size, you'll want to skip QofE and do your own proof of cash via bank statement analysis. Additionally don't break the bank on M&A lawyers. Should be a $20-30K bill for attorneys at that size for a standard MIPA.

Just know if you're buying that small, and it's not a bolt-on, you may have a lot of customer concentration.
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