We went under LOI earlier this week on a ~$3M EBITDA healthcare staffing and recruiting business - fingers crossed on this one. The broker sent a kickoff email that I thought was worth sharing, because it's a masterclass in how a great broker sets the tone for a transaction. He positioned himself as Switzerland from day one - neutral keeper of the record, copied on communications, focused equally on getting the deal closed for both sides. He pushed for financial diligence first and fast, before the legal bills start stacking up. And then this gem: when things get stressful - and they will - blame the lawyers, the accountants, him, and then each other, in that order. Don't let it touch the relationship. That third point is everything. Deals fall apart over ego and emotion as often as they fall apart over real problems. A broker who understands that and actively protects the buyer-seller relationship through the hard parts is worth their weight in gold. This is what it looks like when everyone is set up to win. Partner Perspective: Matthias Smith, Pioneer Capital Advisory: Post-Close Liquidity, Revisited. What SBA Lenders Are Actually Telling Us Back in January I wrote here that post-close liquidity was one of the most common friction points in SBA-backed acquisitions. Eight months later I would tighten that up. Over the last 30 days it has been the single most common reason a deal we like has come back from a lender as a pass, and the lenders have started giving us numbers. One of the most active SBA lenders we work with declined a roughly $4.85M loan for two buyers with MBAs, credit scores near 800, and about $3.1M of seller financing on full standby. The reason: the guarantors’ post-closing liquidity fell below the bank’s floor of 5% of the loan amount. A large national SBA bank told us on a separate deal that they typically require 10% of the loan, and suggested adding a guarantor. A third passed on a $5M request citing limited post-injection liquidity. Even the one lender that told us it has no requirement, because it builds working capital into the loan, said a $4M deal with 5% down would get obliterated in credit review. So the range right now is 5% to 10% of the loan amount still sitting in the guarantors’ accounts after closing. On a $3M loan, that is $150K to $300K. And it is guarantor liquidity, not group liquidity. On a three-partner deal last week, the lender’s first question was how much the guarantors themselves were contributing, separate from the minority investors. Investor cash helps the injection. It does nothing for your personal cushion. October 1 makes this harder. Under SOPredacted, standby seller debt and passive investor equity can cover no more than half of the 10% injection. The other half is your own cash. Your personal check gets bigger, and the post-close test applies to whatever is left after you write it. Run the test before you sign the LOI: your half of the injection, plus deal costs, plus 5% to 10% of the loan. If that total is bigger than your non-retirement liquidity, you have a deal-size problem, and it is far better to know now than in week eight of underwriting. Too many buyers are adequately capitalized to close and thinly capitalized to own. If you want help structuring a deal so it holds up after closing, reach out to my team. After The Acquisition: Dustin Campbell, CultureWise: The GE Hammer Buy distressed businesses, then install managers who already know how to run a company. It’s a defensible thesis, and it’s how a private equity firm I worked for staffed its operations team - largely with GE and Honeywell alumni. It mostly didn’t work. The firm’s investment strategy and its operating strategy were not aligned. GE’s stated strategy at the time was to be number one or number two in an industry or divest. Roughly the opposite of distressed. These were capable people, trained where there was deep infrastructure, abundant data, and a deep bench of eager and talented people. What they produced were reports about the systems we should upgrade and the people we should replace. Written for a company that I had joined – one that was ninety miles from the nearest airport, capital constrained, with no bench –the recommendations weren’t wrong so much as irrelevant to our situation. As our CEO pointed out, we’re in a small town with nobody else to hire from, we have no money to recruit new people, and we have to make it work with the team we have. When you’re a hammer, the whole world looks like a nail. We started calling it the GE Hammer. Leadership happens in context. Years later, buying our own company, we swung a version of the hammer ourselves. We came in believing the business could be systematized better. We were right about that. What we got wrong was thinking the job was to get people to absorb our changes. A team doesn’t need a smarter list of tasks. They need to own the work, and once they do they’ll teach it to each other. Guide and coach, but let them do a lot of it themselves. Reflecting on that first ETA experience and that of other searchers we’ve met since: you are not overqualified for this and you are not underprepared. You are recalibrating. And the company you just bought can do something GE never could: change how a hundred people work together in a quarter. No matrix, no steering committee, no eighteen-month change program. Your job is to create the conditions for them to succeed. The best operators I’ve watched weren’t the ones who knew the most. They were the ones who got more out of the team already there. If you're swinging a proverbial GE hammer and not getting results, reach out. Plus: - Walker Deibel - author of Buy Then Build - makes a compelling case this week that a fund manager's track record is often measured too early to be useful, and that the interim performance number an investor sees at fundraising time tells you almost nothing about what comes next. His four questions, which he calls the “Growth Predictor Framework” and uses for interrogating a track record, are worth bookmarking if you're evaluating any kind of fund investment. Full piece here. - Interesting discussion on how to determine the type of business you want to buy: by industry/size/constrained financial metrics that could be anywhere in the country, or by geographical density for what’s statistically available in your area? We’ve seen searchers be successful both ways; if you have POV on what has worked, we’d love to hear why you think it was the better path.redacted