Self-funded diligence and transaction costs

October 16, 2024

by a searcher from Texas Tech University in Denver, CO, USA

Hi Team,

I'm in the process of buying a $7m revenue services business. I would appreciate any recommendations on providers and/or cost estimates. We will likely be self-funding through SBA 7A. I know the costs for much larger and more complex transactions, but guidance for micro-cap deals of this size would be appreciated.

We likely need estimates and recommendations for QoE, SPA, and equipment evaluation. DMs or posts are both welcome.

Thanks!

Jeremy

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Reply by a professional
from University of California, Hastings College of Law in Petaluma, California, United States

Jeremy, a few things worth knowing on the QoE and commercial DD side for a $7M services business going through SBA. First, at this size the QoE scope is usually straightforward but the findings matter more than people expect. SBA lenders will lean on the QoE to validate adjusted EBITDA and working capital, and any add-backs that don't hold up will affect your loan terms, not just your purchase price. Worth making sure your QoE firm has done SBA deals specifically and understands how lenders will read the output. Second, and this is the one most self-funded searchers skip at the micro-cap level: commercial DD. A $7M revenue services business almost certainly runs on a concentrated set of customer relationships, and the QoE won't tell you whether those relationships transfer with the business or leave with the seller. That's a question you can only answer through direct customer conversations before close. At this deal size, losing one or two key customers post-close can turn a good acquisition into a cash flow problem inside of 12 months. For March we're bundling QoE and commercial DD at the price of QoE alone for searchers heading into diligence this month, and our QoE is in a phased approach, so cost effective depending on the deal. Five spots, first come first served. Given your timeline it might be worth a quick conversation. DM me or email redacted and happy to share cost estimates and our provider recommendations for all three workstreams.

Reply by a professional
from Bentley College in Miami, FL, USA

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