Sole Source Equity for Self-Funded Searchers
July 16, 2024
by a searcher from Indiana University, Bloomington/Indianapolis - Kelley School of Business in New York, NY, USA
Are there any sole source equity investors for self-funded searchers doing <$2M EBITDA / <$10M TEV deals? Is anyone aware of capital providers that will cover or split broken deal expenses for self-funded searchers?
For larger deals in the Independent Sponsor world, there are a handful of groups that will cover potential broken deal expenses in return for being the sole source equity or majority equity partner on the deal - i.e. they're sponsoring the deal and carving out economics for the independent sponsor. The self-funded searchfund (and searcher's goals) is a bit different, particularly given the SBA dynamics requiring a personal guarantee, but there are of course other ways of financing the transaction. I'm wondering if there are any investor groups that are interested in sole source equity deals, particularly those that would consider covering broken deal fees if the deal doesn't work out. Maybe Minds Capital, SIG, Slack Water?
from University of California, San Diego in San Francisco, CA, USA
from Western Washington University in Key West, FL 33040, USA
However, the problem with being the sole equity investor for a sub $2m EBITDA deal is that you're probably stuck with an SBA loan as your only serious debt financing option. This means that no investor can own more than 20% of the common equity. This can make the deal economics challenging for an investor trying to write 100% of the equity check.