Structure for opportunities in the $300-$450K SDE w/ 2 active owners

May 21, 2024

by a searcher in Cincinnati, OH, USA

I have recently come across several opportunities in various industries where there is a husband/wife or 2 family members (ie: brothers) as active ownership/management. In each case the companies are in the $300-$450K SDE range after add backs (including both active owner salaries/comp) with the the 2 owners usually paying themselves in the $125-$150 COMBINED range.

Admittedly, I look at these situations and believe both owners are underpaid for their roles and responsibilities. If I was to adjust for replacing 1 owner (~$75K-$125K) depending on the position, and then adjust for a normal owner salary ($100K-$150K), there is limited funds left for debt service and re-investment. My thoughts have been that these opportunities are only suitable for a strategic, but after seeing this repeatedly I'm wondering if I'm missing something or not being creative enough. I like the industries, but struggle with making the financials work.

I'm curious to how/if anyone else has structured similar opportunities as a financial buyer?

Reply by a searcher
in Mississauga, ON, Canada

You can't value on salaries that aren't excess. We are always very clear when it's a situation like this the cost associated with hiring for those positions. As an owner, yes you'll take on more hats. BUT, it's unlikely you can take on as many hats as most owners off the bat. So things have to be hired for. Just break it down and explain it. Realistically if you can't cover debt after filling the hats, and they're not willing to listen - it's a bad deal. There's more than enough deals in the market that you NEVER have to do a bad deal.

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