Success fee economics for self-funded, SBA deals under $5M

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by a searcher from Harvard University - Harvard Business School
in Washington, DC, USA

1yr ago

Success fee economics for self-funded, SBA deals under $5M

Is there any way in which the economics work?

Following the standard model, the success fees for buy-side searches this size are upwards of $200K. Not to mention the retainer.

So, my two questions are:
1. With all the other fees involved in "project costs" (SBA guarantees, QoE, legal, closing fees etc.), is a buy-side search prudent for a self-funded searcher? Also considering the "time value" of the money vs. how long it would take to find and close on something independently.

2. When you do the math, it doesn't math! Fees this large significantly reduce your buying power. Are there good ways to structure the economics (or anything else), so that your buying power isn't drastically reduced because of the success fee addition? Specifically, the more the "project" costs, the more buyer equity gets added on. Secondly, there is an impact on the DSCR as well. Are there industry standard practices around this that I'm missing?

Looking for any advice that would help make sense of this! (or alternatively, confirmation that c'est la vie - self-funded lower-middle-market searchers can't afford success fees?)

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reply by a searcher 1yr ago
from INSEAD in San Francisco, CA, USA

(1) No. The answer is DIY, especially if you are searching full time. What else are you using to fill your day? I don't think there's enough broker deal flow to keep you busy.

IMO buy side only makes sense if you are searching part time while working a job.

As a middle ground, theoretically you could just pay someone to do part of the work (e.g., building lists) for a monthly fee and then just do it yourself, but my experience with that has not been very positive.