Terms for self funded search with investor to split the risk/reward

August 27, 2024

by a searcher from University of Missouri - Saint Louis in St. Louis, MO, USA

I'm in pre-LOI talks with a business that is identical to what I'm currently running with management in place. I'd like to know what standard terms are for a searcher that sources the deal and brings on an equity partner. I can raise funds from friends/family but have yet to explore outside investors.

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Reply by a professional
from Dartmouth College in Los Angeles, CA, USA

Hi Michael, sounds like you are proposing more of an independent sponsor structure than a typical search deal if you won't be running the company post-close. For IS deals typically you would be entitled to a management fee based on EBITDA of the target, carry in the range of 20%-40% with potentially thresholds to meet, and a closing fee that would typically be rolled into the acquisition as your co-invest. These deals are highly customized though, so it will depend on how much you're raising, what your role will be post-close, debt ratio etc.

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I cannot speak towards equity terms, but the SBA 7A program does provide 100% financing for add-on businesses if they are in the same six digit NACIS code as your existing business. So you could potentially buy this business and merge it with your existing business. Just a thought. If you would like to discuss, you can reach me here or directly at redacted

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