We are buying distressed at under 1x ebitda

searcher profile

December 14, 2023

by a searcher from Universitat Pompeu Fabra in Manila, Metro Manila, Philippines

Last year I came up with the thesis that most overleveraged aggregators would default in their covenants in###-###-#### With a 1 to 3 equity-to-debt ratio, it is just not feasible to buy e-commerce brands and operate them with enough cash flow.

In 2023, we closed on 3 transactions and bought over $15MM in revenue with only $100,000 in equity for the goodwill, two transactions have been $1 for the equity. EBITDA post-integration will be $600K,

At Inversal we plan to target the bigger aggregators in 2024 and provide a solution to their first lien lenders of at least 50 cents on the dollar, once the businesses have a cleaner balance sheet and 50% lower operational expenses from us, they become solvent and quite profitable.

Example of the latest transaction:
$4.4MM revenue, $625k CM3, $750k inventory. $1 for the equity and $750k for the inventory, wiping all the first lien lender debt at 50 cents on the dollar.

All these transactions have been self-financed via previous exit by myself and now we are looking for institutional/family office capital to tackle the bigger transactions.

Example of a bigger transaction:
$50MM revenue
$8MM cm3 (enterprise value $20MM max at 2.5x)
$6MM opex
$2MM EBITDA
BS: $20MM equity raised $40MM debt at 15%
$-6MM interest
$-4MM cashflow (facility due in###-###-#### )

Proposed buyout at $20MM with $10MM cash and $10MM debt rollover with an OPEX reduction from $6MM to $3MM, EBITDA of $5MM

Let me know if someone is interested in this space, or knows family offices that are happy to explore distressed/turnaround.

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commentor profile
Reply by a professional
from Embry in Orlando, FL, USA
Is it possible to get a list of SBA loans that are behind in payment. The banks do not publicly divulge such, unless you know someone on the inside, The SBA agency (possibly might make it public) - I don't know. The next question, when a SBA loan goes into default witch organization takes it and liquidates the organization? I LIKE this Question and look forward to any other insight
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Reply by a professional
from Embry in Orlando, FL, USA
I Know this is a good strategy - it takes some guts, and often you are dealing with owners that Just want OUT! but it only works if you can replace ownership with an industry experienced person and possibly team. Another strategy is to just acquire such organizations as a growth plan. Go get them. If you are dealing with anything dealing with technology o- our team can help.
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