Hello Freinds!
A grumpy old man has stated that M&A entrepreneurs should be able to pencil out a deal in less than a minute at any time.
And this seems to be a common pain point with our clients and partners, so here is a quick walk-through of a Biz Buy Sell listing of an IT service provider.
Here are the 5 public numbers:
Asking Price:$21,999,999
Cash Flow:$3,764,746
Gross Revenue:$12,088,864
EBITDA:$4,013,520
Inventory:$2,181,434
Next, know the terms of your debt:
60-month Line Of Credit (LOC)
9% fixed interest
This is what we get, so take it with a grain of salt.
Current valuations are at 3x:
Cash Flow: 3,764,746 x 3 = $11,294,238
Calculate 2x DSCR:
Cash Flow:$3,764,746 / 12 months = $313,728.83 in monthly free cash flow
313,728.83 / 2 = $156,864.41 as the acceptable monthly debt service level, so you still have $156,864.41 to improve the business.
$156,864.41 * 60 months = $9,411,865 LOC
I would offer the seller $9M at closing and keep the $412k for closing expenses and employee bonuses post-closing.
$11,294,238 - $9,000,00 = $2,294,238 remainder that could be seller financing. Seller financing would be another note under a 60-month term.
$2,294,238 / 60 = $38,237.3 in monthly debt service. So I would ask to delay the first payment for 6 months to clean up the company and bring in this new $40k of monthly cash flow.
Don't forget that you can also borrow 80% against or sell off inventory.
Inventory:$2,181,434
80% inventory financing = $1,745,147.2
I'm not going to attempt to make a final deal stack with only 5 data points, and the purpose of this was to demonstrate how to filter through deals and get your offers in quickly. And yes, I basically went straight to the net profit and divided it by 2, and the 9% interest also needs to be added still.
Check out the rest of our resources if this was helpful:
https://www.acquirescaleandexit.com/blog/
Meme Of The Week
Post Of The Week
We're investing in IT-centric SaaS, Managed Service Providers (MSPs), and IT-centric E-Learning companies to see them succeed for years to come.
We have the best earn-outs in the industry vis-à-vis a ballooning profits interests and a second bite of the apple with equity in the newco for the owners that sell to us.
GWT's Rules For Integration Success
The Vison – is there a realistic yet compelling vision for the long-term future together?
The Leadership – did the company immediately clarify leadership and roles
Growth – how does 1 + 1 = 3 in the near future while accounting for customers, capabilities, costs, and culture?
Early wins – plan for and accomplish early wins to create momentum and unity.
The Culture – Do cultural differences exist, and how can they be turned into benefits? What's the company's plan to keep employees from leaving (cash and non-cash)?
Communication – Is there a detailed communication plan? Are the proper people and mediums being used to communicate?
Risk Management – Is risk addressed defensively and reactively, and how can risk be turned into gains?
Our Board of Directors and IT Consultants will oversee technical & operational integration and set a clear process for the C-Suite to follow.
Culture integration is the biggest pitfall in most M&A transactions, so at GWT, we believe that each subsidiary should stand on its own 2 feet to avoid a culture clash while leveraging synergies in the GWT ecosystem.
Deals Of The Week
Here are all of our off-market companies for sale and a list of vetted business buyers:
https://docs.google.com/document/d/1wU2ZctV_KZnNDPpS_NNpLNp2nhNMLxOn5YbVZIwlyQU/edit?usp=sharing
Best viewed on PC for a clickable table of contents on the left.
And bookmark the link. It's a live Rolodex!
*Disclaimer these deals are usually a better fit for a strategic buyer; because great deals don't last very long on here. At the same time, since it's not a public site, there isn't as much competition as public sites. So you ought to check the deal sheet weekly. Reach out to us for the NDA and full CIM on any of these deals*
Financial Architecting Tip Of The Week
The ASE Fleet's Financial Architecting Tool #7
Business Line of Credit (LOC)
"A business line of credit allows you to borrow up to a certain limit and only pay interest on the money you borrow — similar to the way a credit card works. You then repay the funds and can continue to draw on the line.
Unlike a traditional small-business loan — where you receive a lump sum of capital and repay it over a specific period of time, with interest — a business line of credit is a more flexible form of financing. Business lines of credit can be used for a variety of short-term needs, such as managing cash flow, buying inventory or covering payroll."
Source: NerdWallet.com (https://www.nerdwallet.com/.../business-line-of-credit)
ASE has a short application for you to see if you qualify.
Deal Trophy Of The Week
Business Buyer Of The Week
Let's face it the public school system can't take care of the next generations as well as it should.
Let's take ownership through this rollup and our partners!
Here is their acquisition criteria:
Industry: aggressively seeking early childhood (preschool daycares) but open to other types of schools as well.
Geography: Anywhere in USA
Sales: No maximum sales. But can purchase up to $10M worth of schools for rollup in the short term and seek 30-50 schools in the long term. We are well funded!
EBITDA: Minimum $300K SDE each school. Many schools have a lower EBITDA but with add-backs ready $300k+
Headcount: At least 5 years in operation, preferably with a new director who can be promoted from within, and prefer 10+ employees.
Franchises are OK as long as the numbers fit our criteria. Only willing to pay 2.7X to 3X SDE on school.