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Great thread on seller financing as an effective structuring lever to use in RE deals
The same can be said for SMB/Micro PE deal structures
An example: https://twitter.com/sweatystartup/status/1352218512962580480
The same can be said for SMB/Micro PE deal structures
An example: https://twitter.com/sweatystartup/status/1352218512962580480
But first a quick caveat: we are quite unique in that most of the time we acquire a biz, we use all cash + no debt.
We eventually put debt on the biz down the road, but use early cash flow to build/grow/de-risk smaller co’s we acquire in this end of the market
We eventually put debt on the biz down the road, but use early cash flow to build/grow/de-risk smaller co’s we acquire in this end of the market
When we do use leverage as part of a txn...
I look to include a package of low-rate Sr Debt (depending on situation could be bank or SBA) + Seller Financing before I even think about expensive debt (like Mez/Jr capital... where you have 10%+ rate + give up 10-30% of the upside)
I look to include a package of low-rate Sr Debt (depending on situation could be bank or SBA) + Seller Financing before I even think about expensive debt (like Mez/Jr capital... where you have 10%+ rate + give up 10-30% of the upside)
Seller Financing is great bc it reduces your cash (equity) needed to close
+ you're plugging the gap w/ much cheaper, non-dilutive financing
So you can drive more meaningful returns on cash invested
+ you're plugging the gap w/ much cheaper, non-dilutive financing
So you can drive more meaningful returns on cash invested
I was in a similar situation as Nick buying a lower MM ~$4M EBITDA biz
I got to know the owner and offered two structures:
- the first was $7.25M all cash (no debt)
- the second was $8M w/ a Seller note ($1M Seller Note)
- the first was $7.25M all cash (no debt)
- the second was $8M w/ a Seller note ($1M Seller Note)
After talking about the pros/cons and what fit his personal desires/family situation/risk tolerance... we landed on the seller note structure
Which worked really great for him, given:
- he got a higher price than I’d pay all cash
- he has more diversification of risk (cash at close, debt security, equity upside)
- and we eliminated the risk a great buyer for his biz walks bc a valuation/expectations mismatch
- he got a higher price than I’d pay all cash
- he has more diversification of risk (cash at close, debt security, equity upside)
- and we eliminated the risk a great buyer for his biz walks bc a valuation/expectations mismatch
Fast forward 3 years and his Note is half-way paid off, his rollover equity is worth 3x where it started, he’s in a role he enjoys more (less admin), and he used the cash at closing to travel and invest in his golf course real estate
Not a bad scenario for the seller
Not a bad scenario for the seller
When you find there is a mismatch on price... one of your first reactions should be "structure creatively" to mitigate pain points (ie price)
The Seller Note is a great tool to have in the toolkit for this
The Seller Note is a great tool to have in the toolkit for this
