The Power of Simplicity in Business Acquisitions

In the world of business acquisitions, keeping things simple is key.   

Sellers, brokers, and lenders aren't fans of complexity.  We often see buyers from mid-market M&A and investment banking backgrounds who try to use complicated mechanisms like earnouts, merging multiple companies, and working capital adjustments.   

The problem is, sellers and their advisors usually don’t get these mechanisms, which just complicates everything.  

SBA lenders are designed to serve clients who often don’t have much representation, so their processes and requirements are pretty rigid. The debt they offer is great—no covenants, high leverage, etc.—but you’ve got to deal with that pesky personal guarantee. It’s like trying to get a mortgage from the DMV—gotta love government bureaucracy.  Here’s a recent example:   

A really smart, determined and experienced buyer tried to package two companies into one deal. The plan was to buy the first company and use it to acquire 51% of the second one, with the second company’s management staying on.   

After months of planning and working with lenders, the seller of the second company got cold feet and backed out, blowing up the whole deal.  

They were overwhelmed by the complexity!  Afterwards, the buyer told me they finally got what I’d been saying about keeping it simple.   

On Main Street, unlike in investment banks or PE shops, simplicity is the name of the game.  

The typical Main Street deal includes a few key components:  

1. Purchase Price: Usually structured as 80% SBA debt, 10% equity injection, and 10% seller note.     

2. Seller Note: Paid monthly, quarterly, or annually, with interest rates between 6% and 10%. It's subordinated to the SBA and might come with a 24-month, 10-year standby, payment holiday, or interest-only period. There's also an indemnity setoff against the note.     

3. Transition Services: Ranging from a few weeks to up to a year.     

4. Exclusivity: Typically 90 days.     

5. Earnest Money Deposit: Usually none.     

6. Working Capital: Can include cash, accounts receivable, and/or inventory. 

Often, there's no working capital adjustment.    

Image

Disclaimer:  

This content is for informational purposes only and should not be construed as legal advice. It is not intended to form an attorney-client relationship, nor is it considered legal advertising. For specific legal inquiries, please consult with a qualified attorney.

The allure of off-the-beaten-path travel

Lorem ipsum dolor sit amet, consectetur adipiscing elit ut aliquam, purus sit amet luctus venenatis, lectus magna fringilla urna, porttitor rhoncus dolor purus non enim praesent elementum facilisis leo, vel fringilla est ullamcorper eget nulla facilisi etiam dignissim diam quis enim lobortis scelerisque fermentum dui faucibus in ornare quam viverra orci sagittis eu volutpat odio facilisis mauris sit amet massa vitae tortor.

Landscape Travel Image - Journal X Webflow Template
Tempor orci dapibus ultrices in iaculis nunc sed augue lacus.

Unveiling the charm of lesser-known Destinations

Orci sagittis eu volutpat odio facilisis mauris sit amet massa vitae tortor condimentum lacinia quis vel eros donec ac odio tempor orci dapibus ultrices in iaculis nunc sed augue lacus.

  • Lorem ipsum dolor sit amet consectetur facilisi etiam dignissim diam quis enim
  • Mauris aliquet faucibus iaculis dui vitae ullamco sit amet luctus
  • Posuere enim mi pharetra neque proin dic rhoncus dolor purus non enim
  • Dui faucibus in ornare posuere enim mi pharetra neque proin dicit

Finding solitude in hidden gem locations

Lorem ipsum dolor sit amet, consectetur adipiscing elit ut aliquam, purus sit amet luctus venenatis, lectus magna fringilla urna, porttitor rhoncus dolor purus non enim praesent elementum facilisis leo, vel fringilla est ullamcorper eget nulla facilisi etiam dignissim diam quis enim lobortis scelerisque fermentum dui faucibus in ornare quam viverra orci sagittis eu volutpat odio facilisis mauris sit amet massa vitae tortor condimentum lacinia quis vel eros donec ac odio tempor orci dapibus ultrices.

The thrill of discovering untouched natural beauty

Dolor sit amet, consectetur adipiscing elit ut aliquam, purus sit amet luctus venenatis, lectus magna fringilla urna, porttitor rhoncus dolor purus non enim praesent elementum facilisis leo, vel fringilla est ullamcorper eget nulla.

  1. Lorem ipsum dolor sit amet consectetur tempor orci dapibus ultrices
  2. Mauris aliquet faucibus iaculis dui vitae ullamco elementum facilisis
  3. Posuere enim mi pharetra neque proin dic fermentum dui faucibus in ornare
  4. Purus sit amet luctus posuere enim mi pharetra neque proin dic
“Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat uis aute irure dolor in reprehenderit in voluptate velit”
Exploring cultural marvels off the tourist radar

Donsectetur adipiscing elit ut aliquam, purus sit amet luctus venenatis, lectus magna fringilla urna, porttitor rhoncus dolor purus non enim praesent elementum facilisis leo, vel fringilla est ullamcorper eget nulla facilisi etiam dignissim diam quis enim lobortis scelerisque fermentum dui faucibus in ornare quam viverra orci sagittis eu volutpat odio facilisis mauris sit amet massa vitae tortor condimentum lacinia quis vel eros donec ac odio tempor orci dapibus ultrices in iaculis nunc sed.

Smarter business starts here.

Stay up to date with the latest content and resources in your inbox weekly. All for free.

Email Icon - Journal X Webflow Template
Thanks for joining our newsletter.
Oops! Something went wrong.