Acquisition Entrepreneur Capital Requirement

Current A2A (~25 years old) with ~600k in net worth across equities and a few other alternative investments that have performed well (i.e. flipping houses pre-banking and not Crypto).

Interested in eventually buying a business and was curious what those in the PE space would view as a good initial size of company. Some super high level numbers suggest the bare minimum to make it worth your while would be a ~$1 MM with at least ~300K of EBITDA to at least float leverage requirements and pay yourself a half decent salary and have cash left over for a return on equity.


Very early days of thinking about this but any thoughts would be greatly appreciated! 

 

Logic being the company would be large enough to have sufficient employees / existing management vs. me having to steer the bus with limited experience?

 

I bootstrapped a few companies to low 7 figures in revenue in my early twenties then started making minority equity investments. Ended up getting into turnaround control positions and now that's our niche. Only super involved with one of the companies where I am co-CEOing it. It's growing very well and I don't want to squander it. Will raise a bit of VC in Q1 @ ~$40m/$50m valuation for it and take some chips off the table via secondaries.

 

Congrats on the successes. When you're getting into turnaround control situations, are you buying into existing debt, providing some form of rescue financing or otherwise? I'm currently in RX planning to join the masses of ETA idiots but trying to apply a special sits edge as a differentiator, so curious to hear your typical approach.      

 

We're these smaller companies that you acquired independently or larger i.e. <$2 MM in EBITDA that you had other equity partners with?

 
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Really depends. Some we scaled organically leveraging our operating background. Others more of a financial engineering play. We're very opportunistic and that flexibility allows us to play in ways others cant.

Good example, this month we will close two credit deals where we write senior secured l1 and take warrants in companies running into some light headwinds. Both doing ~$10m - $20m in rev. Net IRR will work out ~30% - 40% conservatively. If they default it turns into a loan to own situation for us via awesome DIP but we extract a ton of cash prior, and if they do well we juice the warrants. They are OK paying us very high interest rates b/c we have a value-add playbook. We will charge additional fees for the operating assistance and helping them with unsecured debt (which makes our position even more secure lol).

I realize that's credit, but it's a good ex of our flexibility which is how we extract most of our returns.

Once my little credit thesis is tested out with another handful of loans, we'll sell a chunk to our close LPs and then scale it aggressively. Really excited.

 

How do you think about the decision to go it solo and buy a smaller company vs. raising some outside capital and buying a bigger company? The way I see it there's two options:

A) Buy a ~$2 MM EBITDA business solo and own a majority stake / control (equity required ~$1-$3 MM)

- Pros: All the upside is yours, you have control and have outside advisors as sense checks

- Cons: Likely this is most if not all of your net worth so large investment risk, minimally aligned partners to save you from blowing yourself up, lonely (joking but also not)

B) Buy a >$2 MM EBITDA business where you own a smaller stake but have control through governance or mgmt rolls with you

- Pros: Smart people DD'ing deal alongside you to sense check your decision, larger business is more stable and less risky, smaller piece of a bigger pie

- Cons: You are now beholden to you your shareholders as well as associated admin work (reporting etc.), conflicting visions / approach

 

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