Not sure how vibrant the search fund / ETA community is on WSO but always been one of my favorite boards to pontificate ideas.
Been hustling hard the past few months to buy a business under 1M EBITDA and have finally narrowed in on a couple decent targets LOI's but starting to get cold feet.
Wondering if anyone else has had this experience or went down this path to end up backing out?
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Not search fund specific - but if you're not feeling comfortable about a deal, don't do it. You'll always second-guess yourself, always be thinking about it. It's not worth the trouble, headache, sleepless nights.
Trust your gut, just back out.
That's a good way to never do a deal...You should be worried. Every business has risks. The challenge is figuring out whether those risks are a deal-breaker or not.
Also, just a thought from my personal experience stock trading: almost every time that I think something is a sure thing or about as close to a slam dunk as possible, I lose money. Almost every time that I'm almost scared to death to hit the buy button, I've hit a homerun. Sometimes, your gut goes against you.
That's horrible advice. Do not let the pressure of doing a deal, force you to do a deal you're uncomfortable with. Of course every business has risks, my comment was on being COMFORTABLE with those risks.
Also, trading stocks is much different than owning a company. You can sell the stock whenever you want, you cannot get rid of a company that you own.
This comment makes more sense for an investor doing reps and deciding on a new investment and less applicable here. What seems to be making the poster nervous is the follow through of uncharted territories. I'd say most people when they do something new its scary for the first time when really pulling the trigger - PE, HF, other careers you name it. I'd imagine that most people doing a search fund construct get a big of jitters before the deal closes. If anything, not doing the deal will lead to the second guessing and cold feet - the what could have been had I just swung the bat. Assuming the poster had a good process of deal selection and knows a thing or two about investing he/she should take solace in that part. Operations will be rollercoaster but presumably this is something the poster has wanted to do and devoted a long time to doing it and is now just nervous. If a good framework was implemented I'd say its better to take the plunge.
What is causing you to get cold feet?
Not being able to execute the growth plans and the potential headache of being a full-time operator instead of allocator if things don't go to plan.
Hard to exit the position being illiquid.
How are you financing them? Mainly external or personal? What sectors?
A mix of both and sectors are services focused on commercial businesses.
I dont have time to find it but Earthwalker7 did a really detailed post on personal private investing.
Edit: found it and the link is below. https://www.wallstreetoasis.com/forums/no-pe-in-my-pa
@earthwalker7"
Calling @m_1 to the stage.
EDIT: No clue how to hyperlink users on the new system but m_1 buys small businesses and likely has valuable commentary here.
What specifically are you getting nervous about?
I know a few individuals who have done small biz acquisitions in a personal capacity. At below 1M EBITDA, you're almost always buying a job; the scale will not allow you to remove yourself from the day-to-day. Those who ultimately made it work knew exactly what they were getting into and had identified low-hanging levers to pull to immediately improve/scale the asset. I think having a concrete game plan that leverages your existing skillset and network goes a long way in giving yourself the confidence to pull the trigger.
Mind if I PM you?
Saw this thread on Reddit the other day and thought it relevant to share: https://www.reddit.com/r/fatFIRE/comments/in3och/trading_high_income_fo…
Thank you for sharing this!
My father and I just bought a business 1/1/2020 that meets your criteria. Feel free to PM me.
Just like there will always be another house on the market, there will always be another business that meets your specs. Examine if you're just trigger shy or if you have legit reservations. If you're not comfortable, just don't do it. They'll be another one. There ALWAYS is. You're not buying a pair of shoes. This is something you're stuck with for awhile, so you need to feel good about it.
I'm currently an exec at a small SBU within F500 and this path is potentially my exit plan eventually. I do a decent amount of research and thought in this space, but won't execute anything for a while. Feel free to PM if you want to discuss confidentially.
Hey OP,
I've acquired a few businesses in the 500k - 1M EBITDA range in the past two years and I get what your saying. If you're like me and paying 4-6x with some earnouts and seller financing, the reality is that there will always be hairs on the deal. If it was a perfect deal, it would be trading at a higher multiple, unless you lucked out. Not sure how you are financing them and what your endgoal is, but I think sometimes you got to just suck it up and do the deal. I know lots of guys from the Searchfund industry that got analysis paralysis and didnt do a deal for 3 years, you dotn want to be that guy.
There is always a way to try and change terms up in the deal to mitigate the risks. If you are not as comfortable as you were initially going into the deal, you can always reneg on certain terms. Ask for more seller financing, decrease purchase price, etc. Hope this is helpful. Feel free to PM if you wanna chat.
Cheers,
Personally I wouldn't buy a company with under $2M EBITDA. It doesn't make sense unless you're
a) A very experienced operator.
b) Jumping into a turnaround situation where EBITDA was previously $2M+.
c) Paying next to nothing for it.
or buying a bunch at the same time and keeping owner in place post transaction :^)
What's your IRR? Are you PGing anything? Personally I see existing ownership as the biggest blocker to unlocking growth in most cases. There's a reason their co is so small in most cases...
$2M EBITDA as the floor due to the amount of headache you're essentially taking on as an operator? I know under that range its often referred to as "buying a job" lol but curious to hear your reservations on this target area?
Part of the reason i'm looking at $2M EBITDA is A) what I can afford unfortunately from a personal perspective and B) to play away from the LMM crowd since they're not fishing there.
You nailed it. And if you don't want to operate, then raise capital and buy something with $2M min in EBITDA + find an edge.
In the same boat / working towards the same goal at the moment. Commenting to follow.
Being stuck as a small-business operator for years on end is the biggest fear in pulling the trigger.
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