LBO'ing a Local Business

There are a few threads on this site regarding the idea of wealth generation through purchasing a so called "non-sexy" business (i.e. gas stations, laundromats, etc.) for the long-term cash generation potential. There have also been a few really great, recent discussions about home ownership and the pros and cons of owning your own residence as well as other investment properties.

My question is more along the lines of a third option, as stated in the title of this post. How feasible is it for me, as an individual investor, to:

  • Lever up a local business
  • Hold it for a 3-5 year time horizon
  • Get out for a modest but worthwhile IRR
  • Clearly there must be something I'm missing, or many more of us in finance would incorporate the investment tactics we work with on a daily basis into our own personal investment approaches. What are the hurdles here that I'm not thinking of and what can be achieved in your opinion? (view OP's entire post at end of thread)

    Questions to Consider When Buying a Small Business

    • How do you exit? You can't IPO
    • How will you get the financials of a private company in order to know if business has good FCF? (may be able to get if owner has you sign an NDA)
    • How are you going to do thorough due diligence?

    Additional Challenges with Small Business Purchases

    • Small business is not a liquid asset class
    • Might be difficult to convince an owner to walk away from a business they built
    • Need a strong, senior network in order to identify opportunities
    • Owning a portfolio of small businesses is a full-time job
    • You may struggle to find the debt to lever it up

    Recommended Reading

    ***Continuation of OP's original post:***
    Now there are some obvious hurdles such as the inability to lever up Joe's Pump-n-Go at any kind of comparable multiple to a Berkshire Partners buyout, but what is preventing me from doing the following:

    - Establish a holding company under which I can issue non-recourse debt to myself

    - Find an established local business with strong, consistent cash flow generation (preferably with an effective internal auditing system and maybe even a track record with a local bank). Let's say for this example that it's a local, successful home furnishings store with high margins in a market with consistently increasing property values proven through a few economic cycles (i.e. San Fran, Boston, etc.)

    - Agree on a price for the business and perhaps purchase the underlying property as well, since we're talking about brick and mortar retail/service establishments

    - Now here's where it becomes less clear - I can certainly finance 80-90% of the property value in the form of a mortgage. But reasonably, how much debt am I, through my holding company, going to be able to put on the business itself? Obviously the exact multiple is case by case specific, but anecdotally speaking, what kind of discount in terms of % debt/equity split would you see vs. a true, lower middle market LBO?

    - As a sub-bullet to the previous question, are there any kind of appraisal tricks you could work on with the bank related to the property value, whereby you could have the bank provide a larger mortgage than the actual agreed upon sale price of the building and use that to finance some or all of the purchase price of the business as well (this could be a stupid question - I am totally ignorant here as I'm a renter and have never applied for a mortgage, but am aware that there are different appraisal values for tax vs. purchase value, etc - don't know how willing the bank would be to work with you on that point. Clearly you haven't built any equity in the house under which to set up a line of credit at this point, but is this excess funding based on a higher appraised collateral value vs. actual price paid something that could be achieved)?

    - Repay bank debt, keep the time horizon relatively short before exiting

    I'm really curious to hear your thoughts. I began thinking about this after reading the recent discussion on "The Fallacy of Homeownership as a Vehicle for Wealth Creation". In reality - and the tl;dr version - we're basically talking about the same thing, with the cash flows from the local business substituted for rental income...

    Anyways, especially interested to hear from Heister and others who own land and other tangible assets as investment vehicles. What are the hurdles here that I'm not thinking of and what can be achieved in your opinion?

    Comments (43)

    Apr 6, 2014

    Can't IPO the local furniture mart for an exit. I'm guessing the liquidity is almost non-existent.

      • 1
    Jun 2, 2014

    Not true. There are a lot of people that buy small businesses like these and business brokers that sell them.

    Apr 6, 2014

    Aren't you basically talking about financing the purchase of a small business? Pretty doable if you have the capital. Talk to some local business brokers or check out bizbuysell.com

      • 1
    Apr 6, 2014

    Def doable. Really depends on initial capital and target asset class. Easily done with real estate for example. Not sure about the local gas station though.

    Apr 6, 2014

    Maybe I'm missing something here, but how are you going to discover a business with good fcf if the entity is private and the finances are impossible to get? For a small individual investor, convincing the owner to turn over his finances to you will be the hardest part.

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    Apr 6, 2014

    This type of business is more personal and the owner/operator probably has not grown the business with the goal of taking it public or being bought out the way that start up owners/operators do. As others have pointed out it seems the financial engineering is quite doable. Convincing someone to walk away from a successful business is difficult, especially if building that business does not give them "exit ops" the way that a tech CEO or founder would have. So, you would have to pay enough to basically set up the owner for life financially, which would probably be a big premium. Also, timing an exit from the business would be almost impossible as (as other posters have alluded) a small business is not a liquid asset class. There is not a large group of people looking to take over a small business and there aren't larger financial buyers or strategics.

    But, I think this is a pretty sweet idea. I am sure over the years small businesses have been bought out by larger chain competitors. Maybe you could build a small fund dedicated to sniffing out these opportunities, paying a decent premium to the older, paying down some debt and then getting a decent premium from a larger competitor. That could provide a cool niche industry. Might do some research myself, cool idea.

      • 1
    Apr 6, 2014

    Thanks - I really hadn't considered how tough the exit might be, but you're right that's a definite consideration. As for sourcing a business/getting comfortable with the finances as earlier commenters said, I don't know that either of those are too insurmountable. You are more looking to get comfortable with an "asset class" first (I.e. The laundromat business model). Then you can do some scouting/camping out at the biz to observe and foot traffic, average number of loads, etc at your target. And for sourcing, it might be as simple as finding an older woman that wants to call it quits at the dry cleaning business she's run for 40 years. Could be as simple as offering 80k, or 120k or whatever the number is. Obviously a complete hypothetical with no substantive research behind it.

    Another way I've been thinking about this is from almost an exclusive focus on the real estate side. Buy the property and the business concurrently, with 90+% financing on the real estate in this frothy market even if your equity check is higher for the biz, treat it as you would any other land/apartment investment property, using retail cash flows instead of rent to pay that 10 year, cheap mortgage down in 5 and just flip the underlying property in either a sale leaseback transaction until you can exit the occupying business, or bundle if possible. Obviously you have to be confident the math is right, but with the encouraging responses here, I know what I'll be modeling out this week if deals start slowing down...

    Apr 7, 2014

    Def doable. I know a fund buying and consolidating small simple businesses. Insane IRR (like 60%+). Also know a bunch of guys (former McKinsey and Roland Berger partners) doing small LBOs on a deal-by-deal basis, works very well for them.

    I think the beauty of small cap is that it's a diverse environment with a lot of interesting assets and you often need to source investments directly (versus being called by GS for a larger target and then bidding together with 26 other PE firms). Sourcing really is super hard as you'll need a strong very senior network to introduce you to opportunities or the stamina to do top-down sector searches and then spend time convincing management teams that you are the right partner. You're quite looking for the needle in the haystack because often current management don't really want to sell. Also brace yourself for a broad spectrum of management talent (although that means in many cases you can really create value by turning places around by implementing approaches that are general practice in larger companies).

    Apr 6, 2014

    I don't agree. I have sourced deals myself, and I found that owners are oftentimes very open to discuss and if you are giving the right impressions are more yet than happy to sign an NDA and give you e last three years of financials. It really depends how big the firm is your looking at. If we are talking 5-15mm in revenue, there is a big chance to have a decent conversation and more than genuine interest from the owner.

    Apr 7, 2014

    I'm not saying owners generally don't want to speak to PE but some often need a little convincing to have a finance-type get involved in their life's work. Perhaps this is also cultural differences to some degree, US-based owners might be more flexible.

    Jun 3, 2014
    m2:

    Def doable. I know a fund buying and consolidating small simple businesses. Insane IRR (like 60%+).>

    Can you go into a bit more detail on what kind of businesses they consolidated, or how big their investment target size was? Sounds like a very interesting concept.

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    Apr 7, 2014

    I can tell you right now that you are not the only one who does this. What do you think PE firms do?

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    Apr 6, 2014

    Right...the whole point of this was to consider how one could leverage those same investing principles in one's PA. Sounds like this is feasible, which is pretty awesome. Obviously a lot of work, but if you could see a 30%+ IRR with no fees, it's compelling.

    Any considerations from your own experiences you'd be willing to share? Know you've written a bunch before, but would be interesting to hear how you would think about the local business concept vs. arable land/timber field investing

    Apr 7, 2014

    Having a portfolio of small business is a full time job in of itself. So unless you plan on quitting your job to manage these businesses it will be a really risky investment. Look at it from the point of view that you will likely have to keep the owner around to run the business and will have to pay him. Many owners of small business often do not factor in their own wages when they account their business returns because they are taxed as pass through entities. As an owner of said small business do not expect to have returns that match the owners. Can you make a lot of money doing this? Yes. However it is not easy.

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    Apr 7, 2014

    This definitely sounds like a pretty cool idea. Please keep us informed if you decide to move forward.

    Apr 7, 2014

    I think you'll struggle to find the debt. I don't know if there is a market for leveraging up businesses with a few hundred thousand of annual cash flow. One of the reason that banks are willing to lever up businesses is that the purchaser is a professional organization with a reputation and years of experience. With no track record, little experience, etc., I doubt you'll get nearly the amount of leverage you seem to be hoping for. They certainly won't give you a non-recourse loan that covers 100% of the value.

    You'll also face all of the hurdles associated with consummating a transaction. How are you going to protect yourself against fraud if you don't hire auditors and lawyers to assist in documenting the deal? If you're buying it with minimal due diligence, that is going to make the lender even more nervous. I'm not saying it is impossible, just that it will be a challenge if you lack experience.

      • 1
    Apr 7, 2014

    "lever up a local business, hold it for a 3-5 year time horizon, and get out for a modest but worthwhile IRR"

    For the average investor, I wouldn't recommend it...

    Liquidity, financing, operating risk, growth at the rate of inflation... you're talking about running a mom-and-pop

    Do some research on the payback period on a gas station or fast food franchise.

    I would be very careful about investing your time, capital, and personal balance sheet in a local business. Sure, it can be done, but there are few levers you can pull to generate value, short of becoming an owner-operator (good luck)... at which point you may be better off simply investing in residential real estate...

    Apr 6, 2014
    Solidarity:

    "lever up a local business, hold it for a 3-5 year time horizon, and get out for a modest but worthwhile IRR"

    For the average investor, I wouldn't recommend it...

    Liquidity, financing, operating risk, growth at the rate of inflation... you're talking about running a mom-and-pop

    Do some research on the payback period on a gas station or fast food franchise.

    I would be very careful about investing your time, capital, and personal balance sheet in a local business. Sure, it can be done, but there are few levers you can pull to generate value, short of becoming an owner-operator (good luck)... at which point you may be better off simply investing in residential real estate...

    I agree.... Also, what if the business can't support the debt load (because of a recession or other factors) and it goes bankrupt? Then you're also wiped out as a small investor and will have to declare bankruptcy. For the rest of your life, banks will be unwilling to loan you a dollar. That means zero possibility of getting a mortgage, taking out a loan for a car etc.

    We are in a bull market and have been for the past few years so it's easy to think about the positives regarding what sounds like a good idea, on paper. But there are a lot of negatives too which I don't believe have been discussed yet.

    Apr 6, 2014

    Same thing goes for owning residential rental properties, though. We're just talking about substituting the means of debt repayment on the mortgage. Also why I specified non-recourse debt and the concept of having a holding company (undoubtedly other intricacies I haven't considered here).

    The biggest considerations here seem to be:

    - Inability to lever up business sufficiently to generate returns (could be countered if you are focusing on flipping the real estate, which you CAN lever 90%. Certainly a case by case basis)
    - Time commitment involved - if you have to become an owner/operator in order for returns to make sense, clearly not worth it
    - Exit liquidity (maybe a lesser issue - I checked out that bizbuysell.com site and it's pretty awesome. Could be a good option if you can't sell local. Worth checking out)

    All in all, this has been a really informative discussion and appreciate the responses. I'll post my findings if I get time to run a model or two later this week.

    Jun 2, 2014

    [quote=Waymon3x6]

    [quote=Waymon3x6] "I agree.... Also, what if the business can't support the debt load (because of a recession or other factors) and it goes bankrupt? Then you're also wiped out as a small investor and will have to declare bankruptcy. For the rest of your life, banks will be unwilling to loan you a dollar. That means zero possibility of getting a mortgage, taking out a loan for a car etc."

    Not really, the US system of insolvency is tough but fair and offers plenty of wiggle room for the savvy. For some it's a badge of honor, I had a bankruptcy lawyer in New Orleans tell me that in the oil patch if you don't have at least one bankruptcy, people don't think you've been trying very hard. Even a personal 7 gives you a clean start and the credit agencies distinguish between corporate debts and guarantees and personal debts and guarantees. People are often buried with credit card offers the day after a filing because they are prohibited by law from filing again for 10 years, this makes them a much improved credit risk for new money.

    On small town banking, I find a wide array of lending options in most populated areas.

    Jun 2, 2014

    You're on the right track. Assume a 1% hit rate if you know what you're doing. LOTS of high-priced crappy businesses out there to sort through. Just like any investment, one is high risk, a diversified portfolio helps but that's even harder to develop.

    Jun 2, 2014

    Have you tried talking to some of the local brokers yet? This sort of business is certainly doable.

    Jun 2, 2014

    This is something that has definitely piqued my interest before. I think it very much depends on the financials of the business & if you start working there full time, etc-. If it's a business that can generally be self-run by staff or whatever it is that is being sold (group of laundromats, etc-), then there is less of a time commitment for you, and therefore you can choose to not draw a salary/money out of the company & find ways to improve efficiency of the business on the whole.

    I think it would be key for you to have a ton of knowledge in the specific industry - it would be hard to get an owner to sell to someone who doesn't know what they're doing, as well as it being hard to earn a return and improve efficiency of a business that you know little about.

    I had never seen bizbuysell.com - awesome link; really interesting stuff there.


    An example of what you're talking about was detailed here about a kid who did one:
    http://nerdbusiness.com/blog/how-acquire-company-u...
    http://www.reddit.com/r/Entrepreneur/comments/25e3...


    However, it turned out that it was full of BS, so it may not actually work, but it gives you an idea. Read through the Reddit comments as well to see what some people have talked about with it.


    Another idea would be to try and see if you can pick up a distressed business that has filed for Ch.11 & see the financials and the assets that the company has and pick it up at a steal - this would probably be much harder to find and vet, and would require more work for you to do to turn everything around.

    EDIT: For some reason, line breaks aren't working so everything above looks bad/hard to read; sorry OP!

    Jun 2, 2014

    #1 Issue in my opinion is definitely the liquidity in actually being able to make the exit at all. Anecdotal: Father-in-law has been trying to sell his small civil engineering firm for the last 5+ years with no luck (company designs stuff like strip mall parking lots and large retaining walls as well as small bridges and street planning/drainage in new residential developments). I don't know his financials but he's been in business for a couple decades with >25 employees so I think it's reasonably healthy. Like many small business owners, he's not a businessman by trade (Stanford engineer) so I think that while it's provided a solid income for his family, there is certainly room for improvement on the business side of his operations. Nevertheless, selling has proven very difficult and I don't think this is an uncommon issue for businesses in this range.

    Jun 2, 2014

    actually thought about this as my family have bought several rental properties.. i want to move into small businesses (gas stations, restaurants, etc).

    I recommend look at http://www.bizbuysell.com. Like actually... get to know the brokers. A lot of the people selling are retiring. Find a good operator/manager and tell him to contribute some capital too or give him an incentive management fee on top of his regular pay.

    Jun 2, 2014

    sound like pretty risky nano-LBO...

    Jun 2, 2014

    Nice basic article on full process of LBOing a small business

    http://nerdbusiness.com/blog/how-acquire-company-u...

    Jun 2, 2014

    I think it could be difficult to find good candidates. I believe your examples don't generate the kind of cash flow that you would need. Those examples can make the owner a solid income but that's with paying themselves to be the president of the company / lead manager. My family has owned a business for generations - whoever runs it usually makes ~$100k-$200k a year depending on the year. It would be very hard to find someone who would be willing to put up with all of the headaches for anything less than that type of salary. If you do find someone, then the business doesn't have enough cash flow to pay down any kind of debt.

    Jun 2, 2014
    tmb41:

    I think it could be difficult to find good candidates. I believe your examples don't generate the kind of cash flow that you would need. Those examples can make the owner a solid income but that's with paying themselves to be the president of the company / lead manager. My family has owned a business for generations - whoever runs it usually makes ~$100k-$200k a year depending on the year. It would be very hard to find someone who would be willing to put up with all of the headaches for anything less than that type of salary. If you do find someone, then the business doesn't have enough cash flow to pay down any kind of debt.

    Yes. This is going to be your biggest problem. A lot of these businesses have crappy margins and fail to mention that the "free cash flow" is, in reality, more or less a paycheck to whoever has to be there 24/7 and do everything himself. I'm being a little pessimistic and a little extreme to make a point, but keep all that in mind.

    Jun 2, 2014

    I only skimmed the comments, but my biggest concern would be unloading the business(es) when the time came. I can't imagine the market for small businesses to be very liquid (just assuming, I could be totally wrong). The last thing you want is to be left holding the bag on a portfolio of pizzeria laundromats.

    Jun 2, 2014

    There are thousands of smaller PE funds and family offices that love these types of businesses both from a size and industry standpoint. I know a number of funds that have absolutely crushed returns by buying individual businesses and consolidating them under a single umbrella before flipping them to a larger more typical PE fund.

    Smaller businesses also tend to have really messy financials and non-existant reporting standards, so by going in with some form of finance knowledge and cleaning up the books/ops you can immediate get some multiple accretion before you even grow the business.

    Jun 2, 2014

    One major issue I can think of off the bat, besides continuing to run these businesses, financing, etc is liquidity. It will make or break this strategy. 1) How feasible is it to find a sound business to purchase with the owner actually willing to sell? Obviously for the right price, almost everything is for sale, but you don't want to overpay. 2) How feasible is it to find someone who will actually purchase this business from you later down the road? There just isn't enough liquidity for this strategy to provide you with worthwhile returns. Small businesses are peoples livelihoods, and the most successful ones are often their "babies". Obviously it all depends on the size of the businesses you're talking about, the sector, but I don't believe this strategy would work consistently for an individual investor.

    Jun 2, 2014

    It's not a bad or undoable business but you're not going to be in the LBO business, you're going to be a gas station/dry cleaner operator and need to devote full time to it. I don't know the gas station or dry cleaning business at all but you'd have to roll up a bunch of them to attract any attention on an exit, and I really don't know if there's an ultimate buyer in that type of business. You may want to concentrate on smaller manufacturers or things like that where there's a chance if you roll up a few there would be a trade buyer or a smaller PE firm who may be the ultimate acquirer. Small service businesses are more difficult to finance because they typically rely on key personnel (usually the seller) and they don't really have recurring revenue or long term contracts or MSA's in place that can at least give some assurance for future revenue. See the poster above who's in laws own an engineering company. Advice for his in laws: sell it to the employees, either a few key people or through an ESOP. The father in law would probably have to guarantee the loan for the employees/ESOP, but he may be able to get a lump sum up front (some of which would have to be reserved unless he has significant assets if the loan isn't repaid) and get off the guarantee either when the loan is repaid or when it meets certain eq/d or debt service ratios.

    The issues you will face are that debt will almost certainly have recourse and you'll need some personal assets/balance sheet to qualify. The lender will also be wary if you personally don't have experience operating that type of business or partner with/bring in an operator (i.e. it would be easier if you worked at the company in a more senior role when the owner wanted to sell to retire and you went to the bank then, most likely with some seller financing involved as well). You'll also be walking into the front door of a small bank and asking for a loan so the lender involved will not be super sophisticated and you'll have to tick all of the boxes of traditional lending: basically you won't be doing any tricky or creative debt structures, you'll be doing plain abl and/or cash flow based lending with shorter amortizations and cash flow sweeps and it won't be 100% debt financing so you'll need either personal equity or to bring in a HNW investor with you. Like another poster said as well, you'll need to fund the due diligence and get through closing (accounting & legal fees for example) which will not be a couple thousand dollars, it will be more. Using the real estate is a good idea and is done in larger deals (I can think of a real estate fund in Philly that was buying larger retailers with long term leases with the idea that the retailers themselves were valued less than the value of the real estate that they were essentially buying with 25 year leases and extensions in place, but I have no idea how that worked out for them) but if you buy a gas station or even a small manufacturer with a 10-25k SF industrial building, the value of that real estate is really dependent on the operating company paying the lease and if the operator goes out, the value of the real estate is cents on the dollar. Think about how many empty gas stations you see if the operator goes out of business. Or the actual value of a 15k SF older industrial building on a back street compared to a new and modern 300k SF industrial building that can be re-leased to many other tenants.

    You could always go the franchise route. A friend who's a consultant to a lot of larger LP's and I were talking about this. One of his LP's backed a guy who opened and rolled up a bunch of franchises but he had deep experience in that field, had some skin in the game himself and the LP had deep pockets to back him. We were talking about trying that but the big problem is choosing the franchise: you don't necessarily want to be the 40,000 +1 Subway store but if you could have been the 1000+1 Subway store a few decades ago and secured a geographic territory, you'd have made really good money but it would have taken a lot of operational work.

    Other problems are understanding the financials of small privately owned businesses. There's a near certainty you're not going to get audited/review three financial statement financials with notes. There may be no deceit on the seller's part but due to unsophistication and the fact that most small business owners only have to make sure that they're kosher with the IRS and have a feel for how they're businesses are doing based on a few KPI's that they almost instinctively know and you won't have tons of good financial due diligence. And this isn't just for the gas station owner, we've done deals buying from an owner for companies worth 9 figures that have the crappiest accounting/finance systems in place and they don't care.

    Jun 2, 2014

    Exit would be the biggest problem in my mind. If you find something very stable, you can essentially re-lever the business every 3-5 years and recap it.

    Also, who is going to run the store? Are you going to give current management upside? Seems less likely when they already own 100% of the business and could put on the debt themselves vs. a MM buyout where liquidity is a driver and serious upside potential remains.

    If you're going to run it, look at is in flipping houses, but with small businesses. Again, less of an exit market than housing though.

    Jun 2, 2014

    Good thread OP.

    As others have said, the two biggest hurdles to this strategy will be getting adequate leverage and exiting your investment. On the first point, you're likely going to be working with small community banks to get a loan, not GE, CIT, or a bulge. You'll probably be able to finance around 50% of the acquisition with leverage from these lenders, which is not that attractive if you're viewing it from an investment from an LBO lens. An SBA loan is another option but those take a long time to get approved and there are other issues involved.

    The other issue is exiting the investment. There aren't that many buyers in the market for small businesses. PEGs look for assets with scale (even MM PEGs don't start to get excited until a business is hitting around $5MM EBITDA). I think looking at small business ownership is an excellent idea, but I wouldn't advise going into it if you think you are going to be able to flip it in 3-5 years like a PE deal unless you think it is a great consolidation play. There are a glut of small businesses that generate around $100K in EBITDA but less than $1MM in EBITDA.

    Jun 2, 2014

    LBOs, etc. of this kind are feasible, and banks may lend to a business with proven cash flows. But beware entering a business in perfect competition on a levered basis, particularly an independent one. Consider buying into a franchise whereby you may be able to take advantage of the name brand (for a reasonable fee). For this, considerable DD is required in various respects, and particularly in evaluating the franchisor. The illiquid nature of the purchase is a valid concern, though this fluctuates partly with the population size of the city/metropolitan area within which you are operating, and your willingness to facilitate a sale via seller financing etc. (which may ease the burden).

      • 1
    Jun 2, 2014

    Agreed... there are also established franchise lending branches (GE Capital, etc.) which will help with securing debt financing.

    Exits are also much better in this segment. There are MM investment banking groups that focus on selling franchisees to larger groups of Zs or back to the franchisor.

    Jun 2, 2014

    There are plenty of private equity search funds that target small businesses ranging from 5M-30M, hold it for 3-7 years, then exit to earn a very solid return.

    Most of the time these small business owners are not as "high calibre" as people with experience of high finance and lack some business acumen. Lots of operations and efficiencies can be improved as a result of a change in ownership if you are a finance professional looking for some ventures.

    Jun 2, 2014

    Kimchi, you're correct and there are funds with committed capital at this level also and they tend to produce decent returns because it's a somewhat overlooked size, and by adding professionalism in operations and finance, and inplementing strategy and organic growth plans, growth can be achieved relatively easy (and I use relatively very strongly). I know a small shop out of Philly, Eureka Growth, who absolutely knocked it out of the park on their first couple of funds in this size and strategy. Sure, they're never going to make a billion dollars doing deals this size but the guys there seem to like what they're doing, they run pretty lean, make good money and get to keep it local. Not knowing him at all, these are the types of funds that could make it difficult for the OP to move into this size of deal (and the equity that he'd need): he'd be doing it as an unfunded sponsor with little to no experience when these types of PE funds exist in nearly every city and area.

    Jun 3, 2014

    So I understand that a lot of people are worried about liquidity but what if you just never exit? If you could buy in at a low enough multiple, say 3-4x cash flow, why not just leave it and hire a manager(assuming you have enough scale in the business) to run it assuming it has enough scale and let it throw off more cash flow for you to invest? Leverage up only 50% and you would be getting crazy IRRs. Also, I'm sure you could definitely find some inefficiencies and improve the operations if you have experience in the industry. This all depends on your ability to find these businesses of course. If you really wanted to exit, if you bought a lot of, say liquor stores, or a bunch of niche manufacturing companies, you could package them and sell them to a smaller PE firm who wants a larger meal.

    Jun 2, 2014
    Jun 3, 2014

    I'm too drunk to taste this chicken -Late great Col. Sanders

    Jun 5, 2014