🧐 What I Learned Last Week 6.30.2023
Curating the best M&A, SMB, and EtA-related content since 2020.
Hello Friends!
First, I want to wish a very happy 4th of July holiday for those who are celebrating!
Second, I invite you to join me along with other South Florida entrepreneurs and business buyers for an informal networking event next week.
When: Thursday, July 6th
Where: Boca Raton, FL
Details & RSVP: https://bocaratonsearchfundmeetup.splashthat.com/
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📰 Articles
Deal Structuring 101
The article explains three common forms of deal structuring: Earnout, Seller note, and Seller equity rollover.
Earnout involves payments based on achieving specific objectives, shifting some risk from buyer to seller, but it can lead to disputes over whether targets were met.
Seller note is when the seller lends the buyer money to purchase their business, providing earnings certainty for the seller but can increase risk for the business.
Seller equity rollover is when the seller takes equity in the new entity, aligning both parties' interests but also making the seller a business partner.
These structures can manage risk and potentially increase a business's valuation, but they can also complicate a deal.
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SBA Loan Changes 101: How Do They Impact Buying and Selling a Business in 2023?
The Small Business Administration (SBA) has made a number of changes to its loan programs in May 2023. These changes could impact businesses that are buying or selling a business, as well as businesses that are seeking SBA loans for other purposes.
Some of the key changes include:
The SBA has lifted the requirement for a "complete" change in ownership of a business. This means that owners can now sell a portion of their stake in an entity while staying on as a part-owner or employee.
The SBA is removing the requirement for hazard insurance on SBA loans up to $500,000. This is a notable shift from the original $150,000 - it means that loans under the $500K mark have fewer hoops to jump through. Also, life insurance is no longer required for 7(a) or 504 loans.
The SBA has increased the maximum loan amount for 7(a) loans from $5 million to $10 million. This is a significant increase that could make it easier for businesses to obtain the financing they need.
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Earnouts Are Showing Up in More M&A Deals—and Lawsuits
According to Bloomberg Law, earnouts are becoming more common in M&A deals, but they are also leading to more lawsuits. The lawsuits often focus on the definition of "performance" and the calculation of the earnout payments. As the use of earnouts becomes more common, so too will the number of disputes over their terms.
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The First 90 Whatever
Chanmark digs into the post-acquisition integration process for a newly minted CEO or business owner.
🧵 Best of Twitter
Investors expect a preferred return and a share of equity. They always get paid first…
Industry focus and capacity are key factors in choosing a lender…
The basic steps to acquire a business…
Relying on large platforms can have negative consequences…
On valuing software assets…
Three biggest levers in manufacturing to improve your margin…
Go big…
🤔 Other
Intuit QuickBooks Small Business Index
I recently came across this online data set from Intuit. The index shows employment trends for SMBs with 1-9 employees.
Published at the beginning of every month, the Intuit QuickBooks Small Business Index is a collaboration between Intuit QuickBooks and an international team of economists led by Professor Ufuk Akcigit, the Arnold C. Harberger Professor of Economics at the University of Chicago.
The index could be helpful in measuring the pulse of the small business economy, by region.
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Margins
I stumbled into an interesting Reddit conversation around margins for a landscaping business. The OP (original poster) is a 2nd-year owner of a landscaping business and struggling to keep up with demand. Not wanting to take advantage of his clients, he seeks guidance from the community about the appropriate margin level. Good read and a good problem to have.
🗓️ Events
South Florida Searcher Meetup (July 6) - Boca Raton, FL
South Florida Searchfund Networking Happy Hour (July 20) - Miami, FL
The Business Acquisition Virtual Summit (July 26-28) - Online
Southeast ETA Conference (Sept 8-9) - Duke University in Durham, NC.
HoldCo Conference (Sept 18-20) - Cleveland, Ohio.
Austin SMB Meetup (Sept 28) - Austin, TX
The Self-Funded Search Conference (Sept 30 - Oct 1) - Dallas, TX
Capital Camp (May 21-24) - Columbia, MO
⚒️ Tools & Resources
I want to share some tools & resources that I have found helpful. Please note that some of these are paid sponsors of the newsletter.
DueDilio - #1 marketplace to hire highly vetted M&A due diligence service providers. Your source for finance, legal, tech, and other key areas of due diligence. Submit your project, review proposals, and hire.
PrivSource - PrivSource helps you source deals and connect with transaction partners without ever paying a success fee.
X5 Deals - Proprietary deal sourcing. They do the outreach and send you relevant, actionable deals directly into your inbox.
Rejigg - Platform that connects searchers/investors directly with owners of off-market software businesses ($500k - $15m revenue) considering exits. All deals are sourced by the Rejigg team, ~5 added per week.
Scott Oldford - If you're interested in gaining insight into the process of building, scaling, acquiring, and selling online businesses, Scott Oldford can help.
BizNexus - Marketplace + off-market origination in one platform. The marketplace averages about 10k active listings & pre-CIM opportunities, and the off-market origination focuses on data & multi-channel.
Deal Flow Scout - Peer-to-peer deal flow exchange. Free, open, transparent.
Deal Sourcing Guide - A directory I put together of online marketplaces, brokers, DFY deal flow, and more.
🚀 Interested in partnering or advertising with us? Get in touch here.
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