$10m EBITDA platform w/ no equity (real-life case study):
The independent sponsor had 3 LOIs, with $4m, $4m, and $2m of EBITDA. Each deal was valued at 5x. (This only works in an aggregation play.)
Combined EV = ($4m + $4m + $2m) x 5x = $10m x 5x = $50m
However, FMV of $10m platform was actually 8x ($80m).
Each seller rolled 40% (= $20m). The remaining 60% ($30m) to be cashed out at closing (1st apple bite).
Lender agreed to fund 3x EBITDA ($30m) & accept rollover equity as the requisite skin-in-the-game (this is the trickiest part).
Voilà! Win-win-win:
• Sellers get cash out, par equity value, diversified and stronger entity.
• Lender deploys $30m loan (and pockets associated fees) in a middle-market-sized company that many creditors would lend up to 4x against.
• Independent sponsor gets 60% ownership for no equity down (by capturing the instant arbitrage jump from 5x to 8x).
(Figures are rounded.)
