A $2m EBITDA deal is treacherous. At 5x, it's $10m EV. If you double EBITDA, which is a big undertaking, it'll be $4m (= $20m EV) in 5 years. The gains on that are $10m, of which carry is 20% ($2m). Split that in half with your partner and then pay Uncle Sam for taxes. You're left with $600-700k. Not nothing, but not particularly competitive for high-agency folks with strong earning capacity.
So, skip the "messy middle." The economics work better for very small deals (~$0.5m EBITDA) that you can either buy outright (if you have cash) or pursue as a self-funded searcher (more carry). Or, do larger deals ($5m+ EBITDA), which are smarter plays from an ROI and return on effort perspective, unless the smaller business truly has explosive growth opportunities.
This week's episode of the Minds Capital Podcast with Dan Tamkin.
