Do a sell-side QoE when you exit
Do a sell-side QoE when you exit. Benefits: • Higher valuation (see chart below from GF Data). • You can include it
Diligence
35 posts
"Our buyer has spent $2.5m on DD so far."
"Our buyer has spent $2.5m on DD so far." If you're exiting, the buyer'
Be tactful in diligence
The “buyers have every right to dig deep” statement rings true, but lacks nuance. On large deals, institutional investors will
Underwriting AI risk
How do you underwrite AI risk and opportunity related to deals in the lower-middle market? According to Jeff Goldstein, independent
15-year time horizons
For a PE investment, you need a positive 15-year time horizon for the target company: 0-5: You own it. 5-10:
Underwriting key people risk
Key people risk is especially difficult to underwrite if: (i) The founder controls the revenue (relationship-based, project-oriented, etc.). (ii) The
Bankers as Free Advisors
Industry-leading investment bankers can be your best advisor - for free. Ping them once you're under LOI. Bankers
ESOP is complex
From a friend who recently acquired an ESOP business: "Not sure I would recommend it." "It took
Own vs. Buy
There are many businesses that I would like to own, but that I wouldn't like to buy. They
Realistic Expectations = Seriously Hairy
Broker: “The seller has realistic expectations for valuation.” Translation: This deal is seriously hairy.
Use QoE Provider to Renegotiate
Use your QoE provider to renegotiate. If the QoE comes in light, then your QoE provider should: (1) Connect with
When Deal Drags On Pre-Closing
Best practices with a seller when your deal is dragging on without closing: (i) Over-communicate. Weekly email updates, frequent phone
Devil's Advocate In DD
When under LOI, everyone needs a devil’s advocate 😈 It’s easy to lose objectivity when you’re pitching your
Don't Buy Seller's "Lifestyle" Argument
"The seller has treated it like a lifestyle business" is a sponsor's code for suggesting it&
Continuous Base Cases Are Best
The closer your base case is to “just do more of what we’re already doing”, the better. If a
Experience = Conservative
Experienced serial sponsors tend to present more conservative base case scenarios than first-timers. • They already have investor relationships who don’
Discount Seller's EBITDA by 10%
Discount the seller's reported EBITDA by 10%. If your deal still works with a discounted EBITDA, then it
Seller w/ Cold Feet
If your seller is getting cold feet, they’re usually much colder than you think. 🥶 • Don’t wait and see.
Twitter = Biggest Ever Independent Sponsor Deal
Elon Musk's take-private acquisition of Twitter is the biggest independent sponsor deal of all time. Deal-by-deal private equity
Safeguards Against Fraud
No, I haven’t seen sponsors defrauding or scamming investors. But if it could happen at Theranos, FTX, etc., I’
All-Time High
If the most recent financial results of a target show all-time highs, it could be attributed to temporary factors or
R&W Insurance
The seller’s attorney, who had no M&A expertise, wanted to ambiguize* the Reps & Warranties. Illustrative example:
Negative NWC
Many searchers overlook the value of negative working capital. Everyone is hyper-aware of capex-intensity, but net working capital (NWC) is
Revenue Since Inception
One of my favorite charts is “revenue since inception." Usually CIMs only include 3 or 5 years of financials,
