For our United States transactions below $6M, a large percentage of those deals tend to be underwritten by preferred lenders approved by the Small Business Administration (SBA). 7(a) SBA Loans can be used to acquire a business, but not all SBA Lenders are alike.
Many only operate in certain sectors; still, others will not write “air balls” above $2M. Since we only focus on the tech, internet, and digital Sector, we know all of the Lenders willing to underwrite in our sector and we focus our attention on them when referring buyers. Many business brokers are afraid of the SBA – BUT NOT US – we believe that the SBA Process has been a critical component to our success and a best-case scenario for both buyers and sellers.
For buyers, using the SBA process can help them acquire a business for as little as 10-20% down (depending on the age of the business, among other factors), amortizing over an entire decade with a reasonable interest rate. This keeps the monthly debt service low and allows for a fast return on investment.
For sellers, the SBA is great because it allows for a large percentage of the transaction’s consideration (usually 85-90%) to be provided in cash at closing. It also helps to achieve higher selling multiples since the buyer pool is so much larger and more negotiable when using other people’s money.
The SBA caps 7(a) loans at $5M, but when combined with a buyer’s down payment and any Seller promissory notes structured into the deal, total deal values can go up to $6M. We’ve even seen a few deals at $7M and $8M where earn-outs and other creative deal-making structures were used to get a deal done. And there are times when mezzanine financing can be added to an SBA Loan to go as high as $9M on a deal.
The one structure limitation we have when doing deals involving the SBA is that no equity can be rolled or kept by a business owner – 100% of the business must be sold. Additionally, a deal is only eligible for the SBA process if the business is located in the United States (with a U.S. Legal Entity Tax Return).
We do over $100 Million in SBA Loans annually, so we know the process and all the players well. And they know us – which puts us (and in turn our clients) in a position to be successful during the closing process. Contact us to learn more about this process. Whether you’re buying or selling, we can help you better understand the process and how it might help.
For more information on the Services we provide, please review the M&A Deal Services page.
We define a lower middle market transaction at our firm as one that sells between $5M and $50M. This differentiation occurs due to the change in the buyer pool and lending partners in this space.
Lower middle-market deals have a range of different buyers. Once Adjusted EBITDA for a company moves past the $2M mark (or close to it depending on a company’s current growth rate), more institutional buyers come to the forefront. Small family offices, private equity groups, brand roll-up companies, and hedge funds are examples of buyers that operate in this space.
And of those buyers, there are multiple subsets, including those that will use their own internal cash (or a line of credit already in place) to purchase the business or those that will use the capital markets to find funding for a deal (also known as sponsors).
Rolled equity tends to play a much larger role in these transactions whereby buyers are looking for sellers willing to remain with the company, and continue to be a minority owner of the company, for a period of time to help facilitate a smooth transition and continue operating alongside the buyer for that initial phase of the transition. Rolled equity is the interest in the company kept by the seller, and ranges from as small as 5% to as large as 40% – but almost always a majority share is sold and a minority rolled.
Lending partners in this space range from debt providers (banks, PEGs, etc.) to equity investors. Additionally, many companies have cash on the balance sheet that is targeted at acquisitions at this level.
While the deal process for SMB and lower-middle market transactions tend to be relatively the same, the one extra level of diligence we tend to see is a Quality of Earning (QoE) Report, which provides a detailed analysis of all the components of a company’s revenue and expenses. These reports are frequently prepared by independent third party firms during due diligence in an acquisition. It is not an audit. The QoE is used by the buyer either for their own internal committees or for their lending partners if they are using outside resources for the acquisition.
Please contact us if you’d like to learn more about the process of selling a lower middle market business in the tech, internet or digital space. For more information on the Services we provide, please review the M&A Deal Services page.
Middle market transactions at our firm are identified as those that sell for more than $50 Million. The process for selling a middle-market technology, internet or digital company is very similar in the lower middle market and middle markets. The buyers tend to be small family offices, strategic players, private equity groups and other large enterprise-level companies, private and public.
Selling a middle-market business with our firm means you’ll have a dedicated team of advisors controlling the process from start to finish. From preparing pitch decks and marketing collateral, to marketing the company to suitors across the globe, the expert advisors at our boutique firm are very much laser-focused. In other words, our advisors only focus on technology, internet, and digital space.
We don’t represent shareholders for companies outside of our lane, and to this end, we have carved out a niche that no other firm in the world can match. With over 300 clients around the globe, website Closers and its sister M&A Firm, ValleyBiggs, have become the go-to boutique M&A firms for the digital space.
Whether you’ve built a brand up to $100M in sales, or run a business management software company with $50M in annual recurring revenue, or perhaps you’ve developed a piece of technology that will be the next best thing in the internet of things…whatever space you operate in within the tech space, we have a team of professionals that will not only understand your business (and have the innate ability to properly represent and explain the business out in the market), but will have the connections in the debt and equity space to help with the financing piece of the transaction – a huge value proposition for both buyers and sellers. We know ALL the parties that want to get into this sector.
For more information on the services we provide, please review the M&A Deal Services page.