A real example of what the decision and financing process of a typical transaction would be like
In one of our previous posts, we talked about how to find the perfect business and get financing to make it scale quickly and easily. As we have highlighted, this is a financing alternative that not only offers this economic boost for the acquisition of a new business but also provides support in the search for the best opportunities and in the analysis of those aspects that make one business more profitable than another and, therefore, a better opportunity.
Let us recall what this model was based on:
But how does it really work? In today's post, we want to go a little further and show you a real example of what the decision and financing process of a typical transaction would be like.
Let's say you find an Amazon business for sale for a price of $500,000. The business makes $500,000 TTM (Trailing Twelve Months) revenue and $150,000 TTM sellers' discretionary earnings.
*Take into consideration that in this example you have already found the opportunity by yourself. However, if it is not your case, if you have not found your perfect deal, we can help you to find it.
Focused on the purpose of analyzing the opportunity, which kind of information is required?
For a typical analysis, we would ask you to:
With all of the above, if the business qualifies after going through our underwriting process, we would be ready to provide a term sheet.
At this point, our model has offered you a deep analysis of business profitability, so then, you are almost ready for the acquisition… Let’s move now into the financing process.
For a business with a price of $1.000,000, making $1.000,000 TTM revenue and $300,000 TTM sellers' discretionary earnings, the key terms may look as follows:
Once we sign the term sheet, we would ask for due diligence items (these are very standard and include your cap table, corporate structure, and ultimate beneficial owner -this can be skipped on subsequent deals-, the SPA and whatever DD you performed on the acquired asset, which should include trademarks, IP, litigation, etc) and proceed to close.
If guest access to the seller account hasn't been provided yet, we will need it before closing.
After closing, every month we will read revenues through the Amazon guest access (100% automated process via API) and send you a direct debit to your bank account. Once a repayment cap has been reached, we will stop charging the royalty. You can always choose to prepay at any time. We charge a multiple of our principal – our cost in APR terms is higher than bank debt because of the flexibility we offer but lower than hybrid debt or equity. While the specific cost will depend on the business you are acquiring, a sample structure is:
Is this making sense for you? Be ready to buy the perfect business and get funded quickly
Contact us for more information.