July 2023 I received a call from a potential client who was looking to purchase a business. The business specialized in casino game machine refurbishment and sales, and they were STRONG. The buyer had about 2.5% of project costs in liquidity, light assets otherwise, and a not-so-great personal credit score. He did have a decent amount of managerial experience, but nothing that would really blow you away. In other words, on a $7,000,000 transaction the story was leaning towards fantasy. Luckily, that's my specialty.
Businesses this clean just don’t come around every day, so I knew I could help. The business broker had already tried all of their typical shops with no luck. The buyer found a few lenders on his own, with even less luck. Responses ranged from “not likely” to “impossible”, and everything in between. We got to work. Negotiations back and forth with the seller and broker, running due diligence analysis, and helping craft the business plan and financial projections. You name a part of the acquisition process, and we were elbow deep from start to finish. We reached out to a couple of our go-tos and within days we had a lender on board with our proposed structure (thank you SBA for the new SOP). A little back and forth with committee, but we ultimately received a commitment from the lender with no material changes from where we received the proposal, which is how we like to operate. Without hesitation, the buyer signs, sends in his closing deposit, and we have our closing kick off call. All is right in SBA consulting world.
It’s now September and we’re full speed into the closing process. We had already started gathering some of the easier pieces of the closing puzzle, so we should have only been 3-4 weeks from closing. We’ve got the seller and the broker working on their punch list items and I've started helping the buyer gather all his remaining items. We were moving right along, until we weren’t.
Late September I received an email from out of the blue “Zach - I will not be moving forward with the acquisition at this time”. Now, I never count my chickens before they hatch but.. What?
I tried calling to see if I could get the whole story and sent an email or two for follow up, but that was it. An “impossible” deal to get approved, gone. In my career I’ve seen a handful of seller’s get cold feet towards the end, or buyers that back out due to some material changes taking place, but I just couldn’t understand what happened with this one.
Over the next few months I tried a few times to get in touch with the buyer, fully ghosted. Luckily, I stayed in contact with the broker who had a few other possible buyers floating around, but they were just planning to stick with their normal lenders on this. Of course, assuming the next buyer had the strength to make those shops happy. I’m not sure if it was the industry, where the business was located, or just the universe giving me a fist bump, but it turned out the next serious buyer had a very similar profile to the first and the broker was back to striking out.
After the broker introduced me to buyer #2, it became apparent he was even more green than the first buyer. If he had called me first I probably would have moved this one to the “unqualified” folder, but we had a previous commitment in hand so why not give it a shot?
The broker had a solid idea to directly join the buyer’s equity pool which would help strengthen the management experience of the team, however, they were asking for management control without signing a guaranty. When they learned that wouldn’t fit the SBA box, they switched gears to a plan with less control but more upside potential for them. As much as I hated to do it (purely for selfish reasons), I advised the buyer against moving forward unless we could work something out more realistic. Fortunately, he agreed with me and was able to see past the short term gain for giving away his long term equity.
A few phone calls in his network and the buyer found he had a connection with someone in his same position, just a few decades further down the road. We helped him pitch this gentlemen as a partner. No signatures, no investment, just a small equity-for-advisory offer which he accepted.
And that was the final puzzle piece that got the lender’s committee to sign off on issuing a new commitment.
And how my client went from bringing home a low 6 figure salary to owning a business with the built-in potential to clear 7 figures AFTER paying the SBA loan payments.
And.. why I’ll continue doing what I do.
