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I found a company whose owner is willing to sell for 4X EBITDA. He is planning to retire in a few years. I also found a lender willing to lend 4X EBITDA. So you’d think that’s that. However, the lender then said his organization has a rule against financing 100% of the purchase price. It wants a 25% equity component. So I determined the seller was willing to reinvest 25% of the purchase price to have a 25% stake in the new entity I will create to buy the assets of his company. So that would seem to address the lender’s concerns. However, there are still two issues:

1) I am afraid the lender will not like the fact that the equity is coming entirely from the seller; and

2) If the seller finds out that he’s putting up all of the equity, he will demand all of the profits instead of just 25%.

An obvious solution would be for me to put up all of the equity (instead of getting it from the seller) but I don’t have enough cash to even come close to 25%.

Mathematically, this deal is very doable since I can get enough debt (from the lender) and equity (from the seller) to put it together. The problem is how do I structure it so neither the seller nor the lender objects? There has got to be a creative way to satisfy the needs of all three parties.

Private Equity

Leveraged Finance

Buyouts

Answer

Brig Burton answered

There are several creative ways to get this deal done. Feel free to call or email me.

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