Part VIII
The Deal
From letter of intent to funds flow. Exclusivity, reading the seller, diligence beyond the numbers, structure under the current SBA rules, the capital stack and the guarantee, the paper that can kill you, the close, and what to do when a deal dies.
LOI and Exclusivity
- L8.1.1
What an LOI Actually Is
Non-binding except where it binds: exclusivity and confidentiality. Structure beats headline price, the indication of interest is a different instrument, and deadlines are extracted rather than volunteered.
TraditionalSelf-FundedSponsorAdvanced - L8.1.2
Competing Processes
Rival letters of intent, two-track offers in which different buyer types justify different structures, and how to stay alive in a competitive process without overpaying to win it.
TraditionalSelf-FundedSponsorAdvanced
Reading the Seller
- L8.2.1
Seller Intent and Leverage
What the seller wants besides money: succession, legacy, a role for the next generation. Seller psychology favors structure over headline price more often than buyers expect, and the two failure reads are an irrational anchor and a seller who shops your number.
TraditionalSelf-FundedSponsorAdvanced - L8.2.2
Negotiation Doctrine
Your alternative to the deal, the concession hierarchy, the mentor question, and the rule that disgust is data. Courting a seller is a long relationship conducted under scrutiny; act accordingly.
TraditionalSelf-FundedSponsorAdvanced
Diligence Beyond the Numbers
- L8.3.1
The Checklist, Run as Workstreams
A hundred-plus item diligence list organized into workstreams with request-versus-delivery scorecards. When a seller delivers the wrong document, the gap itself is a finding. Diligence catches sins of commission and misses sins of omission.
TraditionalSelf-FundedSponsorAdvanced - L8.3.2
Transferability
What actually transfers on a change of control: contracts, joint ventures, licenses, franchises, key relationships. Haircut what does not transfer, or make it contingent consideration using the instruments your financing allows.
TraditionalSelf-FundedSponsorAdvanced - L8.3.3
The Liabilities Nobody Lists
The searches that catch sins of omission because none of it appears in the financials: lien filings, payroll and sales tax liens, judgments and dockets, and employee misclassification. In the wrong structure all of it becomes yours.
TraditionalSelf-FundedSponsorAdvanced
Structure After the Rewrite
- L8.4.1
What's Still Legal
Structures under the current SBA standard operating procedure: capped standby seller notes, adjustable and forgivable seller notes as the compliant contingent-price tools, equity injection rules, what died in the rewrite and what tightened afterward.
Self-FundedSponsorAdvanced - L8.4.2
Asset or Stock: The First Structural Decision
Asset purchase versus stock purchase, forming the new entity, successor liability, purchase price allocation and why the seller fights you on it, sales tax on asset transfers, and what each choice does to the diligence burden.
Self-FundedSponsorAdvanced - L8.4.3
The Seller's Paper: Transition and Non-Compete
In an SBA-financed complete change of ownership the seller cannot stay on as an employee or owner, so the instrument is a paid consulting agreement with a capped term. The training period, the problem consultant inside their former company, and the non-compete as a negotiated term that belongs in the letter of intent.
Self-FundedSponsorAdvanced
The Capital Stack
- L8.5.1
The Stack and the PG
The teaching baseline of roughly 65% SBA debt, 15% seller note, 15% investor equity and 5% your own capital, and the rule that leverage above 90% will kill you. Debt sized for maximum returns is debt sized for maximum default risk.
Self-FundedAdvanced - L8.5.2
Seller Financing Is a Tool, Not a Rescue
The fully seller-financed failure mode gives the seller a reason to want the business back. Merchant cash advances as a death spiral. Seller paper bridges a price gap but inverts coverage if it is doing the lender's job.
Self-FundedAdvanced - L8.5.3
The Lend Box
You have a buy box; lenders have a lend box. The difference between a small-bank partner and a big-bank policy desk, and why raising equity is won in person rather than by deck.
Self-FundedSponsorAdvanced - L8.5.4
The Searcher's Cap Table
Raising equity off a balanced term baseline: preferred equity with step-up conversion, governance without a formal board, put rights timed after loan payoff, operator compensation tiers, and tax distributions. The guarantee rules for investors above and below the ownership threshold, and the distribution restriction that reshapes every investor pitch.
Self-FundedSponsorAdvanced
The Paper That Can Kill You
- L8.6.1
A Purchase Agreement Is Not Protection
A purchase agreement is a platform to sue, and suing is a second catastrophe. What representations and warranties actually get you, and why most failed acquisitions end in settlement rather than recovery.
TraditionalSelf-FundedSponsorAdvanced - L8.6.2
The Kill Clauses
Confession of judgment, control-preferred powers, sweep accounts, and personal guarantees on instruments you do not control. The red lines from the Buyer's Checklist, applied as contract review.
TraditionalSelf-FundedSponsorAdvanced
Close
- L8.7.1
The Fifteen Steps
The close checklist, the working-capital peg, the funds flow, and the final walk-away gate: run the Buyer's Checklist again the week before close, and watch for pre-close cash drain to the last day.
TraditionalSelf-FundedSponsorAdvanced - L8.7.2
Insurance, Benefits, and the People Ledger
The transition items that ambush week one: business insurance that does not assign, workers' compensation and the experience modifier, health-plan continuity, accrued leave as a real liability in an asset deal, successor-employer exposure, and the key-person life policy a lender will require.
TraditionalSelf-FundedSponsorAdvanced
Dead Deals
- L8.8.1
Dead Deals Are Tuition
Every dead deal costs money and teaches something. The post-mortem discipline: what to write down, what to change in the buy box, and which lessons about investors, concentration and structure only a dead deal can teach.
TraditionalSelf-FundedSponsorAdvanced - L8.8.2
Fatigue Management at the Wire
The late-search protocol for a tired buyer, the searcher who quietly hopes the QoE comes back bad, and walking away treated as a success outcome rather than a failure.
TraditionalSelf-FundedSponsorAdvanced