7 Steps I Took to Structure a $200 Million Business Acquisition

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How do you raise $200 million for a business acquisition? 

Just get the deal, and the money will come. 🙂

I say that tongue-in-cheek, but that is the moral of this story. Although there’s a lot more to “just getting the deal,” which I’ll explain in depth in this article, I mean it when I say that if you can secure the deal, you can secure the financing. 

Today I’m going to break down exactly what I did to pull together the financing for an almost $200 million acquisition. 

Now, for full transparency, the offer I made was $180 million and I didn’t end up closing the deal. I’ll explain why at the end, but I would still repeat these exact seven steps in this order for any acquisition of this size. 

 

“A $200 Million Acquisition is Unrealistic for Me. Why Should I Read This?” 

 

Are you at a place in your acquisitions career where you should be considering a $200 million acquisition? Maybe not. But that doesn’t mean this won’t apply to you at some point. 

Acquisition entrepreneurship operates like a snowball effect, where you may start off acquiring a smaller deal, but with the value you’re able to create in the business and the ultimate return you can get when you exit a few years down the road, you’ll be able to buy bigger and bigger businesses in the future

Additionally, developing experience as a business owner and acquisition entrepreneur over time will get you access into smaller pools of buyers who are serious, vetted, and have access to better deals and bigger amounts of financing. 

Don’t read this article thinking this will never be you – read it thinking this is where you can eventually be

In fact, I’ll give you an example that’s a little more down-to-earth from someone in the Acquisition Lab a few months back. We were running the weekly search forum, where we help members analyze their current deals, and this member was a first-time buyer who was under a letter of intent to buy a company for $7.5 million. At a 4.5 multiple of earnings, this was a strong and fair offer. 

But here’s the interesting part: when you’re in the private market with deals between $5 million and $25 million, you’re too big for most financial buyers and too small for most private equity firms. This creates a thinner market, which often means better terms for buyers.

In this case, the buyer was only injecting about 5% of the total purchase price. The seller was rolling 5% of their equity into the new entity, and there were two seller notes on the deal—one with a 10-year standby and the other with a two-year standby. The rest of the financing came from an SBA loan for around $4.5 million.

It was a super creative capital stack. The buyer could pay the seller’s asking price but managed to defer a lot of the financing. This is just one example of how creative deal structures can help you pull off a larger acquisition, even if you don’t have all the cash upfront.

Now, let’s dive into the seven steps you need to follow to make an offer on a $200 million deal.

 

1. Get on the List

 

Step one: get yourself on the list of people who are actually allowed to do this. 

Picture someone who went to an Ivy League school, got their MBA, spent 20 years on Wall Street in private equity, and now they’re branching out to do their own thing and looking to buy a $70 million deal. We can all see how that background naturally sets them up for this next step, but the reality is that most of us aren’t in that position – and that’s okay. 

In my case, I wrote Buy Then Build and founded Acquisition Lab, a book and business that specifically operate in the acquisitions space. 

 

 

I have readers all over the world, an acquisitions Facebook group, and a sizable email list. The point is, because I’ve done a number of deals and worked in this space, people understood my background, my story, and why I was a good fit for this opportunity.

Again, you might not be at that place where you have the experience and reputation to acquire a $200 million business, yet, but you will be. 

When you get there, you’ll need to position yourself as someone who’s allowed to do this kind of deal. Make sure you’re on that list.

 

2. Make a Fair Offer

 

Number two is to make a fair offer

I think this rule applies regardless of the size of business, but what I’m saying is: don’t lowball the seller and negotiate too hard.

The goal is to smooth the path to closing, not create unnecessary friction. Just because you have the financing doesn’t mean it’s a done deal. 

In this case, I looked at the market data to make a reasonable offer at that time. The peak of the market for this segment was in Q4 of 2021, where unadjusted multiples were around 7.25 times earnings, but the market had cooled off a bit since then, with fewer deals happening. 

Even still, I offered 7.25 times earnings, which was very competitive and higher than what would be expected. I had already spoken with the company’s president and CEO, so I had a pretty clear idea of what their earnings looked like. 

Now that I’ve made the offer, it’s time to secure the financing

 

3. Secure Institutional Lenders

 

When it comes to financing large acquisitions, institutional lenders are key. 

These are banks, lenders, and funds that typically finance private equity deals and independent sponsors. Luckily, I had a prior relationship with someone I’d worked with for the last four or five years.

So, I called him up. He already knew me, knew my background, and the kinds of deals I’d done. He also knew I’d written Buy Then Build and had experience. 

I asked for 50% debt for this $180 million acquisition. This is a fairly common ask, as private equity firms usually use 40 to 60% debt. In order to get the seller to accept my offer, I needed a pre-qualification letter from the bank, which is essentially a statement that verifies you have access to the requisite funds to get the deal done. 

That said, no matter how strong your relationships are with lenders, they’re still going to need one thing: skin in the game

 

4. Put Skin in the Game

 

The lender made it clear: “Walker, we need you to put in at least a million dollars of your own money. It can’t come from anywhere else.” 

So in order to get $89 million of financing from this lender, I put down $1 million to show them I had skin in the game. You need to be ready to do the same to make a deal of this size happen. 

Why? This is how they feel confident they can work with you. 

Sellers and lenders work exclusively with buyers who are willing to put something on the line, whether that’s capital or a personal guarantee, and if they know you have something at stake, they know you will do whatever it takes to succeed. 

If you have no skin in the game, you become a liability in the eyes of the lender, and they’re less willing to work with you. 

Conversely, if you find a lender or seller who is willing to give you financing without you putting anything down should be a red flag. You can’t get something for nothing. 

Or in other words, don’t be this guy:

 

Source: BNTouch

 

5. Get Seller Participation

 

Step five is seller participation

You read that right. Some of the best deals are businesses that aren’t even on the market. It sounds out of order, but you can get a great deal and line up financing before you even approach a seller about the opportunity to sell. 

In this instance, with the bank on board and a strong offer, I approached the seller, who wasn’t even actively selling the business. I told them, “In order to make this deal happen, I need two things.” 

First, I wanted them to roll 10% of the equity into the deal. This would give them a significant amount of money at closing, but allow them to keep $18 million of equity in the new entity. By doing so, over three to five years, the return on their 10% stake would hopefully match what they’d get upfront, giving them two bites at the apple.

 

Source: Software Equity Group

 

The second thing I asked for was deferred compensation of about 20% of the deal value. I structured it like this: we’d take that 20%, or $36 million, and split it in half. The first $18 million would be a seller note, with guaranteed payments over five years, at a set interest rate. The other $18 million would be tied to an earn-out, where they’d get $9 million after 12 months and another $9 million after 24 months, assuming the company hits performance targets.

By structuring it this way, I balanced the immediate payout with long-term incentives for the seller.

So as you can see, if there’s a business you’d like to acquire that isn’t already on the market, you’ll have to approach the seller with a deal that’s creatively structured with major incentives to convince them to sell their business

 

6. Secure a Binding Letter of Intent (LOI)

 

Step six is securing a binding letter of intent (LOI).

If the seller agrees to the terms, we both sign the LOI agreeing to the initial terms. 

The binding portion of the LOI is the exclusivity section, where the seller cannot entertain other buyers for the duration of the exclusivity period. With 80% of the deal already financed, the exclusivity period allows the buyer enough time to conduct due diligence and encourages the seller to provide the necessary documents and information needed to adequately complete due diligence. 

In this case, the exclusivity period was for 90 days, which the seller agreed to consider.

Now, as I gave away at the beginning: I didn’t actually get this deal. Although the seller didn’t agree to the terms, the next step after that would have been to get a binding LOI. 

 

7. Obtain Private Equity Injection

 

Step seven is securing a private equity injection.

In order to secure $36 million for the remainder of the deal, I decided to approach private equity firms. This deal was within the range of sizes private equity firms normally look at:

Source: Cherry Bekaert Accounting Firm

 

However, in order to successfully obtain this financing, the majority of the deal needs to already be structured. In this case, 80% of the financing was already secured. If the private equity firm wants to invest more, then we can adjust things accordingly. 

The key is, once you have the rest of the capital stack in place, it’s easier to get the final piece of funding. This structured approach, between the institutional lender, seller note, private equity injection, and other pieces of creative deal structuring, is how you bring a $200 million offer together smoothly.

 

Why the Deal Didn’t Close

 

So, why didn’t the deal close? Here’s the story. The private equity firm that owned the company had gone public. 

When a firm goes public, it enjoys the benefits of lower capital costs and higher valuations, but it also means that their price-to-earnings (P/E) ratios are typically much higher.

 

 

At the time I made my offer, their P/E ratio was in the 20s, while my offer was based on a 7.25x multiple. Accepting my offer would have meant a significant loss in shareholder value – hundreds of millions worth, in fact.

So, despite being in the mix and having the conversation, the deal didn’t go through because the company’s public valuation was far too high compared to my offer. The company was a cash cow for the private equity firm, and they wouldn’t sell unless they could find another private equity buyer willing to meet their higher valuation.

 

A Failed Deal or a Lesson?

 

So, what’s the moral of the story here with a $200 million acquisition that almost went through? 

Structuring a $200 million acquisition is no small feat, but it’s entirely possible even if you don’t have all the capital upfront. 

By building relationships with institutional lenders, negotiating seller participation, and lining up private equity, you can pull together the necessary financing. 

While I didn’t close this particular deal, the process taught me valuable lessons about creative deal structuring and staying persistent. 

The key takeaway? Get yourself in the room and keep pushing forward – the money will follow.

Ready to acquire a business in the next 12 months? The Acquisition Lab is your first stop. Reach out to us today and get on the fast track to becoming an acquisition entrepreneur.

Picture of Walker Deibel

Walker Deibel

Walker Deibel is an entrepreneur and advisor. He is the author of Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game and Creator of Acquisition Lab.

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