EBIT Newsletter 004

Newly Listed Deals

P&L Insurance Brokerage Business

A well-established insurance brokerage operating since 1997 with a focus on P&L.

• 📍 Location: Long Island, NY

• 💰 Asking Price: $5.0M

• 💼 Cash Flow: $1.14M

• 📊 Revenue: $1.25M


• ℹ️ Source: Businesses for Sale

• ⌛ Listed: 2 Days Ago

Overview: Established in 1997, this well-established property and liability insurance brokerage operates without a physical location, with the owner based in Florida and an administrator on Long Island. Approximately 50% of its revenue is generated from 30 major clients, while the remaining 50% comes from 250 smaller clients. The business relies primarily on referrals and word-of-mouth, with minimal advertising efforts. The seller is willing to remain for a limited period to ensure a smooth transition. Premium carriers are associated with the brokerage.

Commercial HVAC Business

A well-established commercial HVAC business with high margins and diverse client base.

• 📍 Location: New York, NY

• 💰 Asking Price: $4.0M

• 💼 EBITDA: $1.1M

• 📊 Revenue: $2.3M

• ℹ️ Source: Businesses for Sale

• ⌛ Listed: 2 Days Ago

Overview: This commercial HVAC business generates approximately $2.3 million in annual revenue with a 48% profit margin. The business focuses on 95% commercial work, with the remaining 5% comprising select large residential projects. The business currently services Manhattan and Westchester. Despite its success, the business has untapped growth potential, as it currently operates without a website, advertising, or marketing initiatives, relying solely on word-of-mouth referrals. The company maintains a secure and diverse client base, including gym networks, large real estate management firms, office buildings, and shopping centers.

Pool and Spa Construction Business

• 📍 Location: Palm Beach County, FL

• 💰 Asking Price: $2.8M

• 💼 Cash Flow: $1.0M

• 📊 Revenue: $2.28M

• ℹ️ Source: Businesses for Sale

• ⌛ Listed: 3 Days Ago

Overview: This well-established pool and outdoor kitchen contractor in Palm Beach County, Florida, has been serving clients since 1997. Specializing in pool and spa construction, renovations, and outdoor living spaces, the business operates with nine subcontractors and maintains strong profitability after streamlining operations. The company sits on two acres, with office space, storage, and a metal building, available for purchase separately. Growth potential exists by expanding into pool servicing. The owner is retiring and offers 30 days of training, with seller financing available for qualified buyers.

SMB Industry Insights

• Events: Join a networking event on Feb 13, for SMB searchers at Pinthouse Brewing in Austin, TX, hosted by key industry players @LisaGForrest

• Due Diligence: Deals with heavy 1099 contractor usage could face ~30% cost spike post-close due to W2 conversion @TheSMBInvestor

• Deal Structuring: Beware overpaying in acquisitions with one strong earnings year; risk of 'greater fool' theory @SBA_Matthias

• Due Diligence: Discover rapid underwriting tips for self-storage before deep due diligence @sweatystartup

• Business Management: Use the 'Pathfinder' tool to identify business issues and get a custom report on global talent and AI solutions @MatznerJon

Mainshare’s Guide to Self-Funded Search Investing: Key Takeaways

The self-funded search model is gaining traction as a way for entrepreneurs to acquire small businesses while offering attractive returns for investors.

1. Growing Market Opportunity

   • An estimated $7.4 trillion in small business assets are held by Baby Boomers, with another $6.8 trillion controlled by Gen X, highlighting a significant opportunity for entrepreneurial acquirers as business owners retire.

   • The SBA 7(a) loan program has played a critical role in supporting self-funded searches, allowing for up to 90% loan-to-value (LTV), increasing flexibility for buyers.

2. Self-Funded vs. Traditional Search Funds

   • Self-funded searches rely on personal capital and debt (mainly SBA loans), while traditional search funds raise initial seed capital to fund the search process.

   • Self-funded searchers retain more equity but face higher personal financial risk, often securing businesses with $500k–$2M EBITDA compared to larger acquisitions in traditional models.

3. Attractive Investment Returns

   • Traditional Search Funds have delivered an average 35.1% annual return with a 4.5x multiple over the past 40 years.

   • Self-funded searches show comparable returns, driven by the ability to acquire cash-flowing businesses at 3x–5x EBITDA multiples—well below private equity and public market valuations.

4. Acquisition Process Overview

   • The process includes sourcing deals, conducting due diligence (financial, business, legal), securing debt and equity commitments, and executing purchase agreements.

   • Investors review key materials like teasers, CIMs (Confidential Information Memorandums), financial models, and equity term sheets.

5. Value Creation Strategies

   • Common strategies include organic growth (hiring sales teams, expanding services), operational improvements (back-office consolidation, process automation), and inorganic growth (add-on acquisitions).

   • 90% of self-funded searchers emphasize improving sales and marketing as a top post-acquisition priority.

6. Investment Terms & Structures

   • Investors often receive preferred dividends (10–15%), equity step-ups to compensate for personal guarantees on SBA loans, and put options for liquidity.

   • Capital structures typically involve 50–90% debt, with the remainder funded through seller financing, investor equity, and personal capital from the searcher.

7. Risks & Mitigation Strategies

   • Key risks include customer concentration, high financial leverage, key person dependency, and entrepreneur burnout.

   • Mitigants include deferred consideration, maintaining strong DSCRs (Debt Service Coverage Ratios), aligning employee incentives, and having robust transition plans.

8. Market Trends (Q4 2024 Update)

   • Home services, commercial maintenance, and manufacturing are popular sectors.

   • Most deals fall within the $4M–$12M enterprise value range and $1M–$4M EBITDA, offering attractive opportunities below the radar of traditional private equity firms.

The self-funded search model presents a unique investment opportunity, combining high growth potential with structured risk mitigation strategies.

Click here to view the full report.

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