The principals backstop every investment. We do not require external financing. If we do, we make that clear on our term sheet. This ensures deal certainty and is only fair for everyone.
We prefer straightforward cash offers. While we are open to different transaction structures, a cash offer is the easiest to execute and most transparent to all parties. In our experience, incentive based transaction structures (earnouts, etc.) are open to 'gaming' and adds friction between parties.
We try to work with the individual needs and requirements of each vendor. Please speak up so we can prioritise what is important. For example:
There is an existing general manager interested in a management buyout, but requires financing. We would be interested in partnering with your manager
There is a need to take care of people or business partners (perhaps from a verbal promise)
The vendor wants to keep working (or not)
The vendor is willing to keep minority stake and take part in future upside
There is no immediate need for cash (staged buyout or vendor financing in exchange for higher price or interest income)
etc.
In other words, what amount of cash can be paid out as dividend each year? Considerations:
Adjust for cyclicality, volatility and non-recurring items over an economic cycle.
Capex or software development cost. What maintenance capex or software development cost is required to run the business?
Working capital changes. Does the business require an increasing amount of working capital to sustain the business and maintain growth?
Considerations:
Runway for business growth.
Revenue recurrence, customer diversity and business resilience.
Business or product cyclicality and volatility.
Industry and product competitive dynamics.
We do not invest in real estate.