Investing in the lower middle market at https://xitter.cf/t.co/y8NQJmdauH, a private equity co-investment group. I build companies, sometimes sell them, and write about the mess.
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Joined March 2012
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Omg this is amazing.
SimCity, but with permits.
permit.petercai.com/
Our expectations as a species continue to climb.
No want wants to live in the same 1,200sqft 1-bathroom homes we did just a generation ago.
(I'm no better, I no longer want to live in that either)
So are 351 exchange ETFs still alive, or are they dead after the Treasury notice?
At first read, it makes me think 351's are still valid, but maybe they can't diversify their holdings as fast as before.
I was really hoping to get in one more exchange.
Thoughts?
Annoying update on this extortion.
Based on feedback, I sent a certified request for proof that I owed the debt.
The bastards are sneaky. They sent back "proof" that, at first glance, would look legit to outsiders.
They then immediately added a collection to my credit report, taking my score from almost perfect to ~ 700.
I knew that the proof wasn't legit, but it would be too expensive in legal and time to fight.
So I paid $1,400 to make it go away. Swallowed my pride for peace of mind (that was the hard part).
What do I do about a fraudulent collections attempt?
I just received a notice from a collections agency saying I owe MailboxForwarding a bunch of money, and they bought the debt. I'm actually still a paying customer, but no one answers support requests anymore.
A quick Google shows A TON of angry former customers. This once-legitimate business sold a list of old customers to a collections agency.
Generally I would ignore, but many of the complaints state that they are getting their credit reports dinged by 100 points without warning.
Basically, extortion.
It appears that the debt collector (IC System) is basically impossible to deal with.
Is it wild that I'm considering just sucking it up and paying this thing, even though I know it's wrong?
Ahhh yes, let’s allow margined sports betting.
Sorry, I mean “prediction markets” (wink wink)
This is definitely good for Americans. Zero reason to oppose.
It's wild to see many of these searcher deals now priced higher than the bigger, better true lower middle market companies.
The huge influx of "buying a business is easy" influencers, combined with 90% LTV SBA loans, has completely distorted the market.
Travis Jamison retweeted
“These greedy pistachio farmers are exploiting our communities and must be stopped.”
— no politician ever
Here's a math problem for both searchers and investors.
Earlier I shared the SBA changes, saying:
"If you have minority investors who will own below 20%, they cannot receive distributions until your SBA loan is paid in full."
Then @GrantHensel shared in his newsletter.
"investor capital that contributes to the 10% minimum equity injection cannot receive distributions until the SBA loan is repaid in full. Outside equity not used for the 10% minimum is unaffected."
My Question:
If there is a 20% equity injection from investors, whose capital is the no-distribution 10%, and whose capital is unaffected, and open to distributions?
Pretty big new SBA rules for Searchers, effective Oct 1st.
(this is ALL from @EndresenHeather's newsletter)
1. Personal Guarantors must provide equity from their own funds = to at least 5% of the total project cost.
Example: If the total project is $1 million, personal guarantors must bring in at least $50k, and the rest could come from investors.
2. If you are a first-time business buyer, you cannot use a 5% seller stand-by note to cover half of your 10% equity any longer.
3. If you plan to have minority owners/investors who will own below 20%, and are not providing personal guarantees, they cannot receive distributions, other than tax distributions, until your SBA loan is paid in full.
4. A Quality of Earnings report is required on acquisitions of $3 million or more.
Most buyers are already planning on a QofE, even for smaller deals. This will help banks to understand that they should be underwriting to both the Business Tax Returns and the QofE.
Many of the more sophisticated banks already do this now. But this will encourage all banks to integrate the QofE into their underwriting going forward, which we view as a positive change.
The downside for buyers, you may not get to pick your provider or the scope of work under the new rules, as the bank will likely control the QofE vendor and engagement processes.
5. The 25-year loan term advantage for real-estate-heavy acquisitions is going away. When an acquisition includes both the operating business and commercial real estate, only the real estate portion may receive an amortization of up to 25 years.
Previously, transactions in which real estate represented more than 51% of the financing could potentially qualify for a 25-year term across the entire loan. That advantage will no longer be available.
6. Trust ownership now comes with additional guaranty requirements. If a trust will hold any ownership interest in the business, regardless of whether that interest is below 20%, the trust must guarantee the loan through its trustee. In addition, the trustor, meaning the person who contributed the assets to the trust, must personally guarantee the loan.
7. Seller transition periods may now extend up to 24 months. The maximum permitted seller consulting period is increasing from 12 months to 24 months. This may be especially helpful in businesses where there are licenses held by the seller, or other critical transition issues where it may be beneficial to have the seller engaged for longer.
Oof
Travis Jamison retweeted
Sat down with @Travis_Jamison (Capital Pad) on SBA searcher deals getting crowded, owner dependency killing businesses from the inside, and how phantom equity + roll-ups actually work in the $5M -$25M range.
Timestamps:
1:30 – SBA vs. lower middle market, the real difference
12:00 – Owner dependency quietly kills good businesses
17:00 – Why PE's reputation is worse than its track record
26:00 – How multiples expand as EBITDA grows
32:30 – Phantom equity: the most underused retention tool
44:00 – Buying EBITDA: the roll-up playbook explained
51:00 – How to structure earnouts without the drama
Travis Jamison retweeted
*My thoughts* (not Heather's)
1. Feels like we're approaching the end of an era of easy, cheap micro PE.
2. Some of this is a good thing! Too many non-qualified people have been doing searcher deals, and many will go bankrupt.
3. The SBA has really been going after investors. I can't completely blame them, it was a good gig, but it'll be a double-edged sword.
4. The other side of that sword... the harder the SBA makes it to do deals (i.e. investors), the less that perfectly good but small SMBs will transact, and the more that will just shut down when the founder retires.
5. QofE requirement is a complete no-brainer.
6. Real estate loan advantage was just a hack, this seems right, even if less fun.
7. Seller transition extension is welcome news! It would sure be A LOT better/easier to be able to keep them as a minority on the cap table for licensing though.
Pretty big new SBA rules for Searchers, effective Oct 1st.
(this is ALL from @EndresenHeather's newsletter)
1. Personal Guarantors must provide equity from their own funds = to at least 5% of the total project cost.
Example: If the total project is $1 million, personal guarantors must bring in at least $50k, and the rest could come from investors.
2. If you are a first-time business buyer, you cannot use a 5% seller stand-by note to cover half of your 10% equity any longer.
3. If you plan to have minority owners/investors who will own below 20%, and are not providing personal guarantees, they cannot receive distributions, other than tax distributions, until your SBA loan is paid in full.
4. A Quality of Earnings report is required on acquisitions of $3 million or more.
Most buyers are already planning on a QofE, even for smaller deals. This will help banks to understand that they should be underwriting to both the Business Tax Returns and the QofE.
Many of the more sophisticated banks already do this now. But this will encourage all banks to integrate the QofE into their underwriting going forward, which we view as a positive change.
The downside for buyers, you may not get to pick your provider or the scope of work under the new rules, as the bank will likely control the QofE vendor and engagement processes.
5. The 25-year loan term advantage for real-estate-heavy acquisitions is going away. When an acquisition includes both the operating business and commercial real estate, only the real estate portion may receive an amortization of up to 25 years.
Previously, transactions in which real estate represented more than 51% of the financing could potentially qualify for a 25-year term across the entire loan. That advantage will no longer be available.
6. Trust ownership now comes with additional guaranty requirements. If a trust will hold any ownership interest in the business, regardless of whether that interest is below 20%, the trust must guarantee the loan through its trustee. In addition, the trustor, meaning the person who contributed the assets to the trust, must personally guarantee the loan.
7. Seller transition periods may now extend up to 24 months. The maximum permitted seller consulting period is increasing from 12 months to 24 months. This may be especially helpful in businesses where there are licenses held by the seller, or other critical transition issues where it may be beneficial to have the seller engaged for longer.
Oof
*My thoughts* (not Heather's)
1. Feels like we're approaching the end of an era of easy, cheap micro PE.
2. Some of this is a good thing! Too many non-qualified people have been doing searcher deals, and many will go bankrupt.
3. The SBA has really been going after investors. I can't completely blame them, it was a good gig, but it'll be a double-edged sword.
4. The other side of that sword... the harder the SBA makes it to do deals (i.e. investors), the less that perfectly good but small SMBs will transact, and the more that will just shut down when the founder retires.
5. QofE requirement is a complete no-brainer.
6. Real estate loan advantage was just a hack, this seems right, even if less fun.
7. Seller transition extension is welcome news! It would sure be A LOT better/easier to be able to keep them as a minority on the cap table for licensing though.
It still feels wild how much the job outlook for many white collar workers has changed over the last year.
There are two contractors I was interviewing that I now won’t be hiring as a direct result of implementing @bot. So I now disagree with your last statement.
This is wild.
An AI company is trying to pay us for all our old investment memos, CIMs, teasers, etc.
Claiming to offer legit money for the data, and claiming to anonymize it.
(I'm saying no, but still)
Honestly, I’m in love with this.
An operator-first roll-up.
A group that already knows the best practices in home service industries, and the reputation and resources to make into something bigger.
Killer idea.
10 years ago, we set out to make an impact on the home service industry.
We started with little more than a dream and some Midwestern grit.
Since then, we’ve built one of the largest home service operations in the Midwest, with a best-in-class team and best-in-class operations.
But we’re nowhere near done.
Today, we’re announcing Titan Trades Alliance, an alliance of founder-led home service businesses built by operators who know what it takes to grow in the trades.
We aren’t Private Equity.
We’re Operators.
And we’re just getting started.
titantradesalliance.com/
