1. INITIAL CALL
The initial call is a Zoom meeting where we take the time to get to know each other’s backgrounds. It’s an opportunity to ask mutual questions and determine if it makes sense to move forward with scheduling another meeting.
2. NDA
Following the preliminary call, we will proceed with a mutual NDA to ensure confidentiality. This agreement will allow us to learn more about your business without any risk of information being disclosed. Once the NDA is signed, we typically request the following documents: a marketing deck on your company, financial statements from the past three years (including P&L, income statement, balance sheet, and cash flow statement)
3. FOLLOW UP MEETING
After reviewing the financials, we schedule a follow-up meeting to gain deeper insights into the business and address any questions regarding the financial documents.
4. INDICATION OF INTEREST
An indication of interest is a document we draft that: a) provides a valuation range and b) outlines the proposed structure. This ensures we are aligned on valuation expectations.
5. LETTER OF INTENT
An LOI is a document that memorializes the principal terms of a proposed transaction. Most of the provisions are non-binding and are contemplated to be subject to further negotiation between parties.
The primary obligatin of an LOI is a "no-shop provision", which generally prevents the seller from negotiating with other parties while negotiations with a particular proposed buyer are on going during a specified period. If the letter of intent is accepted by the seller, we then proceed to due diligence.
6. DUE DILIGENCE
Due diligence is where we dig deeper into the company and become more aquainted with it. Due diligence is a process of verification, investigation, or audit of a potential deal or investment oppurtunity to confirm all relevant facts and finanical information and to verify anything else.
7. CLOSE
After due diligence and re-negotiations on key terms, the last part of the deal is closing the transaction. The whole process should be 90 days or less.
DISCOUNTED CASHFLOW ANALYSIS
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COMPARABLE COMPANY ANALYSIS
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PRECEDENT TRANSACTIONS
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MULTIPLES OF EBITDA
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HOW WILL THE DEAL BE FINANCED?
A typical investment is funded through a combination of equity, senior debt, and a seller note. Our equity comes from personal funds of The Sericum Group members, along with contributions from a select group of successful entrepreneurs, executives, and private equity funds with committed capital. A seller note is a type of debt issued by the seller to the buyer, often subordinated to other debt used in the purchase. We value sellers willing to carry a note as it aligns our incentives. We are not interested in owners looking for an immediate exit, as this can indicate a lack of interest in the business’s long-term success. Our goal is to partner with the owner and management team to ensure a smooth transition, enhance our chances of meeting growth targets, and most importantly, secure job stability for all employees.
WHAT IS SELLER DISCRETINARY EARNINGS?
In the lower middle-market, the term SDE (Seller Discretionary Earnings) is sometimes used instead of EBITDA. SDE represents the cash flow the seller can freely decide how to spend, often excluding owner compensation and rent or mortgage expenses. Additionally, we encounter deals where inventory is not included in the purchase price. Different parties have varying views on what is included in the purchase price. When The Sericum Group makes an offer, it is based on a specified level of cash flow. If the owner is truly absentee and no replacement is necessary, we will add back their compensation to EBITDA. Regarding inventory, our default assumption is that it is included in the purchase price. Since we are purchasing a cash flow, if the seller required inventory to generate a certain level of cash flow, we include it. Determining the total working capital included is more complex and will be based on historical levels.
WHAT HAPPENS TO MY EMPLOYEES IF YOU BUY MY COMPANY?
The goal of the Sericum Group is to continue to steward the legacy of your company. That means keeping the staff that have been loyal to you and helped you build your company.
WHAT GEOGRAPHY DO YOU BUY BUSINESSES IN?
We primarily focus on businesses in the southern United States.
