Acquisition Strategy
What we buy, what we pay, and how we finance it. Essential B2B services, industrial maintenance, inspection, compliance, and aftermarket-heavy niche manufacturing, $2M-$14M enterprise value.
Summary
We buy essential, asset-linked businesses and price them on proven cash flow. Five categories guide our sourcing. The two strongest acquisition lanes are inspect-maintain-repair and installed-base parts and service. Both link repeat demand to a physical asset, a mandated schedule, or expensive customer downtime.
4.0x is the middle ground. Lower multiples raise debt coverage.
80% senior debt, 10% seller note on standby, 10% buyer equity. 10.00% (prime 7.00% plus the 3.0% SBA maximum), 10 years, 1.6x DSCR.
Same structure. A fixed $600K-$750K floor fails at the upper end.
SOP 50 10 8.1, effective October 1, 2026. Historical earnings only, up from 1.15x. Business expansions stay at 1.15x.
4.9x at 1.6x DSCR. 80% senior debt, 10.00%, 10 years. About 3.2x EBITDA at 80% cash conversion.
Sweet spot $4M-$7M. $2M stays an option. Stretch toward $14M with conventional debt and outside equity.
| Rank | Category | Decision | Why it fits |
|---|---|---|---|
| 1 | Industrial maintenance and repair | Prioritize | Large fragmented base, asset-linked demand, 13% projected mechanic employment growth, and room for service plus parts economics. |
| 2 | Inspection and testing | Prioritize | Mandated schedules and records create repeat work. Repair, calibration, or remediation expands revenue per customer. |
| 3 | Aftermarket-heavy niche manufacturing | Selective | Installed-base replacement demand and eligible fixed assets support financing. Generic job shops fail the test. |
| 4 | Essential B2B services | Narrow sharply | Business services draw active buyers and support repeat revenue, but the label contains many weak, project-led, and owner-led firms. |
| 5 | Compliance businesses | Workflow only | Regulation creates tasks. Advice-only firms often depend on one credentialed owner and face pricing pressure from software and AI. |
1. Deal economics
The acquisition price must determine the cash-flow floor. A single $600K-$750K threshold belongs near the bottom of the $2M-$14M range. We keep $725K as the bare minimum for any deal. Above about $3.6M of price at 1.6x DSCR, or $2.9M at 2.0x, the price-linked hurdle governs instead.
Illustrative debt-service test
Illustrative estimate Assumptions: 80% senior amortizing debt, a 10% seller note on full standby with no payments during the senior loan term, 10% buyer equity, a 10.00% annual rate, 10-year monthly amortization, and cash flow available for debt service after market-rate owner replacement, maintenance capital spending, and normalized working capital. The 10.00% case equals the current prime rate of 7.00% (raised September 16, 2026, held October 28) plus the SBA maximum spread of 3.0% for loans above $350K. SOP 50 10 8.1 caps the business-acquisition portion of a 7(a) loan at 10-year amortization. The 10% buyer cash covers the full SBA equity injection. Actual terms differ.
| Purchase price | 80% senior debt | Annual debt service | Cash flow at SBA 1.25x minimum | Cash flow at 1.6x DSCR | Cash flow at 2.0x DSCR | Seller note (10%) and equity (10%) |
|---|---|---|---|---|---|---|
| $2.0M | $1.60M | $254K | $317K | $406K | $507K | $200K note and $200K equity, plus fees and working capital |
| $3.5M | $2.80M | $444K | $555K | $710K | $888K | $350K note and $350K equity, plus fees and working capital |
| $4.0M | $3.20M | $507K | $634K | $812K | $1.01M | $400K note and $400K equity, plus fees and working capital |
| $5.0M | $4.00M | $634K | $793K | $1.01M | $1.27M | $500K note and $500K equity, plus fees and working capital |
| $7.0M | $5.60M | $888K | $1.11M | $1.42M | $1.78M | $700K note and $700K equity, plus fees and working capital |
| $7.5M | $6.00M | $951K | $1.19M | $1.52M | $1.90M | $750K note and $750K equity, plus fees and working capital |
| $10.0M | $8.00M | $1.27M | $1.59M | $2.03M | $2.54M | $1.00M note and $1.00M equity, plus fees and working capital |
| $14.0M | $11.20M | $1.78M | $2.22M | $2.84M | $3.55M | $1.40M note and $1.40M equity, plus fees and working capital |
Live structure check
Illustrative estimate Change any input. Leave the seller note at 0% when it sits on full standby. Cash conversion stands for owner replacement, maintenance capital spending, cash taxes where they apply, and working capital. Do not double-count deductions already in normalized EBITDA.
SBA 7(a) stops at $5M
The program supports ownership changes, but the guaranty-backed loan cap is $5M. A $10M or $14M purchase does not fit a pure 7(a) structure at ordinary debt shares.
Asset-heavy targets gain an option
Effective July 4, 2026, a borrower has up to $10M of combined 7(a) and 504 capacity. The 504 portion applies to eligible fixed assets. This favors machinery, equipment, and real-estate-heavy acquisitions over goodwill-heavy service firms. It does not create a $10M goodwill loan.
SBA acquisition rules tightened October 1, 2026
- 1.25x DSCR for initial acquisitions, measured on historical results. Projections no longer count, except a narrow case for owner-occupied special-purpose property. Business expansions stay at 1.15x.
- Independent valuation above a $350K price. Quality-of-earnings review at a $3M+ price, excluding owner-occupied real estate. The lender sizes the loan on QoE-adjusted earnings.
- 10% equity injection that cannot be reduced. At least half comes from cash or other unlimited sources.
- Total transaction debt, including seller notes not on full standby, stays within the valuation.
- The business-acquisition portion amortizes over 10 years at most, with no balloon.
SBA notice 5000-880695 | Technical updates 5000-882227 | Edison BA comparison | Grow America summary
The seller exits, and the license must stay
In an SBA initial acquisition, the seller cannot remain an owner, officer, director, or employee. Consulting support runs up to 24 months. State rules usually require a license qualifier to be an officer or employee, so a seller who holds the license usually cannot keep that role. Licensed trades such as fire protection, pest control, HVAC, plumbing, and electrical need a qualification plan, normally the buyer or a retained employee, confirmed under state rules before closing.
Effect on this strategy: Most Lane 1 targets are licensed trades. Identify the post-closing license qualifier before the letter of intent.
What every deal must show
- Use cash flow available for debt service, not headline EBITDA or SDE.
- Deduct market-rate owner replacement, maintenance capital spending, normalized working-capital needs, and recurring compliance or software spending.
- Require at least 1.6x base-case DSCR. Target 2.0x where customer, technician, or cyclicality risk is material.
- Stress revenue, gross margin, payroll, and working capital. Debt service must remain covered without relying on multiple expansion.
- Count seller paper as debt unless it is fully subordinated, long-dated, and payment terms match the downside case. Under SBA, only seller notes on full standby for the loan term count toward equity.
- Never go below $725K of cash flow, whatever the price. Above about $3.6M of price, the price-linked hurdle sets the bar.
- Cap the price from the hurdle. At 80% senior debt and today's rate, pay no more than about 4.9x cash flow for 1.6x DSCR or 3.9x for 2.0x. We plan around 3.5x-4.5x EBITDA. The top of that band clears 1.6x only with about 91% cash conversion, or with more equity.
- When SBA funds the deal, meet SOP 50 10 8.1: 1.25x DSCR on historical results for an initial acquisition, independent valuation, QoE at a $3M+ price, total debt within the valuation, 10% equity injection with at least half in cash, and 10-year amortization on the business portion. Interest-only seller debt not on full standby is underwritten at a 10-year amortization.
- Required licenses and qualifications must continue after the sale or have an approved transition completed before closing. Under SBA rules, a seller who holds the license usually cannot keep that role, so confirm the state-specific plan.
- Keep the largest customer below about 30% of revenue unless a contract protects it. Base-case DSCR must survive its loss in the stress case.
- Require established positive earnings: ideally 10 or more years of history, 5 or more with a strong financial record. No turnarounds or declining earnings.
2. Where we compete
We avoid broad auctions. Our edge comes from proprietary sourcing, narrow subvertical knowledge, and careful underwriting of operating complexity.
| Category | Why it works | What we look for | What we pass on |
|---|---|---|---|
| Industrial maintenance and repair | Breakdown avoidance, preventive service, and parts replacement tie spending to asset uptime. BLS projects 13% employment growth for industrial machinery mechanics, maintenance workers, and millwrights from 2024-2034. | Equipment-specific field service with scheduled work, emergency response, parts, rebuilds, and a trained second layer. | Project-led contractor, one master technician, weak safety record, or top customer above 20% without a strong contract. |
| Inspection and testing | OSHA requires recurring crane and fire-extinguisher inspections. NFPA, accreditation, and customer records support repeat schedules. | Crane and hoist, fire and life safety, NDT, calibration, industrial hygiene, or environmental testing with service or remediation pull-through. | One credential holder, non-transferable accreditation, adverse claims, inspection independence conflict, or low reinspection retention. |
| Aftermarket-heavy niche manufacturing | Replacement parts for an aging installed base create repeat demand. Eligible machinery and real estate support asset financing. | Proprietary or hard-to-source parts, remanufacturing, rebuild kits, short-run legacy components, and repair tied to a known installed base. | Commodity job shop, high customer concentration, project-only orders with no repeat replacement behavior, deferred capital spending, or undocumented drawings and IP. |
| Essential B2B services | Repeat routes or mandated service visits produce dependable work. | Route or schedule-led facility service with low customer churn, route density, field supervision, and measurable backlog. | Generic staffing, janitorial commodity bidding, owner-led consulting, marketing agencies, or project-only installation. |
| Compliance businesses | EPA, OSHA, FDA, and state rules create monitoring, testing, recordkeeping, and verification tasks. | Field sampling, laboratory work, recurring reporting, permit monitoring, food-safety verification, and outsourced EHS programs with records embedded in customer operations. | Advice-only firm, one rainmaker, policy-driven demand with no field work, or a software product sold as a service company. |
3. What we ask sellers for
These are the records we request early. Sellers who have them ready move faster through diligence and financing.
| Topic | Why it matters | What we ask for |
|---|---|---|
| Recurrence illusion | Repeat customers are presented as contracted revenue. Work depends on bidding or owner relationships. | Five years of invoice cohorts, retention by revenue, interval between jobs, cancellation data, contract terms, and price realization. |
| Technician concentration | Two people hold the key credentials, customer trust, and troubleshooting knowledge. | Revenue and gross profit by technician, credentials, age and tenure, training pipeline, non-owner dispatch authority, and stay interviews. |
| Owner replacement | Reported cash flow omits a market-rate sales, technical, or general-management replacement. | Owner time study, replacement job descriptions, compensation benchmarks, and customer ownership map. |
| License or accreditation transfer | The entity or one individual holds permits that do not survive the transaction. | Change-of-control clauses, agency confirmation, accreditation scope, proficiency testing, corrective-action history, and a named post-closing license qualifier. |
| Financing shortfall | QoE-adjusted earnings come in below the seller's figures, so the SBA loan shrinks late in the process. | Bank-statement cash proof for the trailing 12 months and two fiscal years, documented add-backs, and customer concentration. |
| Qualification held by the wrong party | A regulation or shared standard creates demand, but the customer, a distributor, or one individual holds the license, product file, or approval. | Holder of each license, listing, process approval, and customer drawing, plus written continuity treatment for the deal structure. |
| Certification interruption at closing | A stock sale, asset transfer, name change, relocation, or process change triggers requalification. | Program-specific written treatment of the proposed structure, the requalification timeline, and customer notice terms. |
| Liability tail | Inspection failure, environmental work, or field service produces latent claims. | Claims history, insurance exclusions, standard reports, limitation language, calibration records, and quality-control audits. |
| Capital and working-capital deficit | Machinery is aged, inventory is slow, or growth consumes cash. | Asset register, maintenance logs, utilization, backlog conversion, inventory aging, vendor terms, and monthly cash cycle. |
| Customer concentration | A large plant closure, OEM program loss, or procurement change impairs debt service. | Five-year sales and margin by customer and site, contract termination rights, switching history, and end-market exposure. |
4. Sourcing lanes
Ranked by priority. Lanes 1 and 2 are our two named campaigns.
Inspect, maintain, repair, and scheduled field service
- Fire protection inspection, testing, maintenance, and monitoring
- Fire-extinguisher and cylinder service, and fire and smoke barrier inspection and repair
- Recurring pest control and commercial kitchen-exhaust cleaning
- HVAC service with maintenance agreements, and repair-heavy plumbing, drain, and sewer
- Certified pressure-relief and safety-valve repair, and hose assembly with mobile service
- Industrial water-treatment programs and accredited materials and NDT laboratories
- Heavy truck repair with a secured yard, and service-led commercial electrical and mechanical contractors
- Overhead crane and hoist inspection plus service
- Industrial pumps, compressors, drives, rotating equipment, conveyor, and packaging-equipment service
- Industrial calibration with transferable accreditations
Reason: Mandatory intervals or uptime risk initiate demand. Repair and parts increase customer value and make low-price inspection less central. Most of these are licensed trades, so settle the post-closing license qualifier before closing.
Installed-base parts and qualified replacement products
- Qualified sanitary gaskets and seals, replacement filtration consumables, replacement coils, and conveyor replacement parts
- UL 508A control panels, transformer components, generator fuel systems, and rated enclosures
- Approved pole-line hardware, precast utility and drainage structures, stormwater structures, and composite infrastructure
- Specification packaging, returnable industrial packaging, identification plates, breakaway roadside supports, and facility safety signs
- Approval-driven Tier 2 makers: airfield signs and lighting, listed firestop, pavement-marking materials, aerospace fasteners, telecom handholes, proprietary electrical equipment
- Remanufacturing and rebuild kits, short-run legacy components with owned drawings, and aftermarket distributors with technical service
Reason: Replacement demand, proprietary knowledge, approvals held by the plant, and asset support fit the range better than commodity manufacturing.
Route, compliance, and people-led recurring services, plus asset-backed operators
- Routes: commercial front-load and industrial waste, packaged-gas and cylinder routes, medical courier routes
- Compliance workflow: environmental sampling and permit monitoring, specialty laboratories, food-safety verification, outsourced EHS with field work, and commercial refrigeration with certified technician depth
- People-led recurring services: private-pay home care, multi-veterinarian practices, property and casualty agencies, medical aesthetics, medical billing, home health, and small licensed elder-care homes
- Asset-backed operators suited to the 504 option: cold storage, self-storage and small warehouses, contractor yards, and equipment rental
- Other specified manufacturing lanes: opportunistic only
Reason: Repeat demand is real. Each needs a specific condition to fit this strategy: route density with funded fleet capital, a manager below the owner, transferable licenses, or real estate priced separately.
Weak versions of the thesis
- Generic machine shops, tool makers, and commodity fabrication
- Project-heavy millwright or installation contractors
- Advice-only compliance consulting
- Pure inspection firms dependent on one credentialed owner, and other owner-only licensed jobs
- General staffing, janitorial bidding, and owner-led professional services
- Any target priced on “recurring revenue” without invoice-cohort proof
- Industries we pass on: funeral homes, catering, hospice, commercial laundry, locksmiths, assisted living and nursing homes, DOT and municipal traffic signs, springs and wire forms, auto, boat, and aircraft products, energy and petroleum production, marine fenders, rail fasteners and signaling cabinets, lumber and wood products, and specialty finishing and coatings
- Food and beverage operators, turnarounds, declining earnings, unresolved environmental liabilities, contract electronics assembly, reimbursement-dependent healthcare with a deteriorating payer mix, and property-yield investments presented as operating businesses
5. Price and cash flow
Entry cash flow and capital structure set what we pay. The table shows what each price requires. It is a screening guide, not an offer.
| Case | Purchase price | 80% senior debt service | EBITDA at 2.5x | EBITDA at 3.5x | EBITDA at 4.5x | Cash flow needed at 1.6x / 2.0x |
|---|---|---|---|---|---|---|
| Option | $2.0M | $254K | $800K | $571K | $444K | $406K / $507K |
| Priority low | $3.5M | $444K | $1.40M | $1.00M | $778K | $710K / $888K |
| Sweet spot low | $4.0M | $507K | $1.60M | $1.14M | $889K | $812K / $1.01M |
| Lower end | $5.0M | $634K | $2.00M | $1.43M | $1.11M | $1.01M / $1.27M |
| Sweet spot high | $7.0M | $888K | $2.80M | $2.00M | $1.56M | $1.42M / $1.78M |
| Priority high | $7.5M | $951K | $3.00M | $2.14M | $1.67M | $1.52M / $1.90M |
| Middle | $10.0M | $1.27M | $4.00M | $2.86M | $2.22M | $2.03M / $2.54M |
| Upper end | $14.0M | $1.78M | $5.60M | $4.00M | $3.11M | $2.84M / $3.55M |
Illustrative estimate EBITDA columns equal price divided by the entry multiple. We plan to pay 3.5x-4.5x, with 4.0x as the middle ground. Read each EBITDA figure against the cash-flow column. At a $5M price, 3.5x EBITDA ($1.43M) clears the 2.0x need ($1.27M) before conversion losses, while 4.5x ($1.11M) clears only the 1.6x need ($1.01M). Cash flow and EBITDA are different measures.
The multiples we want to pay
DSCR depends on the entry multiple, not the purchase price. Our minimum is 1.6x and our target is 2.0x or better.
| Entry multiple, EBITDA | DSCR if all EBITDA converts to cash | DSCR at 80% cash conversion |
|---|---|---|
| 2.5x | 3.15x Target met | 2.52x Target met |
| 3.5x | 2.25x Target met | 1.80x Minimum met |
| 4.0x (middle ground) | 1.97x Minimum met | 1.58x Below minimum |
| 4.5x | 1.75x Minimum met | 1.40x Below minimum |
80% senior debt, 10.00%, 10 years, seller note on standby. With full conversion, about 3.9x EBITDA sits at the 2.0x target and 4.9x at the 1.6x minimum. At 80% conversion, those lines move to about 3.2x and 3.9x.
Our search priorities
Rates and SBA rules as of November 2, 2026: Federal Reserve, October 28, 2026 | SBA SOP 50 10 8.1 | 13 CFR 120.214