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The Winning LOI [Vol. 2, Issue 7, No. 10]

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Welcome to Issue #10 of The Winning LOI, the Axial newsletter that anonymously reveals the small business M&A valuation data and key deal terms associated with winning LOIs.

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Sponsorship inquiries: [email protected]


In this issue, we unpack the M&A valuation data and key LOI deal terms of a decades-old supplier of power protection products. 

We chose this LOI because of the significant amount of structure that is involved, which entails the owner rollover of equity, seller financing, AND an earnout. The company distributes and resells products in the power quality and distribution, maintenance services, and power monitoring and consultation services markets.

Acquisitions with this amount of structure and risk-sharing are common in the lower middle market. If you tried to pull comps for this business and you used an EBITDA-based approach, it would never sufficiently acknowledge all of this structure.  Also take note of the Quality of Earnings cost-sharing that is getting wired into the LOI.  We think it’s a good thing to see more and more Q of E planning getting baked into the early stages of a deal. 

Industrials is an industry category on Axial with significant M&A activity. We decided to exclusively drill down into Electrical Equipment and Products Distribution M&A activity on Axial over the last 12 months. Here are the basics: 

  • 26 M&A transactions have gone to market
  • 22 advisors have represented those deals
  • In total, these deals have generated 117 pursuits.

Are you acquiring or exploring exiting in Industrial Distribution? Explore Axial

See below for the anonymized fully-tabulated Winning LOI data set ⬇️


The Deal
Deal TypeChange of Control
Revenue Range (TTM)$6M - $6.5M
EBITDA Range (TTM)$225K - $500K
EBITDA Margin Range7% - 10%
Key IndustriesElectrical Equipment Distribution
In-Market DateQ1 2017
Axial Deal Data
Recommendations*97
Recipients*97
# of Pursuits*3
Deal Pursuit Rate*3.1%
Winning LOI Pursuit to LOI Executed75 Days
Winning LOI Executed to Deal Closed136 Days
The LOI
Total Enterprise Value Range$1.5M - 2M
EBITDA Multiple Range (TTM) 4x - 4.25x
Exclusivity136 Days
Structure
➡️ Cash67% of TEV
➡️ Seller Note
➡️ Earnout
Noteworthy elements of the Winning LOIShared Costs: The seller will pay the first $10,000 for preparation of the Quality of Earnings report upon presentation of invoice by the Q of E firm, and is entitled to a copy of the final report. The Buyer is responsible for all such costs in excess of $10,000. Should the transaction subsequently close, Seller will receive a credit for $10,000 at closing.
Axial Sell-Side Member Data
Member TypeBusiness Broker
Total Deals Marketed on Axial3,697
Average Annual Deals Marketed308
Average Revenue of Deals$8,029,806
Average EBITDA of Deals$1,030,233
Axial Buyside Member Data
Member TypePrivate Equity
Number of Acquisitions44
Buyside Pursuit Rate*13.99%
Buyer Responsiveness Rate*99%

Definitions:

*Buyside Recommendations: Axial sell-side members receive a matching set of buyside members for every deal they manage via Axial. A buyside recommendation refers to a specific buyside Axial member who matches a particular deal.

*Recipient: A recipient is a buyside member who has been granted access by an Axial sell-side member to review a particular deal.

*Pursuit: Axial buyside members express initial interest in a deal by clicking “Pursue”, after which they can access and sign the NDA.

*Deal Pursuit Rate: The deal “Pursuit Rate” is defined as the number of times a particular deal is pursued by unique buyside members (i.e. the buyer shows explicit interest in exploring the deal) divided by the total number of buy-side firms invited to evaluate the deal

*Buyside Pursuit Rate: The buy-side “Pursuit Rate” is defined as the number of deals pursued by a particular buyer throughout an entire Axial membership term, divided by the total number of deals sourced during the same timeframe.

*Buyside Responsiveness Rate: The buyside “Responsiveness Rate” is defined as the rate at which a member responds to teaser shares within 5 days. The calculation initiates when a member has a minimum of 10 teasers and is calculated based on the member’s last 100 teasers received


Disclosures: All data presented in The Winning LOI is anonymized to respect and protect the confidentiality of Axial members and their transactions. Data is provided to Axial by Axial members in accordance with the Axial Member Terms of Service. Axial has endeavored to present data accurately, but Axial does not and cannot fully verify the accuracy of the presented information. Information contained in The Winning LOI is for informational purposes only, and does not represent investment advice or recommendations of any kind.

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