Ed’s payment-processing company in the tri-state area was producing revenue of $1.86 million when he was asked to join the $50-million family business. Ed had a decision to make: keep growing his small business or join the much larger family empire. In the end, a sense of obligation to the family business tipped the scales, and Ed decided to put his business on the market.
“Initially, he did not want to sell, but his family really needed him in their expanding business, and Ed wanted to answer the call,” explains Sonny Soi, Ed’s business broker and the President of CrossPoint Business Group.
The sale process started off well, with early expressions of interest from several dozen potential buyers, including a subsidiary of a large bank. Unfortunately, the financial crisis put pressure on the federal government to regulate the banks and suspend all expansion acquisitions.
“The business owner was frustrated,” said Soi. “We had completed a deal acceptable to both parties, and it was being blocked by the government. The bank-owned entity was in the same business, so no one could understand why the government was prohibiting the sale.”
After several months of receiving nonrefundable exclusivity option payments from the bank-owned entity, Ed decided to get out of the holding pattern and put the business back on the market. A U.K.-based investment firm partnered with another U.S. payment-processing company, and jointly they offered $1.65 million plus the potential of an $825,000 earn-out that could grow to up to $1.3 million if the business exceeded their projections.
“I was ready to move on. My family needed me. Thank God Sonny sold my business twice,” Ed jokingly said. “In the end, it worked out, as we were able to keep the money from the exclusivity options and create a slightly better deal with another company.”
Ed’s business was generating $500,000 of earnings before interest, taxes, depreciation and amortization (EBITDA). The sale price of $1.65 million represents an EBITDA multiple of at least 3.3.
Although Ed was only required to stay on for 30 days after the sale, he is in line to receive an additional $425,000 on top of the selling price if the business is able to maintain, at minimum, 85 percent of its revenue in the first year (the remaining earn-out is to be paid over the following two years). If the revenue exceeds 115 percent, Ed could receive up to $1.3 million over the three years of the earn-out. While it remains to be seen whether or not his former business will achieve all of the revenue targets, Ed is in great shape thus far, already having received the first earn-out payments after three months.

Deal Snapshot
Business type: Payment processing
Revenue: $1.86 million
EBITDA: $500,000
Selling price: $1.65 million cash down payment + earn-out potential of $825,000 to $1.3 million
Multiple paid: 3.3 + earn-out
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Visit http://www.crosspointbusinessgroup.com to learn more.