Announcing Our ETA Investor Publication, Main Street Capital Network

This Week in ETA:

Searchers: In many of the deals we’ve looked at, there’s a moment when the buyer begins to understand parts of the business better than the seller. That’s usually not a red flag - it’s the point of underwriting. Doing it well can save you from ruin, and doing it poorly can result in a bad acquisition. Once, we were evaluating a subscription company where customers prepaid annually. Renewals were declining over time, but new customers were still signing up and pre-paying for a year. Our model showed something subtle: rising acquisition costs could make new customers unprofitable while legacy renewals masked the damage. Profits temporarily looked stable, but in reality, the business wasn’t steady - it was coasting toward a drop. When we shared the model, it was clear that our findings surprised the owners, and it helped us confidently walk away. You never know everything pre-close, but deeply understanding a few critical drivers often determines the right answer.

Investors: This will be our final week including a blurb written explicitly for investors in this publication. Going forward, all investor-tailored communications will move to our new publication, Main Street Capital Network (MSCN).

MSCN was founded by Michael Trachtenberg, an avid ETA investor and independent sponsor, and we’re excited to partner with him on this effort. MSCN is an exclusive network of accredited investors focused on self-funded search and independent sponsor deals. Michael will continue to collaborate closely with us on the publication.

Each MSCN email will feature multiple investment opportunities and include:

• A high-level overview of the business

• Key equity terms

• Direct contact information for the searcher or sponsor to learn more

Access to Main Street Capital Network is limited to accredited investors. To apply for the network and receive deal flow, please complete this short survey. We plan to begin sharing deals with accepted members in late February.

If you’re a searcher or sponsor with a deal under LOI that you’d like us to share with the MSCN audience, please fill out this form —we’d love to hear from you.

Partner Perspective:

Eli Albrecht, Albrecht Law - The Importance of Securing Seller Transition Services 

In lower-and-middle-market transactions, buyers underestimate how much institutional knowledge a seller has. The absentee seller is a total myth. Often a seller thinks that they can walk away after closing. As an M&A Lawyer, I tell buyers, "the only thing that should change on day 1 after closing are the numbers in the seller's bank account; otherwise, they should come into work like any other day."

The largest post-closing risk is often continuity. I address this by embedding transition services in the purchase agreement as an indemnifiable covenant rather than a separate consulting agreement, ensuring real enforcement through escrow, notes, or earnouts. It is critical this is well defined and backed up by the teeth of the indemnifications. Finally, it should always be in Buyer's discretion so a buyer can push the seller out to pasture if need be. I share more here. 

In addition to seller transition services, it will be critical to motivate employees after closing. There are so many options for incentive plans, bonuses, phantom equity, and real equity plans. At Albrecht Law, we help clients with these plans through our Fractional General Counsel program. You can learn more about employee plans, here.

Plus:

• I detailed our Investment Memo format and elements here. What would you add?

• Excited to share that our partners Pioneer Capital Advisory are now helping independent sponsors secure non-SBA financing. Learn more here.

Question:

Hit reply and tell us - If you were able to secure seller transition services in a deal you completed, how did you go about it?

P.S. - Share Your Buy Box:

If you’re a searcher, let us know your buy box! We see a lot of proprietary deals and love to bring right-fit searchers in on them.