How M&A works
A comic-book walkthrough of a lower-middle-market deal. Eight episodes, six characters, from Sam sitting behind the counter of his 27-year-old plumbing shop to the wire hitting his bank the morning of close.
The cast
Every M&A deal is a group project. Six people who almost never meet in real life all show up in this story, and one who shows up just long enough to hold everything up.
- SamThe founder-seller
Owner-operator of Sam's Plumbing, Charlotte NC. 27 years in the business, 62 years old, thinking about the next chapter.
- BeaSell-side advisor
The M&A banker running the process. Manages the buyer list, the CIM, the auction, and Sam's expectations.
- AkiQoE accountant
Independent accountant who normalises the financials and produces the Quality of Earnings report both sides can price off.
- LarryDeal lawyer
M&A attorney. Drafts and negotiates the purchase agreement, and shepherds the reps, warranties, and indemnities.
- BellaPrivate-equity buyer
Partner at a middle-market PE fund adding home-services platforms. Values recurring revenue, management depth, and cash-at-close discipline.
- BrunoStrategic acquirer
Head of Corp Dev at a national roll-up. Pays a premium for platform fit and can usually offer a higher headline number — with earnout strings.
- ReggieRegulator (cameo)
The FTC/DOJ. Shows up in episode 7 for the HSR waiting period; nothing wires until Reggie clears his desk.
Why sell?
27 years running this shop. Two trucks, then eight, then twenty-two.
Seven kids on my payroll are older than my own kids.
My back hurts. My knees hurt. My accountant says the business is worth real money now.
What if… I stopped?
Hi Sam. I’m Bea. I run M&A processes for owners like you.
Retirement is one reason to sell. So is de-risking — taking chips off the table while you still run the place. So is growth capital.
Which one are you?
I don’t know yet. Isn’t that your problem to figure out?
What am I worth?
EBITDA. Sounds like a Mediterranean appetizer.
Earnings Before Interest, Taxes, Depreciation, Amortization.
A proxy for cash flow that ignores how the last owner was financed and taxed.
Before I hand a number to Bea, we normalise yours.
- Owner comp $180K vs market GM at $110K → +$70K
- Truck & boat expensed through the business → +$18K
- One-time legal fight with a supplier → +$52K
- Wife’s “consulting” fee → +$36K
Getting the house in order
Done. Here’s your sell-side QoE — 84 pages, every add-back defended.
This is your armor when a buyer’s accountant tries to retrade you.
- Financials — 3 years audited, trailing 12 monthly
- Customer list — top 20, recurring vs one-off
- Employees — roster, comp, org chart, IC/W-2 mix
- Contracts — leases, suppliers, service agreements
- Litigation — open, closed, threatened
- Fleet — VINs, mileage, maintenance
Feels like I’m getting the house ready to sell. Painting the porch, hiding the dog toys.
That’s exactly what you’re doing. Buyers pay for clean.
The parade of buyers
I send the teaser to 120 buyers. Both flavors.
Financial buyers — private-equity funds. And strategic buyers — competitors and consolidators.
Financial buyer. This fits our home-services platform. Send the CIM — I’ll sign the NDA.
Strategic buyer. We have 40 branches already; adding Charlotte would be day-one synergy.
30 CIMs go out. 12 come back with preliminary questions. 6 sit for management calls.
- PE fund A — $16M – $18M
- PE fund B (Bella) — $19M – $22M
- PE fund C — $17M – $20M
- Strategic X — $18M – $21M
- Strategic Y (Bruno) — $22M – $25M * with earnout
- Family office — $16M – $19M
The LOI handshake
We invite the top three to a management meeting. Four hours each. Same day, same conference room.
They see Sam. They see the shop. They see the trucks.
$23M enterprise value. 100% cash at close. 20% rollover equity in the platform.
Sam becomes a partner in something bigger.
$26M — but $21M cash, $5M earnout over three years if EBITDA holds.
Same platform effect, higher ceiling. If everything works.
…if.
Rule of thumb: certainty beats headline number. An earnout you don’t control is a wish, not a price.
Bella’s LOI is cleaner. If we sign, she gets a 60-day exclusivity to run diligence.
Then let’s sign the LOI.
Diligence
- Financial QoE — buyer-side, verifies Aki’s numbers
- Commercial — customer interviews, cohort analysis
- Legal — contracts, litigation, corporate housekeeping
- Tax — exposures, structure, step-up
- HR — comp, benefits, worker classification
- IT — systems, cybersecurity, dispatch software
This is more paperwork than a mortgage. Every question spawns three more.
They just asked me for the schematics of my dispatch software.
The Peterson property-management account is 22% of your revenue and out for renewal in 90 days.
That’s customer concentration. We need to reprice.
Or you can escrow that revenue — hold 8% of the price back until renewal, then release.
I’m Larry. Your deal lawyer. I’ve been drafting while you’ve been dieting on data-room requests.
Reps and warranties. Indemnities. R&W insurance.
The good news: R&W insurance means you’re not personally on the hook for surprises after close.
The purchase agreement
The purchase agreement. 187 pages. Every provision fought over.
Here are the four battles you’ll care about.
You deliver the business with a “normal” level of working capital. Below the peg, Bella cuts the price dollar-for-dollar at close.
How much of the price is at risk if something is wrong, and the deductible before Bella can claim anything.
10% of the price sits at a bank for 18 months. Pays out to Bella if there are indemnity claims. Otherwise, back to Sam.
Sam reinvests 20% of proceeds into Bella’s HoldCo. Tax-deferred. Sam gets a second bite when the platform sells in 5–7 years.
Filing received. HSR waiting period starts today.
30 days. Nothing wires until I say so.
Understood. This is well under the reportable threshold anyway—
Between signing and closing: financing conditions, third-party consents (landlords, key customers), and the “bring-down” certificate confirming that everything Sam swore was true, still is.
Closing and Day 1
$18.3M lands in Sam’s account at 9:47 a.m.
Wait — we agreed on $23M. Why $18.3M?
Welcome to the wedge.
$23.0M price, minus $1.4M net debt paid, minus $2.3M rollover, minus $0.8M escrow, minus $0.2M working-capital true-up.
= $18.3M cash to you today. The rest arrives in tranches.
Meet Alex, our operating partner. This is the 100-day plan:
- Migrate to the platform’s dispatch software (day 30)
- Roll out the platform’s benefits package (day 45)
- Launch cross-market lead sharing (day 60)
- Integrate accounting into the shared services center (day 90)
Turns out selling a business is a whole other business.
…but the trucks are still Sam’s Plumbing. That’s worth something too.
Every term, deeper
Every phrase in the strips above is an anchor into a fuller encyclopedia article. If a panel raised a question, this is where you keep going.
Frequently asked
How long does a mid-market M&A deal actually take?
Six to nine months from advisor engagement to wire. Preparation and QoE take four to eight weeks, marketing and IOIs another eight to twelve, LOI negotiation four to eight, and due diligence plus definitive-agreement drafting twelve to sixteen.
What is EBITDA and why do buyers care?
EBITDA is earnings before interest, taxes, depreciation, and amortization — a proxy for operating cash flow that is independent of a company's capital structure or tax posture. Buyers use it because it lets them compare businesses like-for-like and apply a multiple.
What is a Quality of Earnings report?
An independent accounting analysis that normalises a target's reported earnings — removing owner-related expenses, one-time items, and accounting quirks — to arrive at a defensible run-rate EBITDA that both sides can price off.
What is a Letter of Intent and is it binding?
An LOI is a mostly non-binding term sheet that sets out price, structure, and key conditions before due diligence. Two provisions are usually binding: exclusivity (a no-shop period) and confidentiality. Everything else — price, closing conditions — is subject to definitive documents.
What happens between signing and closing?
Regulatory filings (HSR in the U.S. for deals over the threshold, CFIUS for foreign buyers of sensitive assets), third-party consents (landlords, key customers, licensors), financing conditions, and any bring-down of reps must all be satisfied before wires can move.
What is rollover equity?
A portion of the seller's proceeds — typically 10-30% — that is reinvested into the buyer's holding company at close. It aligns the seller with the next-stage value creation and is usually tax-deferred when structured correctly.
Keep going
The full seller’s guide behind the comic — timeline, valuation, deal terms, FAQ.
EBITDA and SDE multiple ranges for eight home-services categories, by deal size.
The alphabetical index of every term in M&Apedia. Free, no login, CC-licensed.
The whole encyclopedia in PDF, EPUB, DOCX and HTML. Print it, read offline, share it.