Deal notes for the call

Each block: one line to open, three thoughts, one thing to draw. No company names out loud or on the iPad.

How I look at any deal

"Deepak, before the deals: I only look at five numbers. Everything else is noise."
Draw1. REAL profit (tax return, minus a manager) 2. Recurring % 3. Biggest client % 4. Runs without owner? 5. DSCR = profit ÷ loan payments → bank wants 1.25+

Say it slowly, one line at a time, as you write. This is the frame for everything after.

Deal A · Electrical contractor Open memo ↗

Our first full analysis for him. No offer yet.

"OK, I saw this deal. On the listing it looks great. Let me show you how I read it."
  1. The listing says $352K profit, 3x, DSCR 2. That's a yes on paper. The bank would lend.
  2. But the tax returns say it lost money two years in a row. The profit comes from "add-backs", things the broker says don't count. $293K of it is building improvements. That's not profit.
  3. The owner is the business. 70 hours a week, he does the estimating and the bidding. Hire someone to do that: minus $110K. Three customers are 80% of sales. Lose one, you're done.
DrawListing: $352K profit Tax return: −$144K −$75K Hire a manager: −$110K Real profit: ≈ 0

Ask: Could you sleep owning that?

Deal B · IT services company Open memo ↗ LOI ↗

In his sector. We sent an offer this week: $600K, 90% paid by the seller over time.

"This one is in your world. We made an offer. Let's see if it's a good one."
  1. Price $600K, you put in $60K. The seller lends you the other $540K at 5% over 5 years. Payments $122K a year. Profit $200K–$290K. That covers it twice. Good.
  2. The catch: the biggest client left in December. 28% of the revenue, gone. The broker says "might come back". Might isn't a contract. Revenue went $1.5M → $1.2M → $0.8M.
  3. Two owners, no manager. Replacing them costs $145K. And ask yourself: why would a seller take 90% on paper? Either he believes in it, or he can't sell it any other way.
Draw$600K price $60K you + $540K seller note Profit $200K–290K Payments $122K → covered 2x ✓ Biggest client 28% → GONE ✗

Ask: Why would a seller take 90% paper?

Deal C · Smog test shop Open memo ↗ LOI ↗

Biggest one. We sent an offer: $4.25M. Needs a state licence.

"Now the big one. Best cash flow of the three. The question is the price."
  1. $934K profit a year, steady for three years. Cash business, repeat customers, no big client. That's the good kind.
  2. $4.25M is 4.5x profit. For a one-location shop, fair is 2.5x–3.5x = $2.3M–$3.3M. Pay 4.5x and the bank loan is $3.4M: $633K a year in payments. DSCR 1.47. One bad year and the bank owns the shop.
  3. Two things nobody mentions. There's no owner salary on the books, so who does the work? And the licence is the seller's. You can't run a smog shop without yours.
DrawProfit $934K ✓✓ Price $4.25M = 4.5x (fair: 2.5–3.5x) Loan $3.4M → $633K / yr DSCR 1.47 (bank: 1.25) Thin.

Ask: What happens in one bad year?

Pick one

"Three deals. Same five numbers."
Draw Elec IT Smog Real profit ✗ ✓ ✓✓ Big client ✗ ✗ ✓ Runs w/o owner ✗ ✗ ✓ Price ✓ ✓ ✗ Roll-up fit ✗ ✓ ✗

"Runs without owner" = if the owner walks out tomorrow, does the business keep going? Electrical: no, he's the estimator. IT: no, the two owners do everything. Smog: yes, the staff run it (you still need the licence).

Ask: Which one would you buy? Which one is the platform for your roll-up?

Only the IT company is in his sector. That's the bridge to his plan.

His plan: the 8x promise

His PDF says: IT firms sign a contract, stay separate, the group sells in 1–3 years at 8x, he takes 20%. The 5x-vs-8x example is his own, from the PDF.

"You sent me your plan. Let me do the math on it with you."
  1. Take an owner with $1M profit. Today a broker sells him at 5x = $5M. Broker fee 8% = $400K. The owner nets $4.6M.
  2. Your plan says 8x. 8 × $1M = $8M. Your fee 20% = $1.6M. The owner nets $6.4M. Sounds great. But the owner only wins if the group really sells above 5.75x. Below that, the broker was the better deal.
  3. Who pays 8x? Big buyers pay 8x for a group with $5M+ profit. $5M profit = 10 to 50 small IT firms, each with its own owner, held together by a contract. Buyers pay for ONE company. A contract between ten isn't one.
DrawOwner, $1M profit Broker: 5x = $5M − 8% = $4.6M Yours: 8x = $8M − 20% = $6.4M Break-even for the owner: 5.75x 8x needs $5M profit = 10–50 owners

Ask: Who buys the group at the end? Who signs first, and why would he?

Say: "One more thing. A listed business is for sale. The broker won't let you 'sign it up' for a year. You buy it, or you don't. Your group only works with owners you find and convince yourself."

Our plan: one company Owner Q&A ↗

"Here's how I'd do it instead. One new holding company. Owners sell into it, and get cash plus shares."
  1. Give each owner a menu. Less cash now, more shares, higher price. They pick.
  2. Everyone closes the same day, and that day the company lists. Nobody is paid before the listing. Owners keep running their firm on a 5-year contract. They keep their building and lease it back.
  3. Why it works: it's one real company, so a buyer or the market prices it as one. No deposit from you; we carry the costs until listing. We're building this now in another sector.
Draw Menu for each owner A: 3x profit 30% cash 70% shares B: 4x profit 20% cash 80% shares C: 5x profit 10% cash 90% shares All close same day → list same day

Ask: Would your owners take shares? Which option? How many say yes today?

Never promise a share price or a multiple. "Public groups get valued higher" is the most you say.

How it's paid for

"Three ways to pay for this."
  1. Plan A: list it. The IPO pays the owners' cash. A seed investor pays the IPO costs, $0.5M–$2M.
  2. Plan B: raise it all privately at once. Possible. Hard.
  3. Plan C: buy the first company with an SBA loan. Then build on it. This is the one you can start Monday.
Draw (Plan C)$5M company = $1M profit × 5 You: $500K (10%) Bank: $4.5M, 10 yrs, ~10% → $729K / yr DSCR = $1M ÷ $729K = 1.37 ✓ Rules: max $5M · 20%+ owners sign guarantee · $3M+ needs a QoE Investors for the $500K: give 20–40%, each under 20%

Ask: Who do you know with capital?

Next 90 days

"Let's make it real. Ninety days."
DrawWk 1 list 10 owners you know Wk 2 first calls, show the menu Wk 3 financials from the best 3 Wk 4 agree real profit, pick a pilot Mo 2 LOIs, exclusive, with a deadline Mo 2–3 investor, bankers, auditors Mo 3 hire CEO + CFO Listing: 9–12 months from LOIs

Ask: Who are your first 3 owners? What do you do tomorrow?

"Let's run it. We film again in 90 days."