A management buy-out was underway for an established roofing subcontractor, with the buyer arranging finance to complete the $500,000 purchase and provide an additional $50,000 in working capital.
The seller had agreed to contribute $250,000 in vendor finance, leaving the buyer needing to arrange the balance.
But shortly before the transaction was due to complete, one of the roofing business’s customers went into liquidation. That raised questions about outstanding invoices and added another consideration to an acquisition that was already being assessed against a backdrop of declining revenue.
The business had seen a difficult trading year. Revenue had fallen from $3.31 million to $2.48 million, and profitability had also come under pressure.
Then came the news that one of its customers had entered liquidation, putting some of the money owed to the business at risk.
For the buyer, the challenge was bringing together the funding needed to complete the management buy-out while accounting for the business’s recent performance and the uncertainty surrounding those outstanding payments.
With $250,000 in vendor finance already agreed, Line Capital was approached to provide the additional acquisition funding.
The recent decline in revenue was an important part of the assessment, but it wasn’t the only consideration.
Line Capital reviewed the business’s financial statements, bank transactions and aged receivables, alongside property valuations supporting the proposed security.
While reported EBITDA had fallen to $140,000, adjustments to earnings brought the figure used for servicing assessment to approximately $205,000.
On that basis, the business’s projected debt service coverage ratio was approximately 1.6x, above Line Capital’s 1.30x policy threshold.
The seller had agreed to finance $250,000 of the purchase price, with Line Capital providing the additional funding needed to complete the acquisition. As the purchase was being funded entirely through these arrangements, rather than a contribution of equity from the buyer, the loan required approval outside Line Capital’s standard lending policy.
Taking the financial assessment, funding structure and available security into account, Line Capital approved a $310,800 secured AcquisitionLine over five years.
Revenue declined from $3.31 million in FY25 to $2.48 million in FY26, with reported EBITDA reducing from $370,000 to $140,000 over the same period.
Following adjustments, EBITDA was assessed at approximately $205,000, representing an adjusted margin of around 8%.
Existing and proposed annual debt commitments were approximately $125,000, with a projected DSCR of 1.6x including the new facility, compared with Line Capital’s 1.30x policy threshold.
Although the business had experienced a challenging trading year, its adjusted earnings indicated sufficient capacity to service the proposed lending.
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