IN THIS ISSUE:
www.masource.org
ISSUE
FALL 2025
© M&A Source. All Rights Reserved. | The insights and opinions expressed herein are those of the authors and do not represent professional counsel nor an endorsement by M&A Source.
The Bridge
UPDATES & INSIGHTS
FOR THE LOWER MIDDLE MARKET
A QUARTERLY PUBLICATION
OF THE M&A SOURCE
Chair’s Letter
“Making a Silk Purse from a
Sow’s Ear” Creating Value
with a Negative EBITDA
Why Every M&A Deal Needs
a Virtual Data Room
Remembering Phil King
When the Owner Is
the Business: How
Dependence Derails Deals
»
»
»
»
NO.11
»
2 | The Bridge | Fall 2025
Updates + Insights
for the Lower Middle Market
The Bridge | Fall 2025 | 3
Content.
NO.11
ISSUE
FALL 2025
The Bridge
A QUARTERLY PUBLICATION
OF THE M&A SOURCE
Join us in celebrating new members in our
community and look ahead to upcoming
events.
LETTER FROM THE CHAIR
04
M&A leader Phil King is remembered
for his integrity, mentorship, and
adventurous spirit.
REMEMBERING PHIL KING
08
Discover creative and strategic insights
from this real-world deal story.
“MAKING A SILK PURSE FROM A
SOW’S EAR” CREATING VALUE
WITH A NEGATIVE EBITDA
12
Find out how virtual data rooms enable
secure, organized information sharing.
WHY EVERY M&A DEAL NEEDS A
VIRTUAL DATA ROOM
20
Understand the risks of heavy owner
involvement and how to build an operation
that thrives without its founder.
WHEN THE OWNER IS THE
BUSINESS: HOW DEPENDENCE
DERAILS DEALS
16
4 | The Bridge | Fall 2025
Chair’s Letter
Dear Friends and Colleagues,
As the days grow cooler and the leaves begin
to turn, fall reminds us that the year’s final
chapter is upon us. It’s a natural moment to
pause - reflect on how we’ve grown, celebrate
what we’ve accomplished, recognize those
who’ve made a difference, and prepare for the
opportunities ahead in 2026.
Welcoming new members is essential to our
organization’s longevity and to the professional
success of our community. It’s about cultivating a
ADVISORS:
Ryan Armstrong
Luke Billiot
Steve Boylan
Gregory Carafello
Andrew Cavanaugh
Angela Cockroft
Scot Cockroft
Blake Collins
Ian Davies
Joseph Denny
Bradley Dixon
Lisa Dixon
Rebecca Fatica
Keeton Frye
Jean-Michel Gauvreau
Don Gerould
Erin Gilliam
Atul Goswami
Steven Haddad
Dan Hansher
INVESTOR MEMBERS:
Erin Crawford
Richard Griffin
Yuhang Ji
Bradley Larson
Christopher Nesbitt
Sammy Nicolas
dynamic network of dealmakers - on both sides
of the table. We remain committed to providing
and growing investor members with high-value
opportunities and offering advisors forums to
connect with deal partners for their sell-side
engagements.
Since the last issue of The Bridge, we are
pleased to announce the following new advisors
and investors who’ve joined our community:
Ryan Hendershot
Rich Hubschman
Tyler Johnson
Alec Ligon
James Lively
Andre Martineau
Wajid Mir
Michelle Murtha
Jazmine Pace
Kristi Posluszny
Jeannie Randolph
Samantha Seine duPont
Niraj Shah
Robert Shefferly
Jeff Short
Mike Stapleton
Joel Steinberg
Aaron Stremick
Justin Thimmesch
Tim Whipple
Will Oberholtzer
Samantha Papir
Rob Regan
Matt Stranz
Peter Vogt
Kathy Thiel
2025 Chair, M&A Source
The Bridge | Fall 2025 | 5
This brings our community to 751 members, including 49
investor members, representing a 9.3% increase since the
beginning of the year.
New members: welcome! Your fresh energy, ideas, and
perspectives are invaluable and needed. From personal
experience, I can emphatically say that volunteering with
M&A Source opens doors - to meaningful connections,
personal growth, and the satisfaction of contributing to
something bigger than yourself. And yes, it expands your
network in ways that matter.
Looking ahead, we have two key events I hope you will put
on your calendar and make time to attend:
Chair’s Corner Video Chat – October 29 (Noon EST)
Join us as we introduce the 2026 board members and
committee chairs, preview what’s in store for the upcoming
Conference, unveil updates to our education platform and
course formats, highlight new member benefits, and share
early results from our virtual deal platform, DealMatch.
Register Here to join us and come prepared with your
questions.
Fall Conference & Deal Market in Phoenix
– November 9–12
Set yourself up for success by joining top LMM advisors
and investment firms at our industry’s premier learning
and dealmaking event. Explore emerging trends and
technologies, learn the best practices of the pros and
forge relationships with fellow dealmakers. Find the details
Here and register by October 14 before rates increase!
Now on to The Bridge…this issue is a must-read. Member
George Petrulis’s article, Making a Silk Purse from a Sow’s
Ear, offers a real-world case study of a struggling printing
company with negative EBITDA. Through strategic asset
liquidation and customer migration, George turned a
challenging exit into a lucrative deal. His breakdown of
the “right-fit buyer” formula and earnout negotiations is a
masterclass in creative deal structuring.
Michelle Granadillo of Dropbox explains Why Every M&A
Deal Needs a Virtual Data Room (VDR). VDRs are no
longer optional - they’re the backbone of trust, speed,
and precision in modern dealmaking. If you’re still emailing
spreadsheets, this is your wake-up call. There are no more
excuses - M&A Source members receive a 30% discount
through our new program with DocSend, which equates to
roughly $650 per year! You can refresh on all our benefit
programs Here.
Lastly, we honor the memory of Phil King who tragically
passed away in July in a motorcycle accident. Phil was
more than a colleague - he was a cornerstone of our
community. A legendary board member, committee co-
chair, M&A Source instructor, and founder/ owner of M-A
Evolution in Ottawa, Phil brought authenticity, expertise,
and tireless dedication to the M&A Source. Serving in our
community for the past 7 years, his contributions helped
shape the very fabric of our association. Most recently,
he played a pivotal role in launching our new education
curriculum - Foundations, Core I, and Core II. Through
heartfelt anecdotes and reflections from members who
knew him, this tribute honors Phil’s legacy. He will be
deeply missed yet his impact lives on in the work we do
and the growth we continue to pursue. Our conferences
will not be the same without him.
Thank you for being part of this vibrant, evolving
community. Let’s finish the year strong - together. See you
on Zoom and in Phoenix soon!
Warm regards,
Kathy Thiel,
MBA, CBI, CVA, M&AMI
6 | The Bridge | Fall 2025
The Bridge | Fall 2025 | 7
The Bridge | Winter 2025 | 7
The Q3 Market Pulse Survey is Open Through October 15!
Learn more and participate to gain access
to exclusive participant benefits.
GET STARTED
ADVISORS REPORTING MINIMAL TARIFF IMPACT ON CLIENTS
45%
68%
90%
Seller’s Market Sentiment Q2 2012-2025
SELLER’S MARKET CONFIDENCE
Q2 2025 Highlights
‹$500K
$500K-$1M
$1M-$2M
$2M-$5M
$5M-$50M
MARKET SEGMENTS STUDIED
MAIN STREET
LOWER MIDDLE MARKET
20
40
60
80
82%
76%
MAIN STREET
LOWER MIDDLE MARKET
Percent reporting minimal impact (0-20%)
"Tariffs are certainly something buyers and sellers are aware
of, but they’re not driving the decision to go to market for
most business owners. Unless a company has significant
exposure to China trade or imported goods, we’re not
seeing tariffs delay deals in any meaningful way."
- Scott Mashuda, Managing Director of REAG
8 | The Bridge | Fall 2025
Remembering
Phil King
By Mark Travis
CM&AP, SKYLIGHT INTERMEDIARIES
The Bridge | Fall 2025 | 9
March 8, 1954 - July 11, 2025
In preparing this memorial, so many M&A colleagues and
friends said, “the obituary got it right.” so it’s only fitting to
start there.
Did it his way. Every damn time.
With heavy hearts and deep respect, we announce the
passing of Phil King, who died on July 11, 2025, at the age
of 71—riding his Harley, doing exactly what he loved most.
Phil lived life unapologetically on his own terms. He swore
too much, smoked like it was still the 70’s, and never once
pretended to be anything other than who he was—and
that’s exactly why so many people loved him. He was real.
He didn’t sugarcoat a damn thing, but he had a heart bigger
than most and a loyalty that ran deep.
He wasn’t much for rules, formality, or small talk—but he
showed up when it mattered, spoke his mind, and fixed
more than just engines. He fixed broken fences, broken
plans, and sometimes, broken hearts.
Phil loved four things fiercely: his family, his motorcycles,
his business, and fixing whatever wasn’t working (and
sometimes things that were). He had an uncanny ability to
make things work—though never by the manual.
He is survived by his wife Lucie, who matched his fire and
grounded his spirit; his daughter Zhaklin, and his sons Jeff
with wife Nicole, and Christopher, who all carry pieces of
his irreverent soul and independent streak. Also missing
him: four Schnauzers who still perk up at the sound of a
door creaking, wondering if he’s finally comeback.
Phil didn’t care about fancy things or what anyone thought.
He cared about realness, loyalty, and living life wide open.
His stories, his laugh, and his no-bull honesty will be missed
more than words can say.
Please join us as we gather to celebrate the life of Phil King
Saturday, July 26th, 2025, | 2:00 PM – 6:00 PM
At our family home: 6267 Elkwood Drive, Greely, ON, K4P 1N1
In lieu of flowers, you’re invited to tell a good story, ride
something with an engine, swear inventively, and raise a
Keith’s to a man who didn’t just live life—he wrangled it.
Phil, you were one of a kind—forever a legend. Ride hard,
rest easy.
View the Obituary on Arbor Memorial
Phil was admired for his loyalty, his sharp problem-
solving skills, and his direct, thoughtful approach. As
a mentor and steady presence, Phil generously shared
his knowledge and consistently challenged others to
think critically and grow, while maintaining unwavering
authenticity.
Phil was such an important part of M&A Source. It’s
hard to think back on conferences or meetings without
picturing him there. One of the things I’ll always
remember is how he loved to play devil’s advocate.
While that might frustrate some, I grew to really
appreciate it. He pushed me to see things from angles
I hadn’t considered. That perspective is hard to come
by and is something I’ll truly miss.
Jacklyn Ring
Over the course of more than 30 years, Phil King played a
pivotal role in guiding hundreds of entrepreneurs through the
sale or acquisition of their businesses. As both a corporate
and private intermediary in the Mergers & Acquisitions space,
Phil was known for crafting tailored solutions that addressed
strategic growth, expansion, and consolidation, as well as
valuation, financing, wealth management, and transitional
planning. His wife, Lucie, knows that he loved his work, and
although the abbreviations sometimes confused her, he
shared that love with her as she began to help him in the M&A
business. She wants everyone to know what a soft side her
husband had.
I participated with Phil on Leadership and the Board
at the M&A Source. He was a fierce promoter and
supporter of our organization and gave it his all. I
enjoyed interacting with him at the conferences and
hearing his war stories, as well as, using him as a
sounding board for ideas and advice. He will be sadly
missed by me and all of my colleagues at the M&A
Source. It was an honor to know him.
Kathlene Thiel
10 | The Bridge | Fall 2025
The M&A Source has a missing piece that won’t be
easily replaced - A leader, a mentor, a guidepost, and
a friend.
Mark Travis
Phil didn’t just advise others—he lived the entrepreneurial
journey himself. As a seasoned “C-suite” leader, he owned
and sold multiple companies across diverse industries,
including sales management, agricultural development,
automotive supply and service, hospitality, and international
manufacturing and distribution of hardware and apparel.
Phil was not only a mentor but also a friend. He was
in my IBBA Summit class that I taught several years
ago, then returned the favor and got me involved in
M&A Source. If you look up the definition of a true
class act and great human being, you will see his
picture. He was a straight shooter, always fair, and
taught me much more than I ever taught him, and more
importantly than in business was what he taught me
about life.
Rick Gardner
His expertise extended far beyond ownership. Phil was a
master architect of national and international retail networks,
B2B sales channels, and vertically integrated manufacturing
operations. He brought precision and vision to supply chain
logistics, operational strategy, and financial performance.
Phil had an excellent perspective in our unique industry
and always shared inspiring insights. Phil will be
greatly missed and have enjoyed his get-to-the-point
style.
Emmet Apolinario
Phil’s legacy is one of integrity, independence, and lasting
impact. He lived and worked on his own terms, leaving behind
a powerful imprint on all who had the privilege of knowing
him. Phil unapologetically “liked what he liked” – motorcycles,
eating ice cream out of the bucket, wearing Crocs and
sweaters (even to client meetings!), and Hallmark Christmas
movies. Some people describe him as a “simple guy,” but his
diverse interests led him to travel to Switzerland at age 19 to
work as a ski instructor, excel at knot tying, build cars from
scratch as a licensed auto mechanic, and captain a 35-foot
sailboat. He undertook extensive renovations on his home
and once built out five pet stores in less than six months,
including installing electrical and plumbing systems. These
pursuits were not without mishap, as he once told Andrew
when he stepped on a nail, “Socks are good at soaking up
blood- keep working.” His curiosity constantly led him down
the roads less travelled, where he learned things like the
various colors of paint used on the roads across Canada.
Phil was such a genuine person—generous with his
time, sharp in his thinking, and always willing to serve.
I’ll miss his steady presence and the thoughtful way
he contributed to everything he touched.
David Dejewski
Phil’s contributions to M&A Source were vast. He believed
in the “trickle down benefits” of being on committees and
worked on the DealMarket, Conference, and was a member
of the Board of Directors, where everyone knew he wasn’t
afraid to speak his mind. In all aspects of his life, he was
an innovator, relentlessly pursuing the best for himself,
his clients, his family and friends, and M&A Source. He
envisioned the education offered by M&A Source to be a
university-level program, allowing our members to continue
to improve as he always strived to.
We are profoundly grateful for his years of service, his
friendship, and the contributions he made to our field. Our
thoughts are with his family, colleagues, and everyone who
had the honor of working alongside him.
The following resolution was unanimously adopted by the
M&A Source Board of Governors on July 25, 2025:
The Bridge | Fall 2025 | 11
Our upcoming episodes feature in-depth discussions on sale leasebacks and
exclusive M&A Source member benefits. Stay ahead in your field by subscribing
- just scan the QR code and choose your preferred platform. As a member of
the M&A Source community, this is your gateway to staying connected, making
the most of your membership, and enhancing your M&A expertise.
Don’t miss out - subscribe now and join
a community dedicated to professional
growth and excellence in M&A!
Dive into the world of mergers and
acquisitions with the M&A Source
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resource for industry insights
12 | The Bridge | Fall 2025
"Making a Silk Purse from a Sow’s Ear"
Creating Value with a Negative EBITDA
HAVING PARTICIPATED IN THE M&A GAME FOR MORE YEARS THAN I WANT TO THINK ABOUT, I
DECIDED TO CLOSE MY PRACTICE IN THE CHICAGO AREA AND RELOCATE TO SOUTH CAROLINA. I
WAS LOOKING FORWARD TO ENJOYING LIFE WITHOUT THE ADDITIONAL STRESS ASSOCIATED WITH
DEAL MAKING. THE PROBLEM WAS, WITH A SPECIALIZATION IN THE PRINTING INDUSTRY AND OVER
SIX DOZEN SUCCESSFUL TRANSACTIONS, I BEGAN TO GET CALLS EVERY FEW WEEKS FROM FORMER
OWNER CONTACTS. THESE CONVERSATIONS TRIGGERED MY INTEREST IN GETTING BACK IN THE
GAME. AS A RESULT, I COMPLETED SEVERAL MORE TRANSACTIONS. WHAT REALLY MADE IT SPECIAL
WAS THAT THE DEALS WERE MADE BY PHONE (SOMETIMES ON THE BEACH) AND ZOOM MEETINGS.
By George A. Petrulis
M&AMI, CBI, KENSINGTON SERVICES, INC.
The Bridge | Fall 2025 | 13
I want to share one of these deals, a most interesting and
unique transaction. Bob, a printing owner I have known
for over twenty years, called me to discuss a problem he
was having. He was the sole owner (58 years old) of a
company with over 25 years of experience, generating
$8.8 million in revenue, $10.9 million twelve months prior
(following the departure of several customers), and was
incurring a loss. His financials were showing a negative
EBITDA. Bob and his son controlled 75% of the customers’
revenues. Two salespeople controlled the balance. His
operating equipment and technological capabilities
were outdated, and the business was overstaffed. His
accountant suggested that an acquisition might solve
his problems. He asked me if there were other options to
consider.
After reviewing the package of information that Bob
forwarded, I concluded that seeking acquisitions would
be a low-probability process for a variety of reasons.
I suggested another option: Shut the business down,
liquidate the operating assets, relocate the customer list’s
revenues to a “right-fit” company that could produce the
additional revenues, be employed by the acquiring company
for a period of time to maximize the revenue retention,
and negotiate an attractive compensation package for
himself and his son. Additionally, this plan would generate
additional proceeds from the imputed goodwill value of the
customer list. Bob agreed to pursue this option.
So, what determines the “right-fit” buyer in this situation?
“B” = LT + S + M + F + $ + C + L +T
B = ideal “right-fit buyer”
LT = likability and trust between the principals
S = buyer space available for added employees
M = manufacturing capacity for added customer work
F = strong balance sheet, profitable, and reasonable debt
$ = willing to place capital at risk
C = no conflicts with customers’ lists
L = location friendly to minimize employee relocation issues
T = bonus item, having previous buy-side transaction
experience in integrating a company
From a standard valuation point of view, the company’s
value was orderly liquidation. Bob estimated $1.9m from
the liquidation of operating equipment and miscellaneous
items, $375k for good inventory, and $425k for net retained
working capital for a total of $2.7m to pay off his various
obligations.
So, the challenge was to determine the best way to position
this opportunity in the marketplace.
The teaser focused on an offering of a relocatable customer
list generating $8.8 million in revenues, with additional
verbiage describing Bob’s company, including 10 large
customers who had been with the company for over 10
years. It did not have an asking price. We were basically
asking the buyer to pay for “blue-sky.”
My research identified 18 potential buyers that had most of
the “right-fit” components. Of this group, 15 signed NDAs.
After a series of phone discussions with me and Bob, we
narrowed the list to 5. Bob toured their facilities, after
which additional Zoom meetings were held. They were all
extremely interested in adding my client’s revenues to their
operations.
However, they were all unwilling to pay up front for no
assets received. Their reluctance stemmed from the risk of
losing money for benefits that may or may not be realized
in the future. It was a difficult position to argue against. In
the meetings, the dialogue never reached the micro level of
quantifying the contribution to their bottom line from Bob’s
customer revenues. Conceptually, I believe they recognized
the value, but were not willing to risk capital upfront.
However, they all offered to pay Bob an earnout ranging
from 2-4% on retained sales for a period of 2-3 years, in
addition to sales commissions.
I asked Bob which of the five companies he would be
most comfortable being associated with. He chose John’s
company. I knew his company quite well and was very
friendly with the owner, having sold him a business many
years ago. He had made four other acquisitions in the
past decade. His company matched most of the “right-
fit” components. His business was very profitable, having
state-of-the-art manufacturing/technology and operating
from a plant that had excess capacity. In addition, John’s
plant was located within a 20-minute drive from Bob’s
facility.
14 | The Bridge | Fall 2025
I thought John showed more interest in the opportunity
compared to the other parties. John and Bob hit it off
personality-wise, and they liked each other. I decided to
focus on John and make the case for him to pursue this
opportunity. My approach was twofold: one, to have him
agree to what the contribution to his bottom line would be
if $8.8m revenues were all retained, and two, to convince
John that it would be prudent investment sense to place
cash at closing with minimum risk.
I began my analysis of what John’s bottom line would be by
adding the customer revenues. Bob assisted in identifying
what expenses would be eliminated. Since he visited John’s
facility a couple of times, he had a good understanding of
his operations. Bob determined that if his revenues were
retained, and all of Bob’s 36 employees relocated, the
contribution would be $1.475m.
John conceded that if the revenues were retained, there
would be considerable value. His opinion was $1.15m -
$1.3m. However, he felt that it was a big “if” in retaining
the revenues, given the fact that Bob lost $2m in revenues
the previous year. I reminded him that 10 large customers
had been doing business with Bob’s company for over 10
years, that he and his son controlled 75% of the customers,
and they were willing to join his company with the two
salespeople.
John emailed a term sheet detailing what he was willing to
consider. He offered $250k at closing and an earnout of
4% on revenues for a 3-year period. Before responding to
his offer, I wanted to develop several “what if” scenarios
using different revenue and employee levels. We chose
the projection with $5.3m revenues, a 40% decrease, and
eliminating 13 employees from Bob’s 38. That situation
indicated a $725k contribution. We countered with $400k
and 7% earnout for 4 years. John’s reaction was not
favorable. The only thing he would consider is increasing
the earnout to 5%.
The next day, I met with John to discuss our counter and his
reluctance to accept it. I made sure he understood that at
the projected $5.3m revenues, paying an earnout of $370k,
the numbers showed he would recoup most of the asking
$400k cash in the first year. After additional conversations,
he shared his business model for integrating another
company with me. His process was to hire all the targets’
employees, and over the first quarter, decide which
employees to let go. He agreed that the additional work
could be completed with 20-22 of Bob’s employees.
However, he was not willing to increase the cash offer.
In these conversations, John revealed that his major
concern was the additional financial risk with the
integration process and his concern regarding the
retention of Bob’s customers. I surmised that John’s
comment on the customer risk, at the $5.3m mentioned
level, was negotiation-related. As for the additional capital
expenditures for the integration, he clearly had a valid
point.
I met with Bob to consider the next steps. I asked him
how strongly he felt that he would be able to keep his
customers after closing. He stated on a “worst case”
basis $7.5-$8m would be retained. Given that, I proposed
that we contribute $350k of value at closing, made of
portions of WIP, inventory, and A/R, with the caveat that
the contributing amounts be reimbursed to Bob, provided
that a $5.3k revenue level was attained during the first 12
months. Bob felt that there was very limited risk in making
these contributions, and he agreed with my suggestion.
For negotiating purposes, in our second counter, I reduced
the contribution value to $200k, $300k at closing, 5%
earnout, and 4-year term.
I met John to discuss the counter. His response was very
favorable. The $200k contribution alleviated some of
his integration risk. He increased the cash to $300k and
agreed to the 6% earnout. Judging from his increased
interest, I sensed that there was more value to be
realized.
I played our last card. I increased the contribution by
$150k, in exchange for an additional $50k at closing, a
7% earnout, and an additional $100k at the end of each
of years 4 and 5, provided the revenues were above $5.3
million.
Not surprisingly, he accepted the request. Afterwards,
John shared with me that the additional contribution
The Bridge | Fall 2025 | 15
made the integration virtually risk-free. He estimated that
he could recoup the cash at closing within two months, and
if the revenues in years 4 and 5 reached the $5.3m level, his
ROI would be more than could be expected. John was really
playing with “house money” after the second month.
Obviously, Bob was very pleased with the outcome.
In addition to the earnout, he and his son were paid
commissions. Bob and I both recognized that the $8.8m
revenue level was most likely not achievable 4 or 5 years
out. Even at the $5.3m number that Bob thought was
easily attainable, his deal value would amount to $1.83m,
considerably more than the estimated liquidation value of
$2.7m. On a side note, my engagement fee also included
retained assets and 50% of the equipment liquidation value.
George A. Petrulis
M&AMI, CBI
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16 | The Bridge | Fall 2025
When the Owner Is the Business:
How Dependence Derails Deals
THERE HAS NEVER BEEN A MORE ADVANTAGEOUS TIME TO BE THE OWNER OF A LOWER MIDDLE
MARKET BUSINESS AND, BY EXTENSION, A LOWER MIDDLE MARKET M&A ADVISOR. ACROSS THE
M&A LANDSCAPE, BUYERS OF VARYING TYPES – BUT ESPECIALLY FINANCIAL BUYERS, AND PRIVATE
EQUITY FIRMS IN PARTICULAR – ARE ACTIVELY SEEKING OPPORTUNITIES TO DEPLOY CAPITAL. THE
VOLUME OF DRY POWDER IS AT RECORD LEVELS, WITH RECENT ESTIMATES PLACING THE FIGURE
BETWEEN $1.1 TRILLION¹ AND $1.6 TRILLION² ACROSS PE AS A WHOLE.
By Tee Gwena
The Bridge | Fall 2025 | 17
This capital is not concentrated in a handful of firms.
It is spread across an ever-expanding field of private
equity sponsors, each under pressure to put money to
work. The result is heightened competition, with quality
businesses being acquired at healthy multiples. For
sellers, this competition creates favorable dynamics. For
advisors, it creates an environment where positioning and
preparation can have a direct and meaningful impact on
outcomes.
Firms have become more flexible and are demonstrating a
willingness to underwrite a wider range of business models
and transaction scenarios than they may have considered
in previous cycles.
Yet, even with this abundance of capital and flexibility,
there remains one factor that reliably derails transactions.
In a competitive environment where many issues can be
addressed through structure or negotiation, this particular
challenge is almost always fatal to a deal.
Owner Dependence: How It Unraveled a Promising Deal
A company that cannot function independently of its
ownership, for the most part, ceases to be an asset with
transferable value.
Earlier this year we identified what seemed a promising
acquisition target in a sector we were highly enthusiastic
about. At first glance, the opportunity seemed compelling:
• Multi-decade operating history
• National footprint
• Consistent 40%+ EBITDA margins
• More than $5 million in average EBITDA over the trailing
five years
Upon obtaining the CIM and beginning initial diligence,
issues within the business began to surface. The company
had:
• No standardized operating procedures across locations
• No consistent software systems
• No centralized CRM
• No coordinated marketing efforts
Although these were negatives, none (individually or
even as a group) could have been considered deal killers.
Each represented a potential area of improvement and
optimization post-deal that could help increase efficiency.
What ultimately killed the deal was owner dependence.
The business had multiple shareholders spread
operationally across several locations, each deeply involved
in day-to-day operations and directly responsible for the
majority of revenue at their respective site. Without them,
each location, and therefore the business as a whole, could
not function.
This single factor, the inability of the enterprise to operate
without its owners, rendered what could have been
a healthy eight-figure transaction into a deal with no
assignable value. For the sellers, it meant walking away
from a meaningful exit. For their advisors, it meant walking
away from a healthy fee.
Lessons for Advisors
The transaction described above, while unique in its
specifics, reflects a common reason why deals in the lower
middle market fail to close.
It is not unusual for a company’s earnings to outpace
the way its owner continues to run the business. Many
entrepreneurs, by nature, are highly hands-on. They often
start businesses because they value independence, yet
over time that independence evolves into an intense
involvement in every aspect of day-to-day operations. The
unintended consequence is that the business becomes
increasingly reliant on them for its continued success.
If this dynamic is not addressed, the very independence
that motivated an owner to launch their business can
transform into the constraint that prevents them from
achieving freedom at exit. What once enabled autonomy
becomes the very factor that binds them at the most critical
stage of ownership.
For this reason, advisors must engage owners well before
a potential sale to highlight the importance of creating
separation between the owner and the enterprise. Only
when that separation exists can owners fully unlock the
transferable value embedded within their business and
realize the full outcomes they envisioned when they first
set out on their entrepreneurial journey.
18 | The Bridge | Fall 2025
Practical Steps to De-Risk Owner Dependence
Helping a client build separation between owner and
enterprise is not theoretical, it requires deliberate, practical
steps taken well before a sale process begins. Advisors
should encourage owners to focus on the following areas,
which represent some of the most effective ways to reduce
owner dependence and create a transferable, financeable
business:
Document Systems, SOPs, and Training: Buyers look for
continuity. By formalizing processes in writing, developing
standardized operating procedures, and maintaining a
training framework, the business becomes less reliant on
any single individual. This creates consistency across teams
and makes it possible for new hires or managers to step in
without disruption.
Install or Elevate Professional Management: A strong
second layer of leadership is one of the clearest signs of
an owner-independent company. Bringing in or promoting
managers who can oversee daily operations signals to
buyers that the enterprise can function without constant
owner oversight. It also demonstrates scalability – a critical
lens through which most buyers, especially financial
sponsors, evaluate potential acquisitions.
Transfer Customer and Vendor Relationships: It’s common
for longstanding customer and supplier relationships to
sit with the owner. Transferring these relationships to
senior managers or account leads ensures that revenue
and supply chains remain stable post-close. This step
reduces concentration risk tied to a single individual and
provides tangible evidence that the business can sustain its
operations through a transition.
The Lake Como Test
Every business is different, and no two owners are
entangled in their companies in exactly the same way.
A useful exercise is for advisors to sit with their clients
and walk through what we call the “Lake Como Test” as a
mental exercise.
If the owner suddenly left for a six-week, spontaneous
summer holiday to Lake Como with no phone and no email,
which parts of the business would keep running, and
which would grind to a halt?
Not every business can realistically operate without a
leader for an extended period of time – and that is not the
point. The test is simply a way to expose vulnerabilities,
highlight potential areas that need to be strengthened,
and provide a concrete framework for reducing owner
dependence ahead of a sale.
Conclusion
There is an abundant supply of capital in today’s markets,
and buyers – especially financial buyers – are heavily
incentivized to deploy it. For well-positioned lower middle
market businesses, it is an ideal time to come to market,
but timing alone is not enough.
Owners must come prepared, having addressed the
structural issues that can derail a transaction. Among
these, few are more damaging than owner dependence.
Eliminating this risk in advance is one of the most
effective ways to ensure a successful outcome.
References
1. EY. US Private Equity Pulse: April 2025. Ernst & Young.
Retrieved from https://www.ey.com/en_us/insights/private-
equity/pulse
2. Ropes & Gray. US PE Market Recap: 2024 in Review. January
2025. Retrieved from https://www.ropesgray.com/en/insights/
alerts/2025/01/us-pe-market-recap
A company that cannot
function independently
of its ownership, for
the most part, ceases
to be an asset with
transferable value.
The Bridge | Fall 2025 | 19
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Why Every M&A Deal Needs
a Virtual Data Room
IN THE WORLD OF MERGERS AND ACQUISITIONS, INFORMATION IS CURRENCY. WHETHER
YOU’RE BROKERING THE SALE OF A FAMILY-OWNED BUSINESS, EVALUATING AN ACQUISITION
AS A PRIVATE EQUITY FIRM, OR MANAGING MULTIPLE MANDATES AS AN INVESTMENT BANKER,
THE WAY YOU SHARE, MANAGE, AND PROTECT INFORMATION CAN MAKE OR BREAK A DEAL.
DUE DILIGENCE, IN PARTICULAR, CAN QUICKLY BECOME CHAOTIC. BUYERS WANT TO SEE
EVERY DETAIL—FINANCIAL STATEMENTS, CUSTOMER CONTRACTS, EMPLOYEE AGREEMENTS,
INTELLECTUAL PROPERTY DOCUMENTS, EVEN OLD BOARD MEETING NOTES. SELLERS, ON
THE OTHER HAND, WANT TO SHARE JUST ENOUGH TO BUILD CONFIDENCE WITHOUT LOSING
CONTROL OF SENSITIVE INFORMATION. AND INVESTORS, OFTEN PLAYING BOTH ROLES ACROSS
THEIR PORTFOLIO, NEED A WAY TO STREAMLINE DILIGENCE ACROSS MULTIPLE DEALS WITHOUT
SACRIFICING ACCURACY OR SPEED. THAT’S WHERE CONTROLLED INFORMATION—AND BY
EXTENSION, VIRTUAL DATA ROOMS (VDRS)—COME IN.
By Michelle Granadillo
SENIOR PRODUCT MANAGER AT DROPBOX DOCSEND