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Welcome back to KSMC Double Klick!

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Kapil Sukhija
Founder, KSMC

📊 Deal Strategy Deep Dive

The Winning LOI Strategy: How Deal Structure Drives Value Beyond Price

What This Means: Letter of Intent (LOI) negotiation involves crafting preliminary agreements that outline key deal terms, conditions, and timelines before formal purchase agreements. LOIs often include unique provisions for earnouts, working capital adjustments, management retention, and seller financing.

The Challenge: These preliminary agreements must balance complexity with speed, often addressing seller financing, management transitions, and earnout structures that differentiate them from larger corporate deals.

Why It Matters: LOI terms can create or destroy millions in value before formal negotiations begin. In middle market context, deal structure often matters more than headline price due to seller tax considerations and growth expectations.

Real Deal Example: Vestar Capital Partners' Tech24 Investment

Tech24 was named an "Honorable Mention" in Mergers & Acquisitions' 2024 Middle-Market Deals of the Year, demonstrating exemplary deal structuring. Here's what made this transaction notable:

In October 2023, Vestar Capital Partners joined HCI Equity Partners and Tech24’s management in a partnership-driven recapitalization of Tech24, the leading U.S. provider of commercial foodservice equipment repair and maintenance.

• Deal Structure: The transaction exemplified the creative structuring typical of middle market LOIs: it was not a traditional buyout but rather a partnership recapitalization, allowing existing shareholders—including management—to participate alongside the new investor. This reflects management equity rollover, which aligns post-deal incentives for growth.

• Growth-Linked Terms: The deal supported both organic expansion and a robust M&A pipeline. LOI provisions likely included milestone-driven commitments and strong incentives for further growth—core themes in middle market negotiations.

• Result: Vestar’s approach was preferred for its partnership focus and track record in sponsor recapitalizations—demonstrating why sellers may select a creative, growth-oriented structure in an LOI over simple headline price offers.

Key Insight: Success in preliminary negotiations depends on understanding seller motivations beyond price maximization - tax efficiency, management continuity, and growth participation often drive final decisions.

Bonus Tip: Industry data suggests earnout success rates improve significantly when tied to seller-controllable metrics (such as company-specific revenue, EBITDA, or operational milestones) rather than broader market conditions.

Discussions welcome: Whether you're working through a specific transaction or need guidance on structuring the LOI terms, we welcome the opportunity to discuss. We also maintain a comprehensive checklist of essential items to include in Letters of Intent.

🌍 Global Pulse

China Issues New Draft M&A Loan Rules to Ease Terms and Widen Scope

China's National Financial Regulatory Administration has released draft regulations to expand and ease bank lending for mergers and acquisitions (M&A), marking the first time bank loans can support minority equity deals. The new rules split M&A into two categories: "control acquisitions," where buyers take majority stakes, and "equity acquisitions," for minority stakes of at least 20%.

Under the draft, banks can lend up to 70% of the deal value for control acquisitions with loan terms extended to 10 years from the previous 7 years. For equity acquisitions, loans can cover up to 60% with a maximum 7-year term. Banks must meet asset thresholds—CNY 50 billion (~$7 billion) for control acquisition loans and CNY 100 billion (~$14 billion) for equity acquisition loans.

With over 3,500 M&A deals completed in China in the first half of 2025, totaling nearly CNY 800 billion (~$111 billion), the expanded loan scope aims to further support corporate restructuring and investment diversity.

🤖 AI Tools Spotlight

HeadsUp.bot: Competitor Intelligence Made Simple

What The Tool Does?: HeadsUp monitors your competitors automatically and tells you when they make important changes. Instead of just alerting you, it explains what the changes mean and suggests how to respond.

Key Features:

• Smart Alerts: Get notified when competitors "change pricing, launch features, or shift strategy"

• AI Analysis: Receive specific recommendations, not just raw data

• Quick Setup: Ready "in 60 seconds and runs on autopilot"

• Centralized Dashboard: All competitive intel in one place

Why It Matters?: With instant awareness of competitor shifts, a business can respond before customers notice, protect it’s market share, and turn their moves into its own advantage.

Explore the tool here.

💭 Dealmaker’s Quote

“Seed investing is the status symbol of Silicon Valley. Most people don't want Ferraris, they want a winning seed investment.”

— Sam Altman

🏢 About Us

KSMC is a Toronto-based boutique advisory firm founded by Big 4 alumni turned entrepreneur. We provide comprehensive M&A Advisory Services, strategic CFO Consulting, and tailored Accounting Solutions. Our expertise and network spans the complete transaction lifecycle—from financial due diligence (QoE reviews) and business valuations to full sell-side mandates—serving middle-market clients across industries in Canada, U.S., UAE, India, Puerto Rico, and Botswana.

Know more and reach out to us here.

Disclaimer: This newsletter is provided for informational purposes only and does not constitute any form of advice. We do not have any sponsorship, affiliate, or commercial arrangements with any companies, tools, or services mentioned in this newsletter. All examples and case studies are based on publicly available information and are included for educational purposes only.