Diligence Document — Middle Tennessee | Confidential | Draft v1.1
| Item | Detail |
|---|---|
| Revenue | ~$7M annually |
| SDE (Seller's Discretionary Earnings) | $1.1M confirmed |
| Asking Price | ~$3.4M |
| Valuation Multiple | 3.1x SDE |
| Industry Benchmark Multiple | 2.5x–4x SDE (fair range) |
| Geography | Middle Tennessee only |
| Seller Motivation | Retirement after 30+ years — clean exit |
| Transition Support | Seller willing to stay on post-close |
| Financing Path | SBA 7(a) — Veterans Advantage |
| Ownership Structure | Buyer + Business Partner (field superintendent) |
| Operating Model | Remote management via field ops platform |
Current overhead rate: ~84% — $5.9M consumed before reaching $1.1M SDE. Industry benchmark for a well-run shop at this size is 75–78%, implying $400K–$650K in potential upside on the same revenue base.
⚠️ Root cause of overhead not yet confirmed — requires financial statement review and operational walkthrough.
| Item | Status | Notes |
|---|---|---|
| SDE Confirmation | ✅ Confirmed | $1.1M — confirmed by seller |
| Financing Structure | ✅ Identified | SBA 7(a) Veterans Advantage — ~10–15% down ($340K–$510K) |
| Key Person Risk | ✅ Manageable | Tenured managers in place + seller transition + business partner on ground |
| Seller Transition Plan | ⚠️ Define in Contract | Length, compensation, and scope must be specified — not left informal |
| Customer Concentration | ⚠️ Unknown | Need revenue breakdown by client — 25%+ single client = flag; 40%+ = deal lever |
| Contract Backlog | ⚠️ Partial | Contracts in place confirmed — assignability and 12-month value unknown |
| Equipment & Fleet Condition | ⚠️ Unknown | Age, condition, owned vs. leased — hidden capex risk |
| Contractor License — Entity vs. Personal | 🚨 Critical — Verify | Neither buyer nor partner has electrical trade background — qualifying agent must be identified pre-close |
| Qualifying Agent Identified | 🚨 Critical — Unknown | Must identify internal candidate (senior foreman/PM) before close — see licensing section |
| Subcontractor Relationships | ⚠️ Assess | Heavy sub use confirmed — are relationships personal to owner or institutional? |
| Owner Comp Structure | ⚠️ Unknown | Confirm all comp, benefits, personal expenses run through business |
🚨 Critical constraint confirmed: Neither the buyer nor the business partner has an electrical trade background. This means you cannot serve as the qualifying agent. You must identify and secure a qualifying agent from within the existing company before close — or structure the deal to give yourself time to do so.
Tennessee issues Electrical Contractor (CE) licenses through the Tennessee Board for Licensing Contractors (TBLC). The license is issued to the business entity — but it requires a designated Qualifying Agent: a licensed individual who is responsible for the work performed under that license.
The qualifying agent must pass both a Business & Law exam and a trade exam, and must be formally on file with the TBLC.
🔴 Scenario A — License held personally by the owner
The license does not transfer. You are buying a business that cannot legally operate on day one. You must apply for a new Tennessee CE license before close. Licensing timelines run 60–120 days — this directly affects your closing date and must be negotiated into the deal structure.
🟡 Scenario B — License held by the company entity, owner is sole qualifying agent
The license stays with the entity post-acquisition, but you must designate a new qualifying agent at or before close. Without a replacement QA in place, the license is technically at risk. This is solvable — but requires an internal candidate to be identified and prepared before you sign.
🟢 Scenario C — License held by the company entity, with a non-owner qualifying agent already on file
Cleanest path. License stays, QA stays, operations continue uninterrupted. Confirm that QA is retained post-close and build a retention incentive into the deal.
| Option | How It Works | Risk |
|---|---|---|
| Existing senior employee (foreman/PM) | Tenured employee takes the exam and becomes qualifying agent | Medium — creates key person dependency; retention incentive required |
| Hire a licensed RME | Bring in a Responsible Managing Employee specifically to hold the license | Medium — adds payroll cost; no existing loyalty to the business |
| Seller stays as QA during transition | Negotiate seller remaining as qualifying agent post-close while permanent solution is identified | Lower short-term — must have defined exit date and permanent succession plan |
⚠️ Key risk if you use an internal employee as QA: That person now has leverage. If they leave post-close, your license is in jeopardy. You need a retention plan — equity stake, profit share, or a formal retention agreement tied to a defined period. This should be structured before close, not after.
Before making first contact, look up the company on the TBLC license lookup. It will show whether the license is held by the entity or an individual.
🔗 Tennessee TBLC License Lookup: tn.gov/commerce/regboards/contractors
"Is the contractor's license held by the company or by you personally — and who is listed as the qualifying agent with the TBLC?"
"Who on your team has been here the longest and knows the work best — is there anyone you'd consider your right hand?"
That second question identifies your qualifying agent candidate without tipping your hand on the licensing concern.
Estimated down payment: 10–15% of $3.4M = $340K–$510K. Confirm whether your business partner is contributing to equity at close.
Current overhead rate of ~84% vs. industry benchmark of 75–78% implies $400K–$650K in recoverable margin on existing revenue. Primary levers:
| Lever | Potential Impact | Timeline |
|---|---|---|
| Labor utilization improvement | High | 90–180 days |
| Estimating discipline tightening | High | 60–120 days |
| Administrative process automation | Medium | 90–180 days |
| Fleet optimization / routing | Medium | 180–365 days |
| Field ops platform deployment | High (long-term) | 365 days+ |
The thesis: ServiceTitan and Procore are built for administrators, not field operators. The wedge is radical simplicity — built mobile-first, from the inside out, using this company as the first customer and proof of concept.
Goal: Build rapport, let him talk, listen for where he's emotionally attached and where the risks are buried. No price negotiation in round one.
Tell me about how the business got to where it is today.
What are you most proud of building here?
What would you want the business to look like in five years under new ownership?
What do you want for your people after you leave?
What does a typical week look like for you operationally?
What does the contract backlog look like for the next 12 months?
How is the fleet and equipment — any major capital needs on the horizon?
Are your subcontractor relationships tied to the company or to you personally?
Which client relationships are you most concerned about in a transition?
What does your management team know about a potential sale?
Who on your team has been here the longest and knows the work best — is there anyone you'd consider your right hand?
Is the contractor's license held by the company or by you personally — and who is listed as the qualifying agent with the TBLC?
What would a successful transition look like to you?
| # | Action | Priority |
|---|---|---|
| 1 | Look up company on TBLC license lookup — confirm entity vs. personal held | Critical |
| 2 | Confirm down payment equity split — your share vs. partner's share | Critical |
| 3 | Engage Tennessee construction attorney — license continuity review before LOI | Critical |
| 4 | Make first contact with seller — rapport first, data second | High |
| 5 | Identify qualifying agent candidate (internal senior employee) during first visit | High |
| 6 | Request 3 years financial statements, client list, contract backlog | High |
| 7 | Request equipment and fleet inventory | High |
| 8 | Define seller transition terms in LOI — length, comp, scope, QA continuity | High |
| 9 | Engage SBA lender with Veterans Advantage experience | High |
| 10 | Design retention incentive for qualifying agent candidate post-close | High |