Jason Andrews·May 23, 2022

Buying a High 7 Figure Business with a Buy Side Advisor

Jason Andrews, a Kansas City-based sales executive who spent 20 years building and scaling sales teams at Johnson & Johnson and Intuitive Surgical, acquired Group Source — a Group Purchasing Organization (GPO) serving independent non-acute healthcare providers — in 2016 at age 42. He used a buy-side M&A advisory firm, DBS Group, which conducted a proprietary outreach campaign to ~30 prospective sellers over ~10 months; the advisory relationship cost him north of $250k all-in but he credits it as essential to both sourcing and closing the deal. The acquisition was a high-seven-figure deal (~$7-9m) financed with a maxed $5m SBA 7(a) loan, a large seller note, and all available personal capital, at roughly a 5-5.25x EBITDA multiple — an all-in bet that he says felt obvious given the quality of the business and the clarity of his personal 'why' (ending constant travel). Group Source negotiates supply discounts with manufacturers and distributors on behalf of member physician practices and earns under 3% on purchases — a volume-dependent model requiring many small revenue streams. Six years in, the business has delivered 99%+ customer retention, mid-teens annual growth, exceptional cash flow per employee, and aggressive debt paydown ahead of the SBA term, with Jason now targeting 15 hours per week in the business and considering a second acquisition.

Deal facts

purchase price: ~$7-9m (maxed SBA at $5m, 'closer to ten than five within five million dollars')
multiple: ~5-5.25x EBITDA
financing structure: SBA 7(a) loan (maxed at $5m) + large seller note + all available personal equity; separate bank note (interest-only) for buy-side advisory fee (~$250k+)
notes: Business had ~$20,000 in capital assets. ~77 investor signatures required at close. Sellers (two brothers) signed consulting agreements for 1,000 hours each over ~1 year post-close. Advisory/transaction fee to DBS Group was north of $250k and could not be rolled into SBA note.

Why this business

Group Source was a sales and service organization in the non-acute healthcare space — an industry Jason understood from his career in medical devices. It played directly to his strengths in building and scaling sales teams, had 20 years of operating history, strong recurring cash flows, and secular tailwinds from the shift of procedures out of hospitals. It also solved his personal 'why': getting off the road and being home with his family.

What's working

Extremely high cash flow per employee — cash flow per employee exceeds what most businesses generate in revenue per employee
99%+ customer retention since acquisition
Steady mid-teens annual organic revenue growth without significant headcount additions
Outsourcing non-core functions (HR, payroll, benefits, data entry to India team) dramatically improved efficiency
Recurring, contract-based revenue model with diversified member base creates resilience — COVID impact was limited
Aggressive SBA loan paydown (double payments for 12-18 months) and refinancing out of the SBA note ahead of term
Strong reputational goodwill from original owners who treated employees, customers, and vendors well

What's hard

Selling an 'unsexy' value proposition — physicians and office staff often don't prioritize cost savings over revenue generation
Low individual contract values mean you need many members ('a lot of crumbs to make a loaf') — growth is slow and steady, not hypergrowth
Business cannot be scaled quickly even with capital; adding 10 salespeople would not produce 60% growth
Closing with 77 required investor signatures was extremely stressful and time-consuming
Advisory fee (~$250k+) could not be rolled into the SBA loan and required a separate bank note
Transitioning from large corporate resources to small business environment required adjustment

Notable quotes

If you got a very clear why you'll do almost any how — and I think that was it. I never had any trouble working hard or getting out of bed or doing all those things but I certainly wasn't lacking in motivation from day one of the close because I went from having very little debt in this world to having a significant amount and I was not interested in having my house sold on the courthouse steps.

Pretty much any small business — the entire value of your business goes home every night. You just hope they come back the next day.

The difference between the tangible assets and the purchase price — call that goodwill — let me tell you what it really is in a small business: it's the reputation of the people you're buying it from. That's what it is.

I went from surgical robotics — I was the person people want to sit next to at dinner parties — to group purchasing organization. By the time I explain what it is I do, people are looking for somebody else to talk to.

Did I overpay a little? Probably. Did I pay a lot to have an advisor? Absolutely. Would I do it again? Without question.