The Platform That Wasn’t

A CIM landed on my desk recently. The numbers were strong. A Florida fencing business, residential and commercial. Just over $3M in revenue. Around $500K of seller’s discretionary earnings, or SDE. Gross margins near 60%. Roughly 6x revenue growth in three years. Asset sale.

This was smaller than what I usually look at, but the platform framing in the CIM got my attention.

The CIM told me what kind of business it was. A “platform.” With “limited owner dependence.” “Professionally operated” with “scalable installation infrastructure.” The owners were described as “largely passive.” The deal was positioned for “acquisition entrepreneurs,” “lower middle market investors,” and “home services roll-up platforms.”

I took the broker call. Then I passed.

This is a Deal Stories post about why.

What the language meant

Read enough CIMs and you start to notice the patterns. The words “platform” and “semi-passive” and “scalable infrastructure” tell you what the broker is selling. They tell you who the broker thinks the buyer is.

In this case, the broker was selling a platform acquisition. The buyer would purchase this business as the foundation of a roll-up or hold-co, then bolt other fencing or home services businesses onto it over time. Search funds. Independent sponsors. PE firms entering the category.

That’s a specific kind of business. A platform has a real management layer, demonstrable customer retention, and a model that can absorb new ownership without missing a beat. It is the anchor that the rest of the roll-up gets built around. That role requires real infrastructure underneath, because a buyer is not just buying this business. They are buying the seat from which they will run the next five.

I kept reading.

What the deal was

By page seven, the picture had changed.

Two majority owners, both “passive.” Fine. That means an absentee ownership structure. One minority partner who “ensures installation quality and workflow coordination.” That is a foreman. Not a general manager. Not a VP of operations. A foreman.

Subcontractor crews. Two trucks. Two trailers. Hand tools. A three-year operating history. Pure project-based revenue. No service contracts. No maintenance agreements. No recurring base of any kind. Every dollar of that $3M comes from a fresh sale, every month.

Read that again. Two passive owners. One foreman. Two trucks. Three years old. Zero recurring revenue.

That is not a platform. That is a small, fast-growing, hands-on contracting business. There is nothing wrong with that. Plenty of people make great livings owning and running businesses exactly like this one. It just isn’t what the CIM says it is.

And the deal is sellable. The right buyer is an operator-owner. Someone willing to step into the business and do the work. Take the foreman’s role on themselves, or hire and directly manage one. Run sales. Own the customer relationships. Work in the business while they build the systems that eventually let them work on it. That buyer exists. They buy small home services businesses every day, and they grow them well. At this revenue level and this margin, in this market, this is a perfectly viable acquisition for that profile.

But that buyer isn’t who the CIM was written for.

The platform framing requires a real operational layer underneath. It requires recurring revenue or contracted relationships. It requires more than three years of history so a buyer can analyze cohorts and retention. None of that exists here.

The math problem

The CIM presented a normalized SDE of around $500K. The number had three add-backs feeding it. Two were straightforward: passive owner compensation. The third was about $100K paid to the minority partner for field oversight.

That third add-back is the tell.

If you are an operator-owner who is going to run the business yourself, that $100K comes out and you keep it. The add-back is legitimate. If you are the platform buyer the CIM is targeting, you cannot take that add-back. You have to keep the foreman, because there is no one else doing what he does. That $100K stays in the cost structure.

For an absentee buyer, the SDE is not $500K. It is closer to $400K. At a 4x multiple, that is a $400K swing in valuation. At 5x, it is a half-million dollars off the price.

Brokers know this. Sellers should know it too. When you build a CIM around an SDE that only works for one type of buyer, you are not really targeting both. You are misrepresenting the deal to one of them.

The broker call

I took the call anyway. Two reasons. First, sometimes the CIM oversells and the actual business is fine. Second, the broker call tells you whether the seller is realistic about what they are selling.

Twenty minutes in, my read was confirmed. The “GM” was a foreman. The “passive” owners had no operational involvement at all, which sounds great until you ask the obvious question: who is running sales? Who is managing the customer relationships? Who owns the P&L? The answer was a series of partial answers that added up to “no one, really.”

This is a business that grew because the market is hot, the product mix is diversified, and the foreman is competent. It is not a business with a transferable management layer. A platform buyer steps in, the foreman is the only person who knows anything, and now the buyer is the operator. That is a real job, not a passive investment. And it is not what a platform buyer signed up for.

I told the broker I appreciated the call and that the deal wasn’t a fit for me. I was direct about why.

What this means if you’re the seller

The most important thing your CIM does isn’t sell the upside. It sets the buyer’s expectation.

If the CIM oversells the structure, what happens isn’t that you get more buyers. What happens is you get the wrong buyers. Platform buyers show up enthusiastic, do diligence, find the foreman where the GM was supposed to be, and walk. Or worse, they renegotiate. Hard. The original price was anchored to a story the diligence didn’t support, so the price has to come down to match the story it does support.

Meanwhile, the operator-owner buyer who would have been a clean fit never sees the deal, because the CIM filtered them out by aiming somewhere else.

When clients hire me, this is a conversation we have early. Before the CIM gets written, before the banker is selected, sometimes before the books are even cleaned up. The question isn’t “what does our business sound like at its best.” The question is “what does our business actually look like, and who is the right buyer for what we actually have?”

A clean, accurate CIM aimed at the right buyer beats a glossy, oversold CIM aimed at the wrong one. Every time.

The footnote

That deal isn’t on the market anymore. It also didn’t sell. Roughly four out of five businesses that list with a broker never close, and this one is now part of that statistic. There are a lot of reasons businesses don’t sell. Pricing. Market timing. Diligence findings. Owner cold feet. But mismatched positioning is one of the quieter ones. The CIM aimed at one kind of buyer. The business was actually for a different kind. The buyers in between figured it out and moved on.

If you didn’t know, now you know.