Sale leaseback

Definition

Buying the business and renting the building the seller keeps.

Why It Matters

Most main-street sellers hold their building in a separate entity, so what looks like one deal is two, and the rent agreed at closing moves the earnings the price was built on. A below-market rent flatters the multiple you just paid and resets the day the lease renews; an above-market one hands the seller a second raise every year. Negotiate the term, the renewal options and the escalator with the same care as the price, because a lender sizes the loan on what is left after that rent.

In numbers: A $60k rent on space worth $45k of market rent costs $15k of SDE a year, which at a 3x multiple is $45k of price paid for earnings the lease removes.