The 4-million-dollar deal that died because of geography

Deacon here with a story about why I now ask about business structure before I even look at the financials.

After Peak Wellness Co. fell through and we were exploring that ambitious three-deal SBA strategy, a broker reached out about an opportunity we'd initially passed on months earlier.

My first thought: "We said no for a reason."

But with our pipeline suddenly looking thinner, Travis suggested we take another look. Sometimes timing changes everything, right?

Let's call this one "Sweet Supplement Co." Here's what caught our attention:

• Gummy supplement space (massive growth market we'd been trying to break into)

• Established relationship with a co-packing manufacturer

• One of the founders was actually the manufacturer (hello, vertical integration)

• Numbers looked solid – right in our buy box, actually on the high end

The gummy market is exploding, and we'd been looking for our entry point. This felt like it could be it.

We requested the CIM (Confidential Information Memorandum) – basically the business's dating profile mixed with financials. Everything looked clean. No red flags on paper.

We made an offer in the 3-4x EBITDA range, and they seemed receptive. The broker arranged a call: me, Travis, and Justus on our side; broker plus three sellers on theirs. Seven people total.

About halfway through the call, I started getting a weird vibe. Great business, growing revenue, solid products... so why exactly are you selling?

Their answers felt rehearsed. Reading between the lines, it seemed like the partners needed to break up but nobody wanted to say it directly. Not necessarily a dealbreaker, but worth noting.

Then came the bombshell.

At the very end of the call, something came up that shocked me. Not because it was complicated, but because it was so fundamentally obvious that I couldn't believe our experienced broker had missed it.

The company was a Canadian C-Corp.

Here's why that matters:

1. Canadian tax laws make asset sales prohibitively expensive for sellers (why sell if you pay 50%+ in taxes?)

2. They'd insist on a stock sale (where we inherit ALL their historical liabilities – lawsuits, tax issues, everything)

3. SBA funding can't be used for Canadian businesses, period

4. Even workarounds require 1-2 years of US operating history

We'd been clear from day one: we're using SBA funding for an asset purchase. This broker is experienced, works with major deals regularly, and somehow missed that a Canadian C-Corp structure makes our deal impossible.

I'd spent time analyzing the financials and market positioning to make sure this was worth pursuing. None of it mattered because the fundamental deal structure was broken from the start.

The numbers on this deal were actually fantastic. The market opportunity was exactly what we wanted. But sometimes great businesses are simply unbuyable due to structural issues that have nothing to do with operations.

Now I ask about entity structure in the first conversation. Before I look at a single P&L.

For Operators: Always understand the tax and legal implications of your business structure. It might limit your exit options later.

For Buyers: Due diligence starts with deal structure compatibility, not pretty numbers. Save yourself weeks by asking the boring questions first.

For Brokers: (If any are reading) Please flag obvious structural issues upfront. We're all busy people here.

Even though this deal didn't work out, it taught us to qualify deals differently. We now have a checklist of fundamental requirements that we go through before we invest serious time in analysis:

• Entity structure and location

• Tax situation compatibility

• Financing structure alignment

• Basic operational requirements

Sometimes the best education comes from the deals that don't happen.

Next week I'll tell you about the hair business owner who's been emailing us every six weeks for months, always claiming he has "other offers" at his asking price.

Have you ever had a deal fall apart due to something that seemed obvious in hindsight? Hit reply – I'd love to hear your "how did we miss that?" stories.

Until next time,

Deacon

P.S. We're getting smarter about qualifying deals upfront. But we're still actively looking. If you know of any supplement or wellness brands with solid operations and US entity structure, we should talk.