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In 2007, Blackstone (conspiracy theorists going crazy rn) took Hilton private for approximately US$26 billion.

A year later, the financial system melted down. Credit froze, commercial real estate got crushed, and travel slowed.

Perhaps the worst time in human history to complete a massive leveraged buyout of hotels.

Sweating like a crypto bro at tax time, Blackstone had a debt problem.

By 2009, Hilton's annual revenue had fallen about 15%, from roughly US$8.9 billion to US$7.6 billion. While their revenue disappeared, the debt did not (spoiler: this doesn’t work with the credit card companies either).

On the surface, this may not feel tangible to a small business owner. After all, the Hilton is an iconic global brand with thousands of hotels and billions of dollars.

But if you backspace a few of the zeroes - this can happen on any Mainstreet deal.

Take a $10 million business with a skinny 10% EBITDA margin. It produces $1 million of EBITDA after paying the owner a market salary.

Now subtract $700,000 of annual debt service and another $150,000 for taxes, equipment and working capital. The owner can distribute roughly $150,000. Debt service coverage is 1.43x. Profitable, but tight.

Now cut revenue in half to $5 million.

Even if the 10% margin somehow survives, EBITDA falls to $500,000. The $700,000 debt payment does not move. Before replacing a truck or paying taxes, the company is already $200,000 underwater. Ouch.

And that is the optimistic version. Most costs do not fall neatly with revenue, so skinny margins usually get skinnier.

The company did not become slightly less profitable. It went from paying the owner a $150,000 distribution to needing someone to inject $350,000 just to get through the year.

Zoom out far enough and the aristocracy and us plebiscites share the same problem:

Forces outside our control can flip our businesses upside down.

This also happens in lower-middle-market deals:

  • Interest rates rise after the LOI is signed.

  • A customer representing 20% of revenue leaves during diligence.

  • Inflation compresses margins before the buyer's quality of earnings is finished.

  • A key employee quits without notice.

  • The government changes a policy that the business model depends on.

Some unfortunate news: bad stuff will continue to sucker punch us for the rest of our lives. But it’s not all bad.

The silver lining is that difficult periods force action. Strong businesses are often built when standing still is no longer an option.

So here is what Blackstone did.

Hilton cut costs, kept expanding internationally and moved further toward an asset-light model. Blackstone, doing what it does best, brutally negotiated with lenders.

By 2010, the restructuring had reduced Hilton's debt by nearly US$4 billion and extended major maturities to 2015.

That bought life's most scarce resource: time.

And time changed the outcome.

Hilton returned to the public market in 2013. The IPO raised approximately US$2.35 billion, but Blackstone did not cash out. It still owned roughly 76% of the company after the offering.

It sold down that position over the next five years.

In 2018, Blackstone sold its final 15.8 million Hilton shares for about US$1.3 billion. By then, the investment had reportedly generated approximately US$14 billion in profit.

See? There was a happy ending: the billionaires became richer.

Okay, okay, if that doesn’t warm your heart, here’s what it means if you want to sell your business:

  1. Keep running the company: Miss a $500,000 EBITDA forecast by 10% and you lose $50,000 of earnings. At a 6x multiple, that can become a $300,000 price cut.

  2. Know your runway: Maintain a 13-week cash forecast and track working capital, covenants and debt maturities.

  3. Keep more than one path alive: One buyer or one lender is a single point of failure. Competition protects both price and certainty.

  4. Share bad news early: Buyers can solve known problems. Surprises discovered in diligence become re-trades.

  5. Fix the structure when the business is still good: A strong company can still have the wrong debt, timing or deal terms. Change them before the clock runs out.

You cannot control the next rate decision or customer departure. You can control your cash, reporting, contracts, management team and options.

Build a business that can absorb the shock without losing the deal.

Thinking about selling your business? We can help you identify the issues most likely to derail a deal before a buyer finds them. Schedule a confidential call →

founder fitness

fitness challenge:

At the gym, 4 rounds:

  1. Trap-bar deadlift: 6 reps (or 10 dumbbell Romanian deadlifts)

  2. Incline dumbbell bench press: 10 reps

  3. Chest-supported row: 12 reps

  4. Reverse lunges: 8 reps per side

  5. Bike or row erg: 45 seconds hard

Rest 2 minutes between rounds. Choose weights that leave one or two good reps in the tank.

founder challenge: talk to five customers

Book five 20-minute conversations with current or former customers this week. Do not pitch them anything. Ask:

  1. What problem were you trying to solve when you hired us?

  2. What nearly stopped you from choosing us?

  3. What part of working with us has been most valuable?

  4. What is one thing we could make easier?

Write down their exact words and look for the answer that appears more than once. Turn that pattern into one concrete improvement to your offer, process or messaging before next Friday.

want a full week of these? try the free 7-day founder fitness challenge →

deal breakdown

Check out my last deal teardown

see how your business would score → take the free Exit Audit

P.S. I just hosted buyer office hours, answering some of the hottest questions I get from business buyers. You can watch a recap of that here.

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