The financing that closes a roll-up's first acquisition is rarely the financing that closes its fourth. A programme of successive purchases outgrows its own capital stack in stages, and a sponsor who keeps reaching for the same facility that worked on deal one is usually the reason deal three stalls at the term sheet.
Key takeaways
The financing that closes a roll-up's first acquisition is rarely the financing that closes its fourth. A programme of successive purchases outgrows its own capital stack in stages, and a sponsor who keeps reaching for the same facility that worked on deal one is usually the reason deal three stalls at the term sheet rather than at closing.
The Canada Small Business Financing Program's $1.15 million maximum loan amount for a borrower makes it a real tool for a platform's smallest acquisitions — and, per its own exclusions, only where the deal is structured as an eligible asset purchase, not a share purchase — but it is not a financing strategy for the programme as a whole. A sponsor whose first acquisition closes comfortably inside that ceiling will find the second or third deal, once it moves past roughly a million dollars, needs a different capital stack entirely.
Deavo's capital-stack breakdown describes the shift band by band: on deals in the $200,000 to $1 million range, buyer equity typically runs around 25%, with roughly 15% seller financing through a vendor take-back and about 60% senior debt, often bank plus CSBFP; in the $1 million to $5 million range, buyer equity rises to around 30%, with seller financing still structured as a vendor take-back and roughly 55% senior debt from a commercial bank, BDC or credit union; and in the $5 million to $30 million range, buyer equity typically runs 35 to 45%, seller financing shifts from a vendor take-back to a rollover of around 5% where the seller keeps equity in the buyer's own company, senior debt runs around 3 times EBITDA, and mezzanine debt of around 1 times EBITDA, priced 8 to 12% and often paid in kind, appears above roughly $5 million. The shift from vendor take-back to rollover is not cosmetic — a take-back is repaid to a seller who is leaving; a rollover keeps the seller invested alongside the sponsor, which changes both the exit dynamics covered in how the group is eventually sold and, per CBCA s.184, which sites can later be folded into a single entity at all.
A debt-service coverage test governs every band of the stack, even as its basis changes — roughly 1.25 times SDE on the smallest deals, 1.30 times EBITDA in the middle band, and 1.2 to 1.5 times EBITDA on mid-market deals — which means a platform scaling up its acquisition size cannot simply scale up its debt in proportion; each successive deal has to clear its own coverage test independently, on that deal's own normalized earnings, regardless of how comfortably the previous deal cleared its own.
Each new acquisition brings its own post-close working-capital question, not just its own purchase-price financing — the same DSCR-driven sizing exercise covered when a single deal's term loan and its working capital facility are sized together has to run again on every new site, and a platform cannot assume that surplus liquidity sitting in one acquired business can simply cover a shortfall at a newly closed one without a deliberate, documented cash-management structure between the entities. A CSBFP-eligible line of credit is capped at $150,000 per borrower, the same ceiling on deal one as on deal four — it does not scale with the platform's growing size, which is one more reason the smallest programme-wide financing tool stops being useful past a platform's earliest acquisitions.
An ITA s.85(1) rollover election is what makes a seller's rollover equity tax-deferred rather than an immediately taxable disposition, provided the consideration includes shares of the acquiring corporation and the parties jointly elect in prescribed form — the same mechanism a sponsor's own equity may go through a second time if the platform itself is eventually sold into a still-larger acquirer's shares rather than for cash.
None of these facilities are underwritten in isolation from each other either. A lender looking at a platform's fourth acquisition request can and typically does look at the platform's existing debt load across all of its earlier deals, not just the standalone economics of the new target — which is one more reason a coverage ratio that cleared comfortably on deal one can run tighter on deal three, even where deal three's own target business is objectively stronger.
A sponsor completes three acquisitions over 18 months. Deal one, $800,000, closes in the micro band: roughly $200,000 buyer equity, a $120,000 vendor take-back, and $480,000 of senior debt including a CSBFP term loan. Deal two, $2.2 million, closes in the small band: roughly $660,000 buyer equity, a $330,000 vendor take-back, and $1.21 million of commercial bank debt — too large for CSBFP's $1.15 million ceiling to cover on its own. Deal three, $6 million, moves into the mid-market band: roughly $2.4 million buyer equity, the seller rolling approximately $300,000 (5%) of the price into platform equity rather than taking it in cash, and the remaining $3.3 million split between senior debt at roughly 3 times the deal's EBITDA and a mezzanine tranche priced in the 8 to 12% range. The buyer-equity dollars committed on deal three alone ($2.4 million) are twelve times what deal one required ($200,000), even before accounting for the shift from a repaid vendor take-back to a rollover the sponsor now shares ownership with going forward.
Not on its own past the smallest deals. Its $1.15 million per-borrower ceiling and its exclusion of share purchases make it a real tool for a platform's earliest, smallest acquisitions, but larger deals in the programme typically move to conventional bank, BDC or mezzanine financing instead.
No. On smaller deals it typically takes the form of a vendor take-back the seller is repaid over time. On larger, mid-market deals it more often shifts to a rollover, where the seller keeps an equity stake in the buyer's own company instead of being paid out.
No. Each successive acquisition has to clear the lender's coverage test independently, on that deal's own normalized earnings — a platform cannot use one deal's comfortable coverage to support debt sizing on the next.
A 30-minute call is enough to tell you whether AI pays for itself here.
Nobody publishes Canadian transaction data, so every valuation in this country quotes an American benchmark. We are building the Canadian one — multiples, asking-to-sale spreads and days on market, by sector and by city. Leave an email and you will see it first.
No pitch, no listings. One email when the first report lands.
