Deal Structure Guide · Fire & Water Damage Restoration

How Restoration Business Deals Get Structured — and Why It Matters

From SBA 7(a) financing to earnouts tied to TPA contract retention, here's how buyers and sellers in the fire and water damage restoration industry negotiate deals that close and hold together post-acquisition.

Fire and water damage restoration businesses trade at 3.5x–5.5x EBITDA in the lower middle market, but the deal structure is often as important as the purchase price. Unlike standard service businesses, restoration acquisitions carry unique financial complexity: slow insurance reimbursement cycles stretching 60–120 days inflate working capital needs, TPA program agreements with carriers like State Farm and Allstate may or may not survive ownership transitions, and revenue quality can be difficult to verify given supplement disputes, write-offs, and variable job sizes. These factors shape how deals are financed, how risk is allocated between buyer and seller, and whether earnouts or equity rollovers are warranted. Most sub-$3M restoration deals close with SBA 7(a) financing, while larger platform acquisitions often involve earnouts tied to carrier relationship continuity or strategic acquirer all-cash offers. Understanding the mechanics of each structure — and when to use them — is essential for both buyers seeking to protect against undisclosed liabilities and sellers looking to maximize net proceeds from a business they've spent decades building.

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SBA 7(a) Loan with Seller Note

The most common structure for restoration acquisitions under $3M in purchase price. An SBA 7(a) loan covers 80–90% of the acquisition price, a seller note bridges 5–10%, and the buyer contributes 10–15% equity at close. The seller note is typically subordinated to the SBA lender and carries a 5–7% interest rate over a 3–5 year term. This structure is well-suited for restoration businesses with documented EBITDA, clean tax returns, and transferable carrier relationships.

80–90% SBA loan, 5–10% seller note, 10–15% buyer equity

Pros

Allows buyers to acquire established IICRC-certified operations with minimal upfront capital, preserving cash for working capital during the 60–120 day insurance reimbursement cycle
Seller note alignment incentivizes the seller to support a clean transition of insurance adjuster relationships and TPA program memberships
SBA loan terms of up to 10 years reduce monthly debt service, making the deal serviceable even during seasonal or weather-driven revenue fluctuations

Cons

SBA underwriting requires clean, tax-return-verified financials — cash-basis or inconsistently documented restoration revenue can derail approval
Seller note subordination limits sellers' ability to recover quickly if the buyer defaults early in the transition period
SBA process timelines of 60–90 days can be a disadvantage if a competing strategic acquirer offers an all-cash close

Best for: Independent owner-operators selling a $1M–$3M revenue restoration business to an entrepreneurial buyer or small regional operator with trades or insurance industry background using SBA financing for the first time.

Earnout Tied to TPA and Revenue Retention

A portion of the purchase price — typically 15–25% — is deferred and paid out over 24–36 months post-close based on the business retaining specific revenue thresholds, TPA program memberships, or key carrier relationships. This structure is common when the seller's personal relationships with insurance adjusters are central to deal flow, or when revenue quality is difficult to verify due to supplement disputes or inconsistent job costing. Earnouts can be structured as flat milestones (e.g., maintaining preferred vendor status with two major carriers) or as a percentage of revenue above a baseline.

75–85% at close, 15–25% deferred earnout over 24–36 months

Pros

Reduces buyer risk when TPA program transferability is uncertain — earnout payments are contingent on the seller successfully transitioning carrier relationships
Provides sellers with upside participation if the business grows post-close, particularly relevant in catastrophe-prone regions with weather-driven revenue spikes
Bridges valuation gaps between buyer and seller when trailing EBITDA includes one-time catastrophe jobs that inflate historical performance

Cons

Earnout disputes are common in restoration — disagreements over whether revenue shortfalls are caused by the seller's failure to transition relationships or by the buyer's operational changes are difficult to resolve
Sellers may feel incentivized to stay too involved in day-to-day operations to protect earnout payments, creating management conflict during transition
Complex earnout measurement tied to insurance receivables is difficult when billing cycles are long and supplement disputes delay final job revenue recognition

Best for: Deals where the seller has deep personal relationships with insurance adjusters, TPA coordinators, or commercial property managers, and where the buyer needs assurance that those relationships will transfer before paying full price.

Strategic Acquirer All-Cash Deal

National restoration franchise systems (ServPro, Paul Davis) and private equity-backed regional platforms sometimes acquire independent restoration operators for all-cash consideration at close, often at a slight premium to EBITDA multiples available in SBA-financed deals. In exchange, sellers agree to an accelerated close (30–45 days), a robust non-compete covering their geographic territory, and a structured transition period of 90–180 days to hand off carrier relationships, technician management, and estimating workflows. These deals are most common when the seller's business has clean financials, active TPA contracts, and a tenured team that can operate independently.

100% at close, no seller note or earnout

Pros

Sellers receive full liquidity at close with no earnout risk — particularly valuable when the seller is retiring and does not want post-close performance contingencies
Rapid close timelines reduce key employee departure risk during a prolonged sale process — technician retention is critical in certification-heavy restoration labor markets
Strategic acquirers bring immediate brand recognition, national TPA network access, and purchasing scale that can accelerate revenue growth post-close

Cons

Non-compete agreements are typically broad in geography and duration, limiting the seller's ability to re-enter the restoration market or consult for competitors
All-cash strategic deals often come with integration requirements — sellers may need to convert operations to franchise systems, repricing structures, or proprietary job management software
Purchase price may be at or slightly below what a financial buyer using SBA leverage could offer, as the strategic acquirer prices in integration costs and conversion overhead

Best for: Established restoration operators with $2M–$5M revenue, active preferred vendor contracts with major carriers, an IICRC-certified team that operates independently, and a seller seeking clean retirement with no post-close performance obligations.

Equity Rollover with Institutional Buyer

Private equity-backed restoration platforms seeking add-on acquisitions sometimes offer sellers a partial equity rollover — typically 10–30% of deal value — in the acquiring platform rather than full cash at close. The seller receives immediate liquidity on the majority of deal value and retains a minority stake in the combined entity, participating in upside when the platform is ultimately sold or recapitalized. This structure is increasingly common as restoration consolidation accelerates, and is particularly attractive to sellers who believe their business is more valuable as part of a regional platform with shared TPA relationships and back-office infrastructure.

70–90% cash at close, 10–30% equity rollover in acquiring platform

Pros

Sellers participate in platform upside — a second liquidity event at exit can materially exceed the value of taking 100% cash at the initial sale
Equity rollover structures often command higher headline multiples since the buyer's blended cost of capital is lower when the seller retains skin in the game
Sellers who roll equity typically receive more favorable transition terms, including longer employment agreements, cleaner earnout structures, and more operational autonomy

Cons

Rollover equity is illiquid and subject to the platform's performance — if the PE-backed platform underperforms or carries excessive leverage, the seller's rolled equity may return little at exit
Sellers become minority shareholders in an entity they do not control, and platform-level decisions about branding, pricing, and TPA strategy may conflict with their operating philosophy
Tax treatment of rolled equity is complex and requires careful structuring to defer gain recognition — sellers need experienced M&A tax counsel before agreeing to rollover terms

Best for: Restoration operators with $3M–$5M revenue who are open to a multi-year exit horizon, believe in the consolidation thesis for the restoration industry, and want to participate in platform-level value creation rather than taking a clean exit.

Sample Deal Structures

SBA-Financed Acquisition of Owner-Operated Water Mitigation Business

$1,800,000

SBA 7(a) loan: $1,440,000 (80%); Seller note: $180,000 (10%); Buyer equity injection: $180,000 (10%)

SBA loan at prime + 2.75% over 10 years; seller note at 6% interest-only for 12 months, then amortizing over 4 years; seller stays on as a paid consultant for 12 months to transition insurance adjuster relationships and introduce buyer to TPA coordinators at two major carrier programs

Earnout Structure for Restoration Business with High Owner Dependency

$2,400,000 total ($1,920,000 at close, $480,000 earnout)

Cash at close: $1,920,000 (80%); Earnout: $480,000 (20%) paid over 24 months; Funded via SBA 7(a) on the close portion and buyer equity

Earnout of $20,000 per month paid only if trailing 12-month revenue exceeds $2,100,000 AND preferred vendor status with at least one TPA program remains active; seller required to remain employed as Director of Business Development for 24 months post-close at market salary; earnout payments cease and are forfeited if seller violates non-compete or solicits carrier relationships for a competing entity

Strategic Franchise Rollup of Independent Restoration Operator

$3,200,000

100% cash at close; no seller note, no earnout; funded by acquiring franchise platform from existing credit facility

Close in 35 days from LOI execution; seller signs 5-year non-compete covering a 75-mile radius; seller remains on a 6-month paid transition at $12,000 per month to introduce buyer's regional operations manager to carrier contacts, TPA coordinators, and commercial property management accounts; all IICRC certifications, vehicle titles, and equipment inventories transferred at close with no purchase price adjustment unless net receivables deviate more than 10% from schedule provided at LOI

PE Platform Add-On with Equity Rollover

$4,500,000 enterprise value ($3,600,000 cash at close, $900,000 equity rollover)

Cash at close: $3,600,000 (80%); Equity rollover: $900,000 (20%) in acquiring platform at same per-share valuation as platform's last preferred equity round

Seller joins platform as Regional Operations Director with 2-year employment agreement at $140,000 annually; rolled equity subject to 3-year lock-up with tag-along rights on any platform sale; earnout of up to $300,000 additional cash paid if acquired business achieves $1,200,000 EBITDA in year two post-close; non-compete of 4 years covering restoration and mold remediation services within seller's home state

Negotiation Tips for Fire & Water Damage Restoration Deals

1Push for a detailed insurance receivables aging schedule — segmented by carrier, loss type, and days outstanding — before finalizing purchase price. Balances over 90 days with unresolved supplement disputes should be excluded from net working capital targets or specifically written down in the purchase price adjustment mechanism.
2If the seller's TPA program agreements are not formally assignable without carrier consent, structure a portion of the purchase price as a contingent earnout tied to written confirmation of preferred vendor status transfer within 90 days of close — this protects the buyer from paying full price for referral relationships that may not survive the ownership change.
3Request job-level gross margin data for the trailing 24 months segmented by loss type (water mitigation, fire restoration, mold remediation, reconstruction) before making a final offer. Restoration businesses with heavy reliance on single large fire jobs or catastrophe-driven spikes should be valued on normalized, weather-adjusted EBITDA rather than trailing performance.
4In SBA-financed deals, negotiate seller note standby provisions carefully — SBA lenders often require the seller note to be on full standby (no principal or interest payments) for the first 24 months. Sellers should understand this upfront and account for it in their personal cash flow planning post-close.
5Include a technician retention clause in the purchase agreement requiring the seller to use commercially reasonable efforts to retain IICRC-certified technicians and project managers through the close date. Consider a small escrow holdback of $50,000–$100,000 released 90 days post-close conditional on no departure of key certified personnel during the transition period.
6For equity rollover deals with PE platforms, require the seller's legal counsel to obtain and review the platform's most recent audited financials, cap table, and existing debt covenants before finalizing rollover terms. The value of rolled equity is only as good as the platform's balance sheet and exit trajectory — sellers should not accept rollover terms without independent financial due diligence on the acquiring entity.

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Frequently Asked Questions

What EBITDA multiple should I expect to pay for a water and fire damage restoration business?

Most restoration businesses in the $1M–$5M revenue range trade at 3.5x–5.5x EBITDA. The lower end of that range typically applies to owner-dependent businesses with limited TPA program participation, aging equipment, or inconsistent job costing. The upper end is reserved for businesses with active preferred vendor contracts with major carriers like State Farm or Allstate, IICRC-certified teams that operate independently of the owner, and diversified revenue across water, fire, mold, and reconstruction. Strategic acquirers or PE platforms may pay at or slightly above 5.5x for a well-positioned operator in a high-density market.

Can I use an SBA loan to buy a restoration business?

Yes — fire and water damage restoration businesses are fully SBA 7(a) eligible, and most sub-$3M acquisitions in this industry are financed using SBA loans. To qualify, the business typically needs at least two to three years of tax-return-verified financials, demonstrable EBITDA sufficient to cover debt service, and a buyer with relevant industry experience — a background in construction, insurance claims, or property management is viewed favorably by SBA lenders. Cash-basis bookkeeping, unresolved insurance receivables disputes, or significant revenue concentration in a single carrier's referrals can complicate SBA underwriting.

How do earnouts work in restoration business acquisitions?

Earnouts in restoration deals are typically structured as deferred payments contingent on the acquired business retaining specific revenue thresholds or TPA program memberships over a 24–36 month period post-close. For example, a seller might receive 80% of the purchase price at close and the remaining 20% paid monthly over two years only if annual revenue stays above a defined baseline and preferred vendor status with at least one major carrier is maintained. Earnouts are most common when the seller's personal relationships with insurance adjusters are a significant driver of deal flow, and when the buyer needs assurance those relationships will successfully transfer before paying full consideration.

What happens to TPA program contracts when a restoration business is sold?

TPA (third-party administrator) program agreements — which govern a restoration company's preferred vendor status with major insurance carriers — vary widely in their transferability. Some agreements are assignable with carrier notification, some require explicit carrier consent and re-enrollment, and others terminate automatically upon change of ownership. Buyers should request copies of all active TPA agreements and confirm transferability with the carrier's vendor management team during due diligence. If agreements are not clearly assignable, deal structures should include earnout provisions or price adjustment mechanisms tied to confirmed continued participation post-close.

How should working capital be handled in a restoration acquisition?

Working capital is a critical and often contentious issue in restoration deals because of the industry's 60–120 day insurance reimbursement cycle. Most purchase agreements define a normalized working capital target based on trailing average receivables net of aged balances — typically excluding anything over 90 days or with unresolved supplement disputes. If actual working capital at close is below the target, the purchase price is adjusted downward dollar-for-dollar. Buyers should also negotiate for adequate working capital to be included in the transaction, either through the purchase price structure or by ensuring the seller leaves a funded receivables base rather than stripping cash pre-close.

Should I include a non-compete agreement when buying a restoration company?

Yes — a non-compete is essential in restoration acquisitions because the seller's personal relationships with insurance adjusters, carrier representatives, and commercial property managers are often the most valuable assets being transferred. A well-drafted non-compete should cover a geographic radius appropriate to the business's service territory (typically 50–100 miles from the primary market), a duration of 3–5 years, and specific restrictions on soliciting carrier contacts, TPA coordinators, or commercial property management accounts. Non-solicitation of key technicians and project managers should also be included, as departing certified staff can materially erode business value post-close.

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