The Silver Tsunami: Issue No. 004

Welcome to The Silver Tsunami. Every Thursday: the biggest stories in America and the lore behind them, from two M&A lawyers who paper the deals underneath them. We argue about all of it on our podcast, Main Street Deals. Let's get into it.

The Silver Tsunami is bigger than business buying. It is about the generational transfer of companies, wealth, industries, institutions, and opportunity that is already reshaping America.

But some weeks, one part of that story takes over.

This is one of those weeks.

For the last five years, the conversation around buying small businesses has been dominated by the upside.

Buy a profitable company. Use leverage. Let the business pay down the debt. Build millions of dollars of equity without having to invent something from scratch.

That story is real. But it is only part of the story.

The conversation is finally becoming more complete. Buyers are talking publicly not just about the wins, but about the mistakes, the near-death experiences, the years without distributions, and the very real possibility that the deal does not work.

The past few weeks gave us three unusually candid examples.

One buyer generated sales equal to 10 percent of his purchase price in a single Saturday. Another is approaching 40 after watching his business fail and his family's finances collapse with it. A third has gone three years without paying himself, burned through his savings, borrowed expensive money to survive, and is only now approaching his first truly profitable year.

Together, their stories drew well over a million views.

They are not a dataset, and they do not prove that buying a business is good or bad. But they illustrate something the business-buying conversation has badly needed: a fuller picture of the range of outcomes.

So this issue goes deeper than usual on business buying: why the economics can be extraordinary, where the model breaks, what the research actually tells us, and what buyers can do before closing to give themselves more room for error.

And because this week is about what happens when the deal goes wrong, we are also giving away something we normally keep inside the transaction: a practical buyer's guide to indemnification, including the provisions that determine who bears the loss when what you bought is not what you were promised.

More on that below.

The upside is real.

So is everything between the spreadsheet and the outcome.

The early win. Rob Brooks took over what he describes as a legacy home services business whose revenue had fallen by half over the last few years. When he opened the phones for Saturday service, the business booked, in one day, sales equal to 10 percent of what he paid for the whole company. In his first 12 days it booked more than it had in the prior two months combined. Twelve days is not a verdict, but the instinct is worth noticing: he bought a business with a problem he knew how to fix, at a price that reflected the problem.

The failure. Jed Morris posted a few sentences that drew 379,000 views: two years since his business failed, his family in financial ruin, and 40 years old in 15 days. His story matters for a different reason than the other two. We do not know why the business failed, and pretending otherwise would turn a case study into fan fiction. What his post gives us is not a cause of failure but evidence of its severity: buying with leverage can turn a bad operating outcome into a personal financial catastrophe.

The survival. Charles Miller bought a construction company in 2023 with an SBA 7(a) loan, underwritten as a $3 million revenue business. He says the quality of earnings report and his own diligence missed two things: the seller's second business had been floating most of the cash flow problems, and the company's local reputation was unusable. He rebranded within 95 days. Revenue fell to $1.7 million in 2024. He emptied his savings, borrowed hard money, and later leaned on merchant cash advances. By the end of 2025 he was at $3.65 million with better margins and no cash. This year he is running at about $6 million and expects $1.2 million of EBITDA, his first substantial year. He has not paid himself a cent in three years. His line: "Selling the future to fund the present." This is Charles's account; we have not reviewed the quality of earnings report, purchase agreement, or financial records.

Why people keep doing it anyway. The mechanism is deleveraging, and it is worth seeing with numbers. Take a $5 million purchase of a business earning $1.25 million of EBITDA, with 10 percent down and a 10-year note at 10.5 percent. Hold the value of the business flat and assume zero growth. The buyer's equity is $500,000 at closing, about $1.4 million in year three, and about $2.2 million in year five, because the business itself is paying down the debt. This is not a forecast. It isolates one source of return. In real life, value can fall, earnings can slip, working capital can eat cash, and the $748,000 of annual debt service leaves far less cushion than the EBITDA suggests. That combination of existing cash flow, control, and leverage is what makes buying a business economically unusual. It can create real equity without much growth. It also means small forecasting errors land directly on the buyer's equity.

The base rate. Every story above is one buyer. Here is the closest thing to a denominator. Stanford has tracked traditional search funds for four decades, and its 2026 study reports a 33.9 percent aggregate IRR and 4.75x return across 862 funds, with nearly 60 percent ever acquiring a company. But the returns are carried by a few huge winners: strip out the funds that returned 10x or more and the multiple falls to about 2.8x. And those are institutionally backed searchers buying much larger companies, not every person who buys a small business with an SBA loan. For comparison, BLS data shows roughly half of new business establishments survive five years, and only 34.7 percent of those born in 2013 were still operating ten years later. Neither dataset answers the exact question. We went looking for a clean, apples-to-apples failure rate comparing self-funded acquisitions with startups, and could not find one. Anyone quoting you a precise number is probably mixing populations.

The useful conclusion is not that buying is safe. Buying a business does not eliminate entrepreneurial risk. It changes which risks you are taking. A startup carries formation risk: does anyone want this, and can it ever produce cash? An acquisition buys evidence that those questions have been answered, and replaces them with acquisition risk: were the earnings real, will the customers stay, how dependent was it on the seller, and how much room does the debt leave you to be wrong?

Why it is harder than the spreadsheet. The same week, a widely shared essay made the case for buying businesses and using AI agents to triple EBITDA. The opportunity is real. The sequence is the problem. An acquisition runs Acquire, Stabilize, Grow, Exit, and AI mostly lives in Grow. Before you get there you have to survive Stabilize, where you inherit employees you did not hire, customers you did not win, books you did not keep, and a seller whose institutional knowledge is halfway to the beach. The debt payment is due every month the whole time. AI is a tool. It is not a substitute for competent operations.

The lawyer's read. Charles's story is the one we keep thinking about, because the two things that nearly sank him are the things a deal process is built to catch. We have not seen his documents, so we are not grading anyone. But related-party cash is a diligence item: a properly scoped quality of earnings looks at transfers between the seller's businesses, expenses paid by other entities, and recurring shortfalls. You can get EBITDA right and still get the cash needs badly wrong. Reputation is a diligence item too, especially in construction: litigation searches, reviews, and calls to customers and suppliers. And then there is the question nobody asks until it is too late. If what the seller told you turns out to be false, what can you actually recover? That is the next section.

Where we land. All three of these buyers worked hard. Effort is not what separated them. How much margin for error a buyer has is largely decided before closing: the price relative to the problem, the cash runway, and what the purchase agreement actually says. Buyers who get those right buy themselves time, and time is the thing Charles had just barely enough of. The new SBA rules that start today change some of that math. Kevin walks through them below.

One provision a week, from people who draft them for a living.

This week: indemnification, or, what happens when the seller was wrong.

The representations in a purchase agreement are the seller's statements of fact about the business: the financial statements are accurate, there are no undisclosed liabilities, there are no side arrangements with related companies, no major customer has given notice that it intends to leave. Indemnification is what happens when one of those statements turns out to be false. The core language looks something like this:

"Seller shall indemnify and hold harmless Buyer from and against any and all Losses arising out of or relating to any inaccuracy in or breach of any representation or warranty made by Seller in this Agreement."

That sentence looks complete. It is where the negotiation starts. Four fights decide what it is actually worth.

How long. General representations usually survive for a set period after closing, commonly somewhere around 12 to 24 months in deals our size. Fundamental ones, like ownership of the business and authority to sell it, usually survive much longer. Miss the survival period and the contractual indemnity claim may be gone.

How much before it pays. Most agreements set a basket, a threshold of losses the buyer absorbs before indemnification kicks in. Whether it works like a deductible, or like a tipping point where the seller pays from the first dollar once the threshold is crossed, is real money.

How much at most. A cap limits the seller's total exposure, usually as a percentage of the purchase price for general representations, with carve-outs for fraud and fundamental representations.

Where the money is. The best indemnification right in the world is not the same thing as cash. A buyer fighting to make payroll does not want a three-year lawsuit against a seller who already spent the proceeds. That is why the recovery mechanism matters: escrow, holdback, or an express right of setoff against a seller note.

A caution before you read Charles's story again: documents only cover one kind of risk. A buyer can be sunk by business risk (customers leave, margins compress), underwriting risk (the earnings or working capital were wrong), transition risk (relationships do not transfer), or financing risk (debt service eats the cushion). Indemnification mainly addresses a fifth: a seller's statement turns out to be false and you need to recover. Representations about the financial statements, undisclosed liabilities, and related-party arrangements are the ones that come into play when the cash picture turns out different from the one you bought. Whether they help depends on how these four fights went, and on whether there is money left to reach.

We wrote the whole playbook down. Our new Buyer's Guide to Indemnification walks through every one of these terms, what is typical in deals our size, and where buyers give away protection without realizing it. It is free. Download it before you sign your next LOI, because the headline risk-allocation terms often start getting anchored there.

Kevin, in his own words.

Friendly reminder: the new SBA rules take effect today. If your SBA loan number was issued yesterday or earlier, you are under the old rules, SOP 50 10 8. If it is issued today or after, you are under the new ones, SOP 50 10 8.1. The rule follows the loan number, not the application date.

Here is what matters most for the search community:

At the end of the day, good businesses with good fundamentals at good valuations will keep closing.

One more from Kevin, on deal management. After a long search, the LOI feels like a finish line. It is not. That is when the hard part starts, for buyers and sellers. Diligence begins in earnest, negotiations heat up, and four weeks after everyone high-fived, both sides are quietly wondering whether the other one is stalling, hiding something, or just plain stupid. That dip is normal. Almost every deal I work on follows the same emotional arc. After 500-plus deals, my best advice is to treat the relationship with the other side like the asset it is: over-communicate timelines, assume good intent first, and raise issues early instead of letting silence fill up with worst-case stories. The deals that close are not the ones without friction. They are the ones where both sides keep working through it.

Ray Kroc, the most famous business buyer in American history.

In 1954, Kroc was a 52-year-old milkshake-mixer salesman who drove to San Bernardino to find out why one restaurant kept buying his machines. It belonged to Dick and Mac McDonald, who had built an assembly-line kitchen they called the Speedee Service System. Kroc became their franchising agent. Franchisees paid 1.9 percent of sales, and the brothers kept 0.5 percent of it.

By 1961 the relationship had soured, and Kroc wanted out from under the brothers' control. He asked them to name a price. It was $2.7 million, calculated so each brother walked away with $1 million after taxes. Kroc did not have it, borrowed it, and closed.

Then there is the handshake. The McDonald family has long said that, as part of the buyout, Kroc promised the brothers a continuing half-percent royalty on a handshake and never paid a cent. The family estimates it would be worth $100 million a year. Kroc's side, and several people who have studied the deal, say the promise never existed and the brothers chose cash over the royalty. The movie The Founder tells the family's version.

Here is the part deal lawyers find beautiful.

Sixty-five years later, nobody can conclusively prove what the handshake was. The written deal survived. The unwritten deal became folklore.

That is true of a half-percent royalty. It is true of a seller's promise about a customer, a liability, or the numbers.

If it matters after closing, put it in the agreement.

Now go read The Clause again.

Same question to Grok, ChatGPT, and Claude: Is buying a business a better path to wealth than starting one? One word, then three sentences. Answers are verbatim.

GROK: YES. “Buying an existing business hands you cash flow, customers, and a working model on day one instead of years of zero revenue and product-market-fit risk. Most startups fail; a profitable SMB that already works usually keeps working if the buyer does not wreck operations or overpay. Leverage on proven earnings also compounds wealth faster than bootstrapping something new from scratch.”

CHATGPT: YES. “Buying an established business lets you acquire existing cash flow, customers, employees, systems, and infrastructure instead of spending years proving that a market exists. Acquisition financing can also let you control a valuable asset with relatively little equity while debt repayment converts business cash flow into personal net worth. Starting a business can produce far greater upside, but buying one generally offers a more repeatable and risk-adjusted path to meaningful wealth for operators who acquire well and execute competently.”

CLAUDE: YES. “For most people, buying an established business with proven cash flow carries a lower risk of total failure than starting from zero, and leverage lets a modest equity check control a much larger asset. The catch is that leverage cuts both ways: a bought business can fail faster and more expensively than a startup, as this week's stories show. It is a better path for disciplined operators who buy well, not a better path for everyone.”

No split this week, and that is the problem. All three said yes, but “better” was never defined: better median outcome, lower odds of losing everything, or bigger upside? Ask a vague question and you get a confident answer. Next week we sharpen the question.

Washington has spent years trying to tie federal student aid to what graduates actually earn. Congress just expanded the idea dramatically, and it broke through to the mainstream this week.

The Department of Education's new STATS and Earnings Accountability framework creates a broader earnings test across higher education. Undergraduate programs generally have to outperform an earnings benchmark based on workers with only a high school credential; graduate programs face a bachelor's-degree benchmark. Programs that fail in two of three years can lose access to federal Direct Loans.

The timeline is slower than the headlines suggest. The existing gainful employment rules stay in effect through June 30, 2027, and the new framework replaces them on July 1, 2027, according to the Department. The first loss of loan eligibility is not expected until 2028.

The lender's read. This is underwriting. Every lender we work with asks one question before anything else: can the cash flow from this investment service the debt? The SBA asks it, and as of today it asks harder, on historical earnings only, at 1.25 times coverage. The Department of Education has now started asking a blunter version of the same question. In the same week, two federal lenders moved further toward judging loans on actual results instead of projections.

Where we land. Critics argue the rule is weaker than the standard it replaces; others worry it will hit fields that pay modestly but matter. A median-earnings test is a blunt instrument. We still like the logic, and there is a Silver Tsunami angle nobody is talking about: many certificate programs that train electricians, HVAC techs, and plumbers lead to wages well above the high school baseline, and those are the trades running the businesses millions of owners are about to sell.

A former JPMorgan banker, Chirayu Rana, has sued the bank and a senior colleague, executive director Lorna Hajdini, alleging she coerced him into sex in exchange for career advancement and that the bank tolerated it. This week Hajdini renewed her countersuit in Manhattan federal court, calling the accusations false and part of a "deliberate and sustained scheme" to extract millions, and seeking damages for defamation. JPMorgan separately denied Rana's allegations. Rana's lawyer says he rejects her counterclaims. None of it has been proven, and we are not going to referee it.

The lawyer's read. What makes the countersuit interesting is that defamation claims here are harder than they initially appear. In New York, statements made in a lawsuit that are pertinent to it are generally protected by an absolute privilege, so a claim like Hajdini's has to rest largely on what was said outside the courtroom. And truth, or substantial truth, is a complete defense, which means her countersuit forces the same question his lawsuit does: what actually happened.

Two of the best sports moments of the year happened two days apart, and they are the Wave in different uniforms.

The pedigree. Justin Verlander went second overall to Detroit in the 2004 draft and then did nearly everything a pitcher can do: Rookie of the Year, three Cy Young Awards, an MVP, three no-hitters, two World Series titles, and a Hall of Fame resume. On Saturday he finished where it started, in Detroit, walking off the mound with his seven-year-old daughter. More than 5 million people watched it on Eric's post.

The persistence. Case Keenum was a two-star recruit from West Texas with one scholarship offer. He rewrote the NCAA record book at Houston and went undrafted anyway. Practice squad, cut, claimed, traded, eight franchises, the Minneapolis Miracle, and then 1,009 days without a start. At 38, Chicago called. On Monday Night Football he threw two touchdowns, ran for another, and beat the Eagles 27 to 7, with both his kids watching him play in person for the first time. Then he gave the locker room speech.

Deals reward both kinds. Pedigree can shorten the learning curve. Stubbornness can extend the runway. Neither substitutes for surviving the work in between.

This week on Main Street Deals, we map out the emotional arc of a deal: the LOI high, the diligence dip, and why good transactions fall apart when time drags. The episode is called "Time Kills Deals." Watch on YouTube or listen on Spotify.

See you next Thursday.

Eric and Kevin