The Opportunity
Understanding the company and transaction context
Vertical SaaS — Property Management Software for Mid-Market Landlords
The Situation
What's Happening?
- Apex Partners (middle-market PE firm) is acquiring Summit
- Founder seeking liquidity after 12 years building the business
- Apex sees opportunity to accelerate growth via add-ons
- Transaction requires $175M of debt financing
Why Private Credit?
Deal size ($175M) is ideal for direct lending. Apex wants speed, certainty, and a single lender relationship for future add-on financing.
Business Overview
What Does Summit Do?
- Property management software for mid-market landlords
- Manages rent collection, maintenance requests, accounting
- Mission-critical: Customers can't easily switch once implemented
- Land-and-expand model: customers add modules over time
Why Lenders Like This
95% recurring revenue, high switching costs, and mission-critical software = predictable cash flows ideal for debt service.
Key Insight
Software companies with high recurring revenue are among the most sought-after credits in private lending. The predictable cash flows, high margins, and low capex requirements make them ideal borrowers — even at higher leverage levels.
Financial Performance
Historical results and EBITDA quality analysis
Historical Financial Performance
| $ in millions | 2021A | 2022A | 2023A | LTM | CAGR |
|---|---|---|---|---|---|
| Revenue | $32.0 | $39.5 | $47.2 | $52.0 | 17.5% |
| % Growth | 22% | 23% | 19% | 18% | — |
| Gross Profit | $25.0 | $31.2 | $37.8 | $41.6 | 18.5% |
| % Margin | 78% | 79% | 80% | 80% | — |
| Adj. EBITDA | $10.2 | $13.0 | $16.0 | $18.0 | 20.8% |
| % Margin | 32% | 33% | 34% | 35% | — |
| Capex | ($1.5) | ($1.8) | ($2.1) | ($2.3) | — |
EBITDA Bridge
LTM EBITDA Reconciliation
| Reported EBITDA | $15.2M |
| (+) Founder salary above market | $0.8M |
| (+) One-time legal settlement | $0.5M |
| (+) Transaction costs | $1.2M |
| (+) Public company readiness | $0.3M |
| Adjusted EBITDA | $18.0M |
Lender's View
Add-back Analysis
- Add-back ratio: 18% — within acceptable range (<25%)
- QoE report validated $17.5M as conservative floor
- Founder salary add-back is standard and verifiable
- Transaction costs are clearly one-time
Quality Assessment
Add-backs are reasonable and well-documented. No aggressive synergy assumptions or "run-rate" projections.
Key Insight
EBITDA add-backs are one of the most scrutinized aspects of any credit. Lenders commission Quality of Earnings (QoE) reports to verify that adjustments are legitimate. Add-backs exceeding 25% of EBITDA are a red flag requiring extra diligence.
Deal Structure
Sources & uses, debt terms, and pricing
All-in Yield Calculation
Key Insight
The 10.75% all-in yield compares favorably to investment grade bonds (~5.5%) and broadly syndicated loans (~8-9%). The premium compensates for illiquidity, concentration risk, and the work required to originate and monitor the credit.
Credit Analysis
Leverage profile, covenant cushion, and deleveraging trajectory
Pro Forma Capitalization
| Debt Component | Amount | x EBITDA | Rate |
|---|---|---|---|
| Revolver ($15M capacity) | $0.0M | 0.0x | S+575 |
| Unitranche Term Loan | $175.0M | 9.7x | S+575 |
| Total Debt | $175.0M | 9.7x | — |
| Less: Cash | ($5.0M) | (0.3x) | — |
| Net Debt | $170.0M | 9.4x | — |
Covenant Compliance Tracker
Deleveraging Profile
Deleveraging driven by EBITDA growth (~15% annually) + minimal amortization (1%)
Key Insight
Covenant cushion is the buffer between actual leverage and the covenant threshold. At close, EBITDA can decline ~10% before covenant breach. By Year 3, the cushion grows to allow ~40% EBITDA decline — this trajectory is exactly what lenders want to see.
Risk Assessment
Identifying risks, mitigants, and stress scenarios
Key Risks & Mitigants
Leverage at Close (9.7x)
Mitigant: Rapid EBITDA growth trajectory, 95% recurring revenue, strong FCF conversion, and experienced sponsor with software track record.
Customer Concentration (Top 10 = 18% of Revenue)
Mitigant: No single customer exceeds 3% of revenue. Multi-year contracts with high switching costs. Diversified across geographies.
Competition from Larger Players
Mitigant: Deep vertical expertise in mid-market property management. Purpose-built solution vs. generic enterprise software. Strong NPS scores.
Key Person Risk (Founder Departing)
Mitigant: Strong management team retained with equity rollover. Founder consulting for 12 months post-close. CTO and VP Sales staying.
Downside Scenario: Revenue Growth Slows to 5%
| Metric | Base Case | Stress Case | Delta |
|---|---|---|---|
| Year 3 Revenue | $79M | $60M | (24%) |
| Year 3 EBITDA | $30M | $19M | (37%) |
| Year 3 Leverage | 5.5x | 8.8x | +3.3x |
| Interest Coverage | 2.8x | 1.8x | (1.0x) |
| Covenant Compliance | ✓ Yes | ✓ Yes* | — |
| Free Cash Flow | Positive | Positive | — |
*Assumes covenant step-down delayed via amendment if needed
Key Insight
Even in the stress scenario, Summit generates positive free cash flow and can service its debt. This resilience comes from the high-margin, recurring revenue model. The ability to survive a downturn — not just thrive in good times — is what separates acceptable credits from unacceptable ones.
Investment Decision
Thesis, recommendation, and key takeaways
Why We Like This Deal
- Recurring revenue model: 95% subscription-based, predictable cash flows
- Sticky customers: Mission-critical software with high switching costs
- Attractive sector: Vertical SaaS in fragmented market
- Strong sponsor: Apex Partners has successful software track record
- Deleveraging trajectory: Organic EBITDA growth drives rapid paydown
Key Concerns
- High opening leverage: 9.7x requires execution on growth plan
- Tight initial cushion: Limited room for underperformance in Year 1
- Founder transition: Execution risk during ownership change
Mitigating Factor
The recurring revenue profile and strong retention metrics provide confidence that the base business will perform even during transition.
📋 Investment Committee Recommendation: APPROVE
Conditions to Approval
- ☐ Satisfactory completion of legal due diligence
- ☐ Management reference calls completed
- ☐ Confirmation of 12-month founder consulting agreement
- ☐ Minimum $5M cash at close
The Core Question in Private Credit
As a lender, you don't share in the upside — your job is to protect the downside and ensure you get your money back with interest. The key question is always: "Can this business service its debt through a downturn while still generating positive cash flow?" For Summit, the answer is yes.
What This Case Illustrates
- → Real leverage levels: 9.7x is aggressive but common in software
- → EBITDA add-backs matter: Understanding what's "real" vs. adjusted is critical
- → Recurring revenue commands premium: SaaS can support higher leverage
- → Covenants provide cushion: 7.75x covenant vs. 9.7x actual = ~20% buffer
- → Sponsor matters: Experienced PE sponsors de-risk the credit
- → Stress testing is essential: Model the downside, not just the base case