Cody A. Ray
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Three deals, three different outcomes

October 30, 2026

This is the sixth issue of my monthly newsletter, originally sent to subscribers in October 2026.

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Three deals, three outcomes

Recent newsletters have mentioned three potential acquisitions: a 22-unit apartment building outside Chicago, a California cabinetry business, and a regional Northwest countertop fabrication company.

All three were interesting opportunities and made it well past the initial screening stage. But all three had very different outcomes:

This is a good reminder that “deal access” is really just the first step. All three were off-market: one via a recurring broker relationship, one from an introduction made by a different sponsor, and one via cold email to me. After getting access, there’s still a significant amount of diligence work, navigating surprises (which often means renegotiation), and knowing when to keep going … or walk away.

🏢 The 22-unit: Knowing when to walk away

Last month, I wrote about a deal in Melrose Park, IL that was under contract (sort of).

On the surface, it looked promising enough: there was a path to an 8% cash-on-cash return and a projected 15-20% IRR over a 10+ year hold period.

We entered into the diligence period, hired a third-party inspector to complete the property inspection, and were ready to move forward with the deal.

But the seller was being “difficult” from the start. Over the course of the deal, I signed four separate contracts but only received verbal counters.

  1. The first offer was a super lowball offer based on very conservative underwriting and a long time on market with a previous broken deal. The seller didn’t respond. We explored a variety of alternative terms, including a quick-close cash offer. The seller wouldn’t budge.
  2. Our second offer was at the price the seller’s broker told us, which was $250k higher than our original offer; the seller then countered $25k higher.
  3. We could still make it work, taking on a bit more execution risk to achieve acceptable returns. We sent a third offer at the even-higher price.
  4. The seller asked us to complete the property inspection and confirm we wouldn’t re-trade (renegotiate the price) based on inspection results before he would sign the contract. The broker assured us that the building was still off-market and exclusive to us.
  5. We completed the inspection and confirmed that we weren’t going to re-trade, but now the seller wanted to strike the inspection contingency entirely. Although the walk-through looked good, we needed to have the electrical evaluated to see if the deal would make sense depending on the cost of work to meet compliance. The seller refused to sign.

Do you see a pattern? We were repeatedly told we had the deal, but never got a counter-signed contract. The seller was stringing us along the whole time. He was absolutely refusing to budge on anything or leave us with a worthwhile deal.

The broker, perhaps sensing the seller’s reticence, wasn’t exactly driving the deal forward. He did try to assure us there was no pre-purchase closing inspection, so it wouldn’t be flagged by the town for compliance, but I couldn’t find anyone to verify this and it’s a temporary reprieve at best anyway.

Meanwhile, I had engaged a lender, and this was right in the middle of the first rate hike since 2023. I had also engaged my property tax lawyers, who revealed that the property taxes were artificially low with a one-year reduction.

I try to work transparently, so I shared my findings about property taxes with the broker. He told me my tax calculations didn’t look right, until I told him this was directly from my property tax attorneys. (Ironically, the broker did tell us that the seller wasn’t listing his property so that the assessor couldn’t use his list price against him to raise his own taxes.)

To the broker’s credit, at this point he did try to save the deal. But he did so by telling me about a tax program that I already use on every deal (with those same tax attorneys), and which still results in 55% higher taxes than he claimed; plus eligibility for that program requires 1-2 years of work and another $100k+ investment. The broker then continued trying to make this deal look like a “9 cap” (it’s not) by underwriting with the rents to where they may be in 1-2 years. It’s why you never believe broker listings without doing your own due diligence.

Alas, deals are never truly dead. My real estate agent looked up the mortgage and saw that this building has a low-rate loan that is ballooning next year. So the rate environment is working against the seller, the clock is ticking, and I’ll be ready if the seller is willing to be more amenable to a deal in the next year.

Outcome: Walked away before closing. Lesson: No matter how much you want a deal to work, know your line and when to walk away.

🪵 Cali Cabinetry & Millwork: A deal that didn’t make it

Thanks to everyone who responded to the call for co-investors!

Instead of my more-common apartment building investments, this was a minority investment alongside an SMB acquisition sponsor.

The business had meaningful scale: more than $20M in revenue and almost 70 employees. Most of its customers were government contracts and it had a $20M+ backlog of work.

This is disappointing because, if it had closed on the original terms, this deal would’ve been a home run. Although the underwriting was aggressive, the 2.54x EBITDA entry multiple did the heavy lifting. Buying cheaply, depreciating assets, and a fully amortizing loan provides attractive returns without requiring sustained growth.

So what went wrong?

Being in construction, this business requires significant working capital to fund operations. The initial terms included a $2M cash-inclusive working-capital peg. One thing that you hear constantly on Acquiring Minds and similar podcasts is that working capital and “the peg” don’t mean the same thing to buyers and sellers. But it doesn’t really sink in until you see it kill your deal.

From my own perspective, the fact that this $2M didn’t appear in the “sources & uses” of funds should have been an immediate red flag. This was literally my first question on August 29th and (in my biased opinion) this is what killed the deal.

The second reason the deal fell through is that, although the lender had agreed to the terms of the seller note, the seller never fully agreed. This note was supposed to provide the buyer (and investors) with some downside protection; the note was intended to reduce dollar for dollar for post-close EBITDA shortfall. I also asked about the specific mechanics of this note on August 29th.

Looking back, my due diligence questions revolved around these two issues. On September 10th, I signed the non-binding agreement with the caveat that

I still need to continue due diligence … (e.g., the specifics of the seller note and the $2M working capital peg that they’re funding outside of sources & uses somehow)

As an LP backing a sponsor, I mostly “sat back and watched” as the operator did the hard work of due diligence and ironing out these terms. But perhaps, as an active investor, I could have provided more value by pushing back more firmly on these items earlier.

Perhaps asking the sponsor to address these with the seller earlier in the deal could’ve enabled them to find a workable solution. Early on, both the buyer and seller have more energy and appetite; but after months and months have passed, deal fatigue sets in and these lingering issues become deal killers. We’ll never know.

If nothing else, I’ve established credibility with the sponsor. If and when he’s ready to go under contract on another deal, I expect to be one of the first calls.

Outcome: Acquisition did not close. Lesson: Being an LP doesn’t mean you shouldn’t actively push back on potential deal-killers early in the process.

🪨 Northwest Countertops: Closed! … After 5 major changes

I’m the proud new owner of 4.5% of a countertop fabrication business with two locations in the Northwest.

The business has more than $17M in annual revenue and $2M in EBITDA, strong relationships with national homebuilders, significant automated manufacturing capacity, and an exclusive zero-crystalline-silica product (improves workers’ health, and regulations are moving this way). It looks like an attractive platform with strong potential for continued growth.

The terms were exactly what I told you in an earlier newsletter were my favorite: 10% cumulative preferred return and 2x step-up into common equity, with 1x returned to investors prior to common distributions (i.e., where the sponsor makes most of their money).

I started evaluating the deal back in July. My early concerns were housing-market cyclicality, the five-year seller-note balloon, maintenance capex, whether one location was underperforming, and whether the business could withstand a sustained downturn.

What all changed through the process?

  1. Financing changed from Stonehenge Capital (an SBIC) to Pathward (SBA + conventional, pari passu). Better terms, nothing concerning to me personally.
  2. Acquisition Lab Capital (ALC) signed on as anchor investor right after my first call. Coincidentally, the month prior I had signed on for a different deal, ALC joined as an anchor, the financing changed to pari passu, and as a result I lost my allocation (ALC funded the entire, now smaller, deal). So this was a concern.
  3. The QoE required restating financials from cash basis to accrual basis, to better tie expenses to income and demonstrate profitability. As the business grew and negotiated longer supplier payment terms, cash accounting increasingly distorted profitability. EBITDA fell from approximately $2.55M to $2.25M, despite August setting another revenue record.
    • This resulted in the sponsor renegotiating the acquisition from $13.25M to $12M, maintaining the original EBITDA multiple. My ownership increased from 3.8% to 4.17%.
  4. Working capital was a concern. The term sheet called out $500k of working capital, the first model included ~$700k, and the QoE restatement revised the proposed peg to ~$1.8M. As you saw in the business above, this can easily kill a deal.
  5. New quartz tariffs had raised supplier prices 14–23%. Although the business increased prices, some existing contracts locked in older rates, risking margin compression. The sponsor investigated supplier invoices, customer purchase orders, and pricing agreements and renegotiated a second time.
    • This resulted in a second renegotiation down to $11.15M, again not significantly more than the original multiple. He also added a 12-month interest holiday on the seller note to maintain cash flow while absorbing some margin compression. My ownership increased again to 4.49%.

For those keeping score at home, that’s a $2.1M reduction from the original purchase price! Of course, this isn’t “buying cheaper” since it was accompanied by forward-looking EBITDA decreasing from $2.55M to $2.08M, so these were really diligence-driven adjustments to maintain a roughly equivalent pricing and risk level.

This is where I have to pause and really applaud the sponsor. He continued digging into uncomfortable findings rather than rationalizing them away or accepting weaker economics. And he kept his investors informed the entire time.

Still, the deal shows how much can change between an attractive CIM and the actual closing. Historical accounting, working capital, financing terms, and external cost (and political) shocks all materially affected the investment.

As an LP, I participated more actively than I had in some earlier deals, reviewing models, stress-testing assumptions, questioning legal provisions, and pushing for clarity on financing and working capital. But ultimately, the sponsor did the heavy lifting.

Outcome: This is my second (and largest) minority SMB investment! Lesson: Good diligence (and a good sponsor!) can reveal the right price and structure for a deal. The hard part is finding a sponsor that is willing to change course and keep pushing even as facts change, deal fatigue sets in, and closing is imminent.

P.S. If you’re interested in running your own business and want to buy one together (especially if you’re willing to relocate), let’s talk!

👪 Personal updates

📚 What I’ve read recently

What the Happiest Retirees Know: 10 Habits for a Healthy, Secure, and Joyful Life — As an avid reader of personal finance, I just look for one nugget to pick up from each book. For this book, the biggest surprise to me was the heavy praise of dividend income and (almost) total disregard for bonds in retirement. He suggested replacing the typical “percentage in bonds” thinking with “months of living expenses” instead (i.e., if you want 36 or 60 months in bonds). I’ve landed on the same conclusions, so it was nice to see in print.

The reason I picked up the book, though, was the concept of “core pursuits” — activities that generate enough excitement and fulfillment that you actively seek opportunities to repeat them. The author’s research found that happier retirees reported an average of 3.6 core pursuits, compared with 1.9 among less happy retirees. As I’m (very) early in my own semi-retired life, this is something that I’m just starting to focus on.

My final takeaway wasn’t surprising, but stuck with me nonetheless: it is incredibly freeing to be mortgage-free in retirement. (We rent everywhere as digital nomads, alas…) The author does present a “one-third rule” which says that if your mortgage is less than 1/3 of your taxable savings, just pay it off now. I don’t know how this scales for non-traditional-aged retirees, but it would be a great peace of mind regardless.

© 2009–2026 Cody A. Ray
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