Tarantelli's Italian Restaurant$850K Acquisition · Wilmington, NC

This investment memo evaluates the acquisition of Tarantelli's Italian Restaurant, a well-established dining destination located in Wilmington, NC. The asking price for the business is $850,000, with a normalized Seller's Discretionary Earnings (SDE) of $315,890, resulting in an implied multiple of 2.69x.

The Debt Service Coverage Ratio (DSCR) is calculated at 2.84x, significantly exceeding the SBA minimum requirement of 1.25x. The proposed SBA loan amount is $680,000, with an equity injection of $85,000 required from the buyer.

Given the strong financial metrics and operational history, the recommendation is to APPROVE the acquisition with conditions to ensure a smooth transition and operational continuity.

Tarantelli's Italian Restaurant was established in 2016 and has been operational for nearly a decade, signaling strong durability in the competitive restaurant market. The business employs 33 full-time staff members, indicating a robust operational structure that mitigates owner-dependency risks.

The restaurant occupies a 4,818 square foot facility in a prime downtown location, which is not only owned but also features a significant professional build-out valued at over $1 million. The restaurant is not home-based, which allows for scalability and avoids zoning and insurance complications associated with home-based businesses.

The reason for sale is cited as 'Other Business Opportunities,' which, while less compelling than retirement, does not raise immediate red flags. Tarantelli's is recognized as a leading Italian restaurant in Wilmington, attracting both local patrons and tourists, providing a diverse customer base and a strong value proposition.

The financial performance of Tarantelli's Italian Restaurant is robust, with gross revenue reported at $2,949,688 and a normalized SDE of $315,890. The SDE has been normalized without any addbacks, indicating that the stated cash flow is reflective of the business's operational performance.

The implied multiple of 2.69x is classified as 'at median' compared to market benchmarks, where the 25th percentile is 1.8x, the median is 2.3x, and the 75th percentile is 2.8x. This suggests the seller is pricing the business competitively, with some room for negotiation.

The absence of cost-of-goods-sold (COGS) data limits the analysis of gross margin; however, the owner benefit (SDE) represents approximately 10.7% of gross revenue, which is a healthy ratio for the restaurant industry. The financial trajectory appears stable, although revenue growth rates are not disclosed, indicating a need for further due diligence in this area.

The financing structure for this acquisition includes an SBA 7(a) loan of $680,000, with an equity injection of $85,000 from the buyer, representing approximately 10% of the total acquisition cost. The SBA loan will carry an interest rate of 10.75% over a term of 10 years.

The monthly debt service for the SBA portion is calculated at $9,271.03, leading to an annual debt service of $111,252.36. The DSCR is calculated as: Normalized SDE / Total Annual Debt Service = $315,890 / $111,252 = 2.84x.

This significantly exceeds the SBA minimum requirement of 1.25x, indicating a strong capacity to service debt. The equity injection demonstrates that the buyer has meaningful skin in the game, which is favorable for the lender's risk profile.

A detailed scenario analysis has been conducted to assess potential financial performance under varying conditions. In a bear case scenario with a 15% revenue decline, the adjusted SDE would be $268,507, resulting in a DSCR of 2.41x — still comfortably above the SBA minimum.

In the base case, with no revenue adjustment, the DSCR remains strong at 2.84x, with a cash-on-cash return of 240.8% and a payback period of 5 months. In a bull case scenario with a 10% revenue increase, the adjusted SDE would rise to $347,479, leading to a DSCR of 3.12x and a cash-on-cash return of 277.9%, with a payback period of just 4 months.

This analysis indicates that even in a bear case, the business can sustain operations and service its debt, while the bull case presents an attractive investment opportunity with rapid capital recovery.

Tarantelli's Italian Restaurant occupies a strong competitive position within the Wilmington dining market. The restaurant has been consistently voted 'Best Italian Restaurant' for nearly a decade, indicating strong brand presence and customer loyalty. Its location in a rapidly appreciating historic district enhances marketability and growth potential.

The current operational model — limited to dinner service six days a week — presents significant untapped revenue opportunities through the introduction of lunch service, brunch, and expanded private events.

The competitive landscape is favorable, with high demand for quality dining experiences in the area, particularly as local hotel and retail expansions are planned. This positions Tarantelli's well for continued success and market leadership.

Financial Risks: The DSCR is strong, but the business is reliant on consistent revenue generation, which could be impacted by economic downturns or shifts in consumer preferences. Mitigant: implement a diversified marketing strategy and expand service offerings (lunch, brunch, events) to mitigate revenue volatility.

Operational Risks: A high employee count could lead to key-person dependency if seasoned staff leave. Mitigant: establish a comprehensive training program for new hires and cross-train existing staff to reduce dependency on any single employee.

Market Risks: The restaurant industry is subject to economic fluctuations and changing consumer trends. Mitigant: regular market analysis and adaptation of the menu and services to align with consumer preferences.

Deal-Specific Risks: The reason for sale ('Other Business Opportunities') may raise questions about the seller's commitment to the transition. Mitigant: require a detailed transition plan and seller support for a minimum of 90 days post-close.

Based on the comprehensive analysis, the recommendation is to APPROVE the acquisition of Tarantelli's Italian Restaurant. The strong financial metrics, established brand reputation, and significant growth potential present a compelling investment opportunity.

Conditions for approval should include: a 90-day seller transition agreement to ensure operational continuity, verification of accounts receivable aging to assess working capital needs, and lease assignment confirmation for the downtown facility.

The confidence level in this recommendation is high, supported by the business's strong DSCR, established market position, and clear runway for revenue growth via expanded service hours and event programming.