The search thesis
The search · Acquisition Entrepreneur Blueprint
A general intention to acquire a good business does not generate deal flow. Intermediaries cannot act on it, professional contacts cannot make referrals against it, and it provides no basis for screening candidates.
Components of a search thesis
Size, measured by EBITDA. Size is the most significant criterion, since it determines the available financing, the competitive landscape and whether the business can support a professional manager other than the acquirer.
Below approximately $500,000 of EBITDA, a business generally cannot support a salaried general manager, and the acquirer is in effect purchasing employment. Above approximately $5 million, the acquirer competes with private equity firms that have lower financing costs and dedicated deal teams. The range of $1 million to $3 million offers individual acquirers a structural advantage, being below the threshold of most institutional capital and above the financing capacity of most individual buyers.
Geography. The acquirer should state any geographic constraint explicitly. Most owner-operated businesses require the owner's presence during at least the first year after acquisition.
Industry characteristics. Criteria are more useful than named sectors. Suitable criteria include recurring or repeat revenue, fragmented competition, low risk of technological obsolescence, no single customer exceeding 15% of revenue, and operations that a capable general manager can direct.
Circumstances of the owner. The most favourable acquisitions typically arise from retirement, ill health, partner disputes or owner fatigue, in which the owner wishes to sell for reasons unrelated to the performance of the business. A seller whose priority is certainty and continuity is generally a more suitable counterparty than one whose priority is price maximisation.
Exclusion criteria
The thesis should state its exclusions explicitly. Typical exclusions include businesses in which the owner is the principal product, such as a consultancy dependent on one individual's relationships; businesses in structural decline; businesses requiring a licence the acquirer does not hold; businesses in which a single customer exceeds 25% of revenue; and turnaround situations, unless the acquirer has prior turnaround experience.
Summary statement
The thesis should be summarised in a form an intermediary can assess immediately. For example:
Manufacturing and industrial services businesses in Ontario and Québec. EBITDA of $1 million to $3 million. Recurring or repeat customer relationships. Owner intending to retire within twelve months. No customer exceeding 15% of revenue. Able to complete within 90 days with committed financing.
A statement of this kind can be circulated and acted upon; a general statement of intent cannot.
Work this through
Prepare a one-page search thesis addressing each of the components above, including an explicit list of exclusions.
Test it by sending it to three individuals with knowledge of the target industry and asking whether they can identify a specific candidate from it. If they cannot, the thesis requires further refinement.
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