Hi all,

I've noticed something unexpected while ramping up in the search fund space. I'm surprised by the emphasis on adjusted EBITDA as opposed to adjusted free cash flow.

Cash is king - it's what you pay your expenses with, it's what we're all trying to generate, and it's possible for a business to be highly profitable but cash strapped. Working capital inefficiency can be a hidden cost within EBITDA.

Additionally, ignoring the capex requirements to produce either income or cash flow isn't intuitive. Neither is excluding taxes unless the business is a sole proprietorship.

I understand that capex can by lumpy, but if that's the concern then EBIT would be the focus over EBITDA. If the concern is financing differences pre- and post-acquisition then Unlevered FCF is a good alternative.

Can anyone provide insight into the apparent preference to use adjusted EBITDA rather than adjusted FCF in this space?