Current market environment for search

searcher profile

August 20, 2021

by a searcher from University of Pennsylvania - The Wharton School in Toronto, ON, Canada

Hi everyone - prospective searcher here. I'm evaluating the search model in the current market environment in North America and would love some perspective from the community. The overall question I'm trying to assess is around the current market environment for deals.

Seems that there is more capital chasing deals now than 2-3 years ago and the impact of this may be that it is either taking longer to find a deal or more searchers are coming up empty handed than the past Stanford study would suggest. What is the community's perspective? Particularly on the following:

  1. Is there significantly more competition for deals? Where is this competition coming from (mid-market PE firms, strategics, other searchers, etc)?
  2. What has been the impact on valuations?
  3. How long on average is it taking searchers to conclude a search? Has this lengthened during COVID?
  4. Are more searchers coming up empty handed than the previous Stanford study would suggest?
  5. What is the attitude among sellers towards searchers? Any change vs. previous years?
  6. And broadly, is this a good time to start a search?

Appreciate any words of wisdom/thoughts!

1
4
72
Replies
4
commentor profile
Reply by an investor
from University of California, Berkeley in San Francisco Bay Area, CA, USA
It depends on the type of search. Most funded searchers are looking to buy scalable recurring revenue businesses with $1-3M EBITDA. This segment of the market has become very competitive in the past years as more players with committed capital are chasing the same types of deals putting search funds at a competitive disadvantage. Also, the traditional way to source deals by reaching out to a lot of companies has become a lot less effective as everyone has started to do mass outreach using email marketing and calling campaigns. As a result, it is likely that the failure rate of traditional search funds is increasing.

Things are still a lot less competitive on the self funded search side where deals are often in the $300k-1.5M EBITDA range. The failure rate on the self funded side appears to be a lot lower as most self-funded searchers are able to find and acquire a company in less than a year. Self-funded searchers also keep a lot more of the economics and typically have control of the acquired company, which seems to attract more entrepreneurial folks.

I have invested in both funded and self-funded searchers in the past, but have started to focus more on working with self-funded searchers recently because the probability of getting a deal done is significantly higher.
commentor profile
Reply by a searcher
from Harvard University in Toronto, ON, Canada
IMO, the key trend behind the SMB market frenzy; baby boomers retiring hasn't slowed down. In fact, it has been accelerated by Covid as many are now taking a more family/lifestyle oriented approach to life much earlier than they normally would.
commentor profile
+2 more replies.
Join the discussion