Our friends at HoldCoConf put together a fantastic survey recently with data on holding companies and how they operate. Here are a few of our impressions of the results (of course, make sure to check out the full study on their site!)

1) As holdcos grow, they are more likely to hold for 10+ years, are more likely to hire operators, are more likely to pursue larger deals, and tend to have a broader geographic reach. Taken in the aggregate, these trends reflect how holdcos evolve over time.

2) The earliest holdco acquisitions look a lot like most other search funds. For holdcos with less than $10M in annual revenue, about 1/3 of total transaction volume was funded through SBA loans, about half were geographically focused, and about 80% had less than $1M of EBITDA.

When we compare this data to the results of the Search Investment Group Self-Funded Search Study, the early holdco companies were surprisingly smaller:

54% of acquisitions tracked by SIG had < $1M of EBITDA. However, a larger proportion of self-funded searchers used SBA loans.

3) However, holding companies with the longest time horizons tended to have a higher proportion of outside investors (25%) than the remainder of the sample (21%). This suggests that owners were able to find equity providers with aligned interests for a longer-term strategy.

4) holdcos with outside capital were also more likely to pursue safer acquisitions. The survey noted that holdcos with equity investors were less likely (48%) to purchase turnaround deals (aka companies needing substantial help) than the broader population (54%).

5) As holdcos grow, their financing strategy also evolves. Larger holdcos (particularly over the $100M revenue mark) had virtually eliminated the SBA as a financing option, opting for conventional loans instead.

6) Small deals are viable for holdco operators. While other search methods tend to emphasize size as a way to reduce risk in single small business acquisitions, holdcos from the survey were more open to purchasing companies typically considered to be too small for other methods. This is potentially because holdcos build scale and reduce risk through the additive cash flow from multiple acquisitions rather than the strength of one company’s performance.

Just under 25% of holdcos with more than $100M in revenue set their EBITDA minimums at $500K. Additionally, around 10% of the largest holdcos had a minimum acquisition EBITDA of under $250K.

7) Holdco owners from the survey had positive outlooks for their businesses in 2023, with 89% expecting revenue growth and more than 60% projecting revenue growth of more than 10%. When asked about their biggest worries, less than 14% responded with rising interest rates