Search Fund Economics for Canada vs. United States

March 03, 2025

by a searcher from Ivey Business School at Western University in Toronto, ON, Canada

Can anyone share any insights on searcher economics and terms when capital is raised from US investors compared to Canadian investors? What have people seen on the economics when the searcher has prior operating experience with a successful exit?

1 Like

12 Replies

134 Views

Replies

Reply by a searcher
from University of Chicago in Vancouver, BC, Canada

Just to add a bit more flavor: any situation where the leverage is lower will require equity investors to get a higher step-up to get to reasonable, projected multiples for the investor on exit. It's certainly possible (and we hear of outlier deals) where the SBA lender will cover 90% at a reasonable interest rate, but the bulk of the U.S. deals I look at that eventually close typically max out at 80% of the purchase price coming from the bank. This percentage is also about the percentage of the purchase that's a loan on a workable Canadian deal, it's just that the seller financing is higher (and the lower portion lent by the bank is at a reasonable interest rate). So, the inherent cost of capital subsidy via SBA 7(a) doesn't fully explain the large premium that investors receive on Canadian deals.

Reply by a professional
from Bishop's University in Moncton, NB, Canada

The deals are different. In self-funded deals in the US, there is an inherent cost of capital subsidy via the SBA 7(a) program. ie whether you borrow 50% or 90%, the interest cost is the same.

In Canada, you typically need more equity and would negotiate a bigger seller financing. This means that offering your investors the typical 'step ups' that we see in US deals would be more problematic for the searcher.

So if you're going to do a deal in Canada, learn the 'tools' that you read about online from US deals and then build your investor list and find the acquisition. Then you need to figure out what kind of investment offer you can sell to the investors that they'll be happy about.

Good luck.

+10 more replies.

Join the discussion