Smallest EBITDA size ranges for Search and Independent Sponsors?

July 15, 2025

by a searcher from Columbia University - Columbia Business School in Jacksonville, FL, USA

Perhaps I am overanalyzing, but my Search (me as operator) is usually at $750K and my Independent Sponsor threshold is usually around $2M in EBITDA, $5M if a large capital provider is coming in. However, lately I feel these rigid requirements have left me out of deals that were otherwise pretty solid. If I don't need a salary, these seem like arbitrary floors installed by the "conventional wisdom" of others. Thoughts?

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Reply by a searcher
from University of Chicago in Philadelphia, PA, USA

For independent sponsors, $3mm EBITDA is the primary floor I see, where most SBICs and other capital providers have a hard stop there. A lot also have a floor of $2mm EBITDA, but sometimes this really means $2.5mm+ or often it's a higher bar for these smaller deals. Even fewer go below $2mm EBITDA, but that's very contingent on having all the attributes that make a strong platform (i.e., management team, growth opportunities, systems in place, maybe add-ons). You could go lower and raise equity, but private debt would be hard to come by. For certain businesses, ABL could be an option. Senior debt seems to want $3mm EBITDA+.

Reply by a professional
from University of Illinois at Chicago in Chicago, IL, USA

For platform acquisitions, most independent sponsors don't go below $2M and some won't go below $4M. Searchers fill the space immediately below independent sponsors. For add-ons, there often isn't the same limitation. There are a variety of reasons for this: some of it is based on the sponsor's investment return goals, as Michael noted above. Lenders and most investors (other than friends and family) have EBITDA minimums and minimum check sizes. A lower EBITDA means a lower loan or investment, which can make the transaction too small from a return perspective. Transaction expenses and other fixed costs don't scale as well on smaller deals, so deal expenses as a percentage of the transaction can be much higher. And many of these businesses just aren't developed enough to be worth an independent sponsor's time given that they likely are overly-dependent on the owner, don't have scalable systems or professional management, and may have thin margins leaving little room for error if there is a loss or cutback from a major customer. Of course, there's a of value creation opportunities there, but those need to be weighed against the risks of a meaningful drop in cash flow due to loss or reduction from a major customer. Again, some of these concerns don't necessarily apply to add-ons/roll-ups, since financing can come from the platform, fixed costs can be shared and synergies and the potential for multiple arbitrage otherwise justify the acquisition.

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