THE 9 CRITERIA FOR A SEARCH FUND BUSINESS

  1. Recurring Revenue A consistent pattern of repeat business from existing customers Get a customer list and count the names that drop off each year. Max 25% churn per year

  2. Customer Concentration Below 15% per customer

  3. Key Man Risk No business where the sales rely on the personal relationships, identity, or knowledge of the seller A Standard Operating Procedures (SOP) manual greatly reduces this risk

  4. EBITDA Margin Above 15%

  5. Commitment to Sell Find the reason for the sale - some external force

  6. Low CapEx A business that is not capital intensive - tracked by returns on tangible capital Look for after-tax returns on tangible capital of 20% or more

  7. High Barriers to Entry

  8. Low Operational Complexity
    Find companies you could explain what they sell in a sentence.

  9. Growing End Markets Sector is growing long term by 2x GDP

"Secular growth trends that evolve over 3-5 years or longer are the prime drivers of superior, long-term equity returns and that buying companies at attractive valuations helps maximize long-term results." - Will Thorndike


- Bakari Akil, graveshallcap.com



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