How saturated is the search market today?
August 07, 2024
by a searcher from Florida State University - College of Business in Nashville, TN, USA
All of the success stories I've heard of late seem to have one of three common themes:
1) they acquired pre-COVID and received a huge boost from some tangential tailwind
2) they acquired before internet marketing caught on for the small business folks and SAAS services began providing scale support.
3) they found an off-market deal with a lower than average multiple and used the high relative cash flow to fuel growth/acquisition before PE began rolling up smaller businesses.
My question now is that while 1 and 2 are off the table (unlikely black swan and the cat is out of the bag on internet marketing), I'm not so sure on number 3. How saturated is the market today relative to 3-5 years ago on the search side, and are there still good deals to be had out there?
in Houston, TX, USA
I would add that finding a company that can be run without specific industry expertise will likely lead to feeling the market is saturated - things like HVAC, laundromats, car washes, etc. I believe another commenter called it "anything that meets the HBR criteria".
Having specific industry experience or soft skills that could be leveraged well in a specific industry opens up markets that aren't available to most people newer to search. An example of this is one of my search partners has experience in architecture/engineering and is bilingual in Spanish/English. So we've added the language as part of our search criteria. This opens up markets that people who only speak English won't do as well in.
There's always going to be a degree of overlap with PE if the company fits those profiles as well so the sweet spot seems to be finding a company with the kind of problems you're most capable of solving.
I'm admittedly a little biased toward off-market search though it does take longer to find good deals and requires that you do more educating of the seller since there's no broker to do that part.
In my opinion, it's also a masterclass in being a business owner because it's essentially a B2B sales process that also forces you to learn how to think like an owner/CEO in order to acquire a business in the desired timeframe,
If you're not 100% sold on a full search yet, I'd suggest to work as a consultant to solve those kind of problems with the types of businesses you might want to acquire. This will give you an insider's look at what to really expect and help dial in your search criteria while being paid. You can also structure these as CFE deals so you can still build your portfolio while you figure things out.
from Massachusetts Institute of Technology in Boston, MA, USA
It may be that the "tsunami" is delayed because older people are staying employed longer because they are healthier longer, they don't know how to market their companies for sale, they are hoping their kids will take over their family business and that has not played out yet, or any number of other reasons to hang on hoping for a better outcome.
My personal experience (more than 2 decades, co-founder of angel, VC, and self-funded start-ups, advisor/mentor to founders/CEOs) has taught me that no matter how good a company looks on the outside, there is always ample work to be done once you are inside the tent
At the end of the day, I believe you will get the best deals by viewing this as a contact sport and a numbers game. Don't just peruse online forums - get out and meet people. There are organizations in my area that are specifically organized to help family businesses with transition issues...attend some of their gatherings. This sounds morbid, but read the obituaries...if a founder dies you might be able to help the family get liquidity that they would benefit from.
Hopefully, this helps.