What is the Smallest Self-Funded Search "Worth" Doing?

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April 23, 2021

by a searcher from Indiana University, Bloomington/Indianapolis - Kelley School of Business in Indianapolis, IN, USA

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Reply by a searcher
from Southern Methodist University in Dallas, TX, USA
I think a lot of searchers embark thinking in terms of getting one deal completed. This is one method but there are other strategies out there. There are several searchers that started with relatively small sized SDE companies under $300k only to acquire multiple unrelated future deals 2-3 years after their first deal. Utilizing SBA debt to acquire these “small” businesses with low multiples and increased deal diversification is whole different approach to the traditional search fund.
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Reply by a searcher
from University of Iowa in Chicago, IL, USA
Not much more I can add to what Alyssa, James & Will have contributed. This is going to be totally dependent on your personal situation (are you married? Do you have children? MBA debt?, etc. all will contribute to needing a higher SDE range) and the deal dynamics (Raising significant outside equity? Wanting to avoid a PG? Then you should probably go bigger on the SDE to make the equity structure enticing enough for you to do the deal).

As a rule of thumb, anything under $250-$300K is going to be very tough to pull off financially in my personal experience of looking at such deals (assuming 10% down on SBA. Minimal to no outside equity). $400-$500K definitely doable with minimal family / financial obligations. But as James said. I think $750K - $1MM is a solid sweet spot to account for likely lower-than-actual SDE that diligence will uncover anyway. Gives yourself some breathing room to earn a healthy salary right from the get-go. However, as Will alludes to, the real dollars are in the equity upside not the initial comp...Hope this helps!
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