Search Fund Landscape in the United States: Are There Enough Prospective Acquisition Targets?

Search Fund Landscape in the United States: Are There Enough Prospective Acquisition Targets?

January 15, 2024

Are there enough prospective acquisition targets in the U.S., given the number of traditional and self-funded searches in the market?

The number of traditional search funds has been increasing globally. A study from Stanford Graduate School of Business noted a growing interest in search funds, particularly in the U.S., which has been the epicenter of this investment model. However, exact numbers can vary year by year.

Self-funded searches are less formally tracked, making their precise numbers harder to pinpoint. Yet, the trend towards entrepreneurship through acquisition (ETA), including self-funded searches, has been on the rise as more individuals look to business ownership as a career path.

Private Companies in the U.S. with EBITDA of $1 Million to $3 Million

The number of private companies in the U.S. falls into a wide range, with millions of businesses operating across all sectors. However, companies with EBITDA (earnings before interest, taxes, depreciation, and amortization) between $1 million and $3 million are typically considered small to mid-sized businesses. The exact number of such companies is difficult to determine without access to a comprehensive database of business financials.

Scale and Market Size

The market for traditional and self-funded search funds, while growing, is still relatively niche compared to the overall number of private companies in the U.S. with EBITDA of $1 million to $3 million. The target market for these search funds is ample, given the millions of private companies in operation, but search funds are selective, typically looking for businesses with strong cash flows, stable market positions, and potential for growth under new management.

Market Dynamics

The competition for quality acquisition targets in the $1 million to $3 million EBITDA range is significant, not only from search funds but also from private equity firms, strategic buyers, and other individual investors. This competition can drive up prices and make the search and acquisition process more challenging.

In summary, while the exact numbers are difficult to pin down without current, specific data, it’s clear that the number of traditional search funds and self-funded searches is much smaller than the pool of potential acquisition targets in the U.S. However, the competitive landscape for acquiring companies within the desired EBITDA range is intense, reflecting a robust market for small to mid-sized business transactions. This analysis underscores the importance of thorough search and due diligence processes for search fund entrepreneurs.

About 2/3 of ETA Equity searchers buy a company within 24 months of searching. Contact ETA Equity by emailing to learn more about how we assist search funds throughout the search process.