On the first few months of searching

Since forming Rettig Partners a few months ago, I have learned more about Entrepreneurship Through Acquisition, or “ETA”, than I could have possibly imagined. Podcasts, books and networking certainly gave me solid exposure to it, but nothing compares to taking the leap and doing it. I’ve spoken to dozens of business owners, brokers, searchers and lenders and I’ve seen firsthand just how rewarding and brutally difficult this path is. Because so many people have reached out looking to learn more about this path, I figured I’d share a some of the many things I’ve learned in my first few months searching, given how difficult it is to jump on the phone with every single person who reaches out (as much as I want to). I am far from an expert on the topic, as I have yet to transact! For those in the space already, these might be obvious facts, but for those looking to get into ETA, I hope this is helpful.

• Brokers are a necessary component of search, and you’ll need to learn how to work with them. I have certainly come across some great brokers, but for those used to dealing with traditional investment bankers, be prepared for a different work style. Find the talented brokers and build relationships with them. You won’t get exclusive access to deals, because it’s their job to market deals far and wide and to get the highest possible price for the seller. However, if you can prove you’re a credible buyer who won’t waste their time, you’ll be on their radar and will see plenty of actionable opportunities. The key to working with brokers is twofold: first, it’s having a clear sense of what you’re looking for and being able to articulate it (this can always change); second, it’s about being able to get them a “no” quickly while providing them with helpful feedback. Their time is valuable and they only make money if there’s a transaction, so keep that in mind if you are just kicking the tires on a deal you’ll never act on. If you do waste their time with dozens of questions when you have no intention of moving forward (which many searchers do), they’ll be less responsive in the future, which is not good if you’re trying to keep the deal flow coming.
• Private equity and strategic buyers are dipping as low as $500k in EBITDA/SDE for the right businesses, so be prepared to compete with them on hot deals. This is especially true in home services and trades, where many PE funds have existing platforms that can be leveraged to fill in the gap left by a departing owner of a smaller company. Anything above $1M in EBITDA/SDE will have even fiercer competition.
• Having the right story is important for the owners who don’t want to sell to private equity. This is particularly relevant in direct transactions. Many sellers are skeptical of private equity and fearful that their businesses will be dismantled by a purely financial buyer. (Not all private equity funds do this, of course, but these are the broad concerns I hear from business owners). They care deeply about their people and customers, and it is important to keep in mind that the company you’re interested in purchasing if usually their life’s work. As a searcher, it is your job to assuage these fears and ensure the business owner can distinguish you from a private equity fund. What is the value you bring to the table, and why should this business owner spend any time talking to you? What is it about their business that interests you specifically? Make sure you’re clear on those answers because otherwise you won’t make it past the first phone call with a potential seller. My website helps me articulate this clearly.
• Have a strong filter for difficult sellers. It’s important to view this relationship as collaborative, as if you’re sitting on the same side of the table. You’ll need their help in a big way when you transition the business, so the way they act during the early conversations is an important indicator of what’s to come. This is a fantastic filtering mechanism for searchers — if you find yourself having a difficult time working with the seller right off the bat, it’ll only get harder as you negotiate and purchase their business. I’ve heard several stories where even in the perfect transaction on paper, the toughest stumbling block was a challenging working relationship with the seller.
• Direct outbound via email is a numbers game, and it’s largely a waste of time for self-funded searchers. It’s perfectly ok to do it, but figure out how to do so without wasting too much of your time manually crafting emails. There are plenty of systems out there to manage low-cost, automated email campaigns. Utilize this method, but know the ROI is low.
• Cold-calling is the most effective form of direct outreach to business owners. If you have sales experience, now’s the time to use it. Having a two sentence elevator pitch is essential if you’re jumping on the phone and calling busy business owners unsolicited. Be prepared to get a lot of “no’s”, with the understanding that a “no” is better than no answer at all.
• If you’re searching geographically, you shouldn’t also have a rigid industry preference. I am a geographic, self-funded searcher, so I have to continue to remain flexible on the industry of my target company. This game is about getting shots on goal, and if you narrow your criteria too quickly, you won’t have enough deal flow. I’ve been playing around with the three key levers of search (size, industry, geography) to see how altering my strike zone changes the number and quality of deals I’m seeing.
• Search is incredibly personal. No one will have the right answers to your questions because this path is one in which no two searches are the same. Should you raise a traditional search fund, enter an accelerator, or do a self-funded search? What are your skills? What are you interested in? Where are you willing to move? As you network around the industry to learn about the various paths, you have to be good at taking what people say at face value and distilling it down to the things that matter for you. I have many mentors in this space who have been incredibly helpful, but that doesn’t mean they know exactly what’s right for me.
• When working with a seller directly, make sure you set pricing expectations up front. Even if it’s a valuation range, the worst possible thing you can do is waste a lot of time with a seller who isn’t going to be realistic about price. I learned this one the hard way. The same goes for things like working capital pegs — it’s best to discuss these things earlier rather than later. It’s often an educational process for a seller who has never sold a business before. The worst thing that could happen to you as a searcher would be wasting time with a seller who has unrealistic expectations. I’ve heard stories of buyers getting to the closing table and having a situation where both the buyer and the seller are expecting to keep the cash and any accounts receivable to be collected. Make sure you get ahead of things like this as quickly as possible.
• Many sellers are being instructed by business brokers to hold onto their businesses for another year or two, with the hopes that rates stabilizing so they can command higher prices. I heard this directly from multiple brokers who advised their clients to do this. This is unfortunate, but hopefully not something that persists, as it’s an incredibly risky move for a seller who actually wants to exit.
• Avoid overly complicated businesses that you can’t wrap your head around. If you’re reading a CIM for a company and can’t even comprehend what they do — move on, even if the numbers are appealing.
• As you review a CIM and speak with the broker or business owner, try to imagine yourself in the day-to-day leading that company. It sounds obvious, but it’s easy to forget that this won’t just be an investment — you’ll be stepping into the owner’s shoes. Are you interested in the life they live? Ask them how much vacation they take, and what time they arrive and leave the office each day. Do they have an office, or are they 100% remote? Figure out if the owner is a master delegator, or if they bear the burden of three jobs themselves. I’ve seen businesses where the seller simply sign checks for an hour then leaves, and I’ve also seen businesses where the seller wears ten different hats and holds the entire operation together. It’s important to get a sense of the job you’re buying, not just the business you’re going to own.
• Most importantly, be authentic and likeable — it goes a long way. What separates you from every other fund and searcher out there is YOU. The deals I’ve advanced the furthest with thus far were ones where I developed a meaningful connection with the seller. Maybe they see a younger version of themselves in you, or maybe they just feel comfortable with you taking the baton and running their business for the next several years without running it into the ground.

Overall, I’m optimistic about this path yet acutely aware of how brutally difficult it will be… not only to acquire a business, but to then run it successfully! I have an immense level of respect for anyone who has been able to do it, especially those self-funded searchers who took on the risk of a personally-guaranteed SBA loan. Hoping I can get there sooner rather than later.

Happy hunting,

Evan

P.S. I’d always appreciate introductions to potential acquisition targets or brokers and other intermediaries (primarily targeting $750K-$2M+ of SDE or EBITDA, located in New Jersey, New York or the greater Philadelphia area)