Is the SF acquisition rate falling?

The podcast explores why the acquisition rate among SFs has declined over the past decade, falling from an average of ~63% since the model’s inception in the 1980s to around ~57% since 2014. Host Steve Divitkos (Mineola Search Partners) is joined by Jim Edmunds (Search Fund Partners), Badge Stone (WSC), and Kent Weaver (Granite Point Partners)—three highly experienced investors in the search fund ecosystem—to analyze the causes behind this trend and discuss whether the rate may decline further in the coming years.

To structure the discussion, the episode examines 8 key hypotheses, each of which was developed from a survey of over 1,000 searchers and CEOs.

1/ Encroachment: Is PE moving further down market?

The panel discusses whether larger PE firms and institutional capital are increasingly competing with SFs for small business acquisitions. While there is anecdotal evidence of PE firms making more add-on acquisitions for existing portfolio companies, the guests believe this factor alone does not fully explain the declining acquisition rate. Searchers who develop strong industry theses and conduct proprietary outreach are still able to find deals that are not subject to competitive PE bidding.

2/ Capacity: Are investors managing too many searchers at once?

Unlike 15 years ago, when search investors had fewer searchers in their portfolios, today’s investors manage larger numbers of searchers. However, the guests reject the idea that this has negatively impacted acquisition rates. They argue that there are now more resources, mentorship, and institutional knowledge available to searchers than ever before. Instead, they highlight a concern that best practices in search are being diluted, leading to less efficient deal sourcing.

3/ Competition: Are there too many SFs?

The guests acknowledge that searchers are encountering each other more frequently, particularly when pursuing brokered deals and popular investment theses (e.g., HVAC and MedSpa roll-ups). However, they reject the idea that competition has outpaced deal supply, noting that hundreds of thousands of companies in the U.S. fall within the typical SF acquisition range. Instead, they argue that searchers should avoid “herd mentality” by developing unique, independent investment theses.

4/ Dilution of talent and commitment: Has the searcher pool weakened?

With SFs becoming more mainstream, more people are launching searches, some of whom may lack the perseverance and sales skills required for success. The ease of fundraising today contrasts with the past, when raising a search fund required significant effort, filtering out less committed individuals. The guests suggest that while talent remains strong, the barrier to entry has lowered, increasing variability in searcher quality. Additionally, part-time searchers (those searching nights and weekends) may be damaging the SF reputation by failing to close deals, leaving sellers skeptical of the model.

5/ Valuations: Are sellers expecting higher prices?

The panelists discuss whether rising seller expectations are making acquisitions more difficult. While some sectors, particularly software, have seen valuation multiples increase, traditional blue-collar and B2B service businesses continue to trade within historical ranges. The guests emphasize that higher-quality businesses naturally command higher prices, and searchers should not focus solely on low multiples but rather on the overall value and growth potential of an acquisition.

6/ Cost of capital: Are searchers at a disadvantage due to investor return expectations?

Traditional SFs typically target a 35% IRR, whereas many other lower middle-market buyers are comfortable with 20-25% IRRs. This difference can put searchers at a disadvantage in competitive deal processes. However, the guests argue that longer holding periods (6-10 years) can generate outsized returns, and they encourage searchers to discuss MOIC structures with investors rather than focusing exclusively on IRR. They also stress the importance of partnering with flexible investors who understand the long-term nature of business-building.

7/ Searcher fatigue: Are sellers & brokers tired of SFs?

Many sellers and intermediaries now receive dozens of emails from SFs, often with nearly identical messages about “protecting their legacy.” The guests acknowledge that some searchers are struggling to differentiate themselves. They suggest that searchers personalize their outreach by emphasizing their unique background, industry knowledge, and genuine interest in the seller’s business. They also highlight that face-to-face meetings and cold calls remain highly effective ways to build relationships.

8/ Email deliverability: Has email become less effective?

The panel agrees that email response rates have declined significantly in recent years, making it harder to engage with sellers. However, they caution against abandoning email altogether, emphasizing that a multi-channel approach—including cold calls, in-person visits, trade show networking, and industry partnerships—is now more critical than ever.

Key takeaways:

• Searchers should focus on unique investment theses rather than chasing “hot” industries that have already been heavily targeted.
• Search remains a strong model, but perseverance, adaptability, and differentiation are key in the current market.
• A high acquisition rate does not necessarily equal success. Searchers should prioritize acquiring the right business over simply acquiring any business.
• The best searchers leverage multiple sourcing channels and understand that industry research and relationship-building are just as important as volume in outreach.
• Investor selection is critical. Partnering with the right investors, who understand long-term value creation, can significantly impact a searcher’s success.

Overall, the guests remain optimistic about the SF model but emphasize that success today requires more effort, creativity, and persistence than ever before.

If you want to listen to the full podcast: https://mineolasearchpartners.com/2025/02/27/is-the-search-fund-acquisition-rate-falling-with-jim-edmunds-badge-stone-kent-weaver/