Yale Case. By: Daniel Lazier, Jacob Thomas, and A. J. Wasserstein
This Yale case examines the consequences of declining Search Acquisition Rates (SAR) in the ETA and SF ecosystem. SAR refers to the percentage of funded searchers who successfully acquire a company during their search period. Historically, this rate was around 70%, but recent evidence suggests it may have fallen to 40% or even 30%.
The authors argue that a sustained decline in acquisition rates fundamentally changes the economics of ETA for entrepreneurs, GPs, and LPs. Although all participants are negatively affected, the impact is uneven, with LPs and entrepreneurs bearing most of the downside while GPs remain partially protected by fixed management fees.
Why acquisition rates are falling? The paper proposes 5 hypotheses:
- Increased competition among buyers: Searchers now compete with PE firms, independent sponsors, strategic acquirers, self-funded buyers, and other ETA participants.
- Better-informed sellers: Business owners have greater knowledge of valuation multiples and transaction structures, making them less willing to sell at attractive prices.
- A more efficient market: The historical advantages enjoyed by SFs may have reflected temporary market inefficiencies that have largely disappeared.
- An “option mindset”: Because search capital is relatively easy to raise and the downside of failure is limited, more entrepreneurs enter ETA without full commitment.
- Talent bifurcation: Top entrepreneurial talent is increasingly attracted to long-term hold investment vehicles rather than traditional SFs.
Impact on entrepreneurs:
The authors compare ETA with a conventional post-MBA career.
- At a 70% SAR, ETA offers a slightly higher expected financial value than a traditional career.
- Around a 50% SAR, the two options become economically equivalent.
- Below 50%, the expected financial advantage of ETA disappears.
- At 30% SAR, a traditional corporate career becomes financially superior on an expected-value basis.
Although unsuccessful searchers generally recover by returning to conventional careers, lower acquisition probabilities substantially reduce the attractiveness of pursuing ETA solely for financial reasons. Non-financial benefits—such as becoming a CEO, autonomy, and entrepreneurial experience—may still justify the decision for some individuals.
Impact on Investors:
GPs experience lower carried interest because fewer acquisitions are completed and less capital is deployed. However, management fees remain relatively stable since they are charged on committed capital rather than invested capital, partially shielding GPs from declining acquisition rates.
LPs suffer the greatest economic impact because they continue paying management fees even when capital is not fully deployed. As SAR declines, both net returns and capital efficiency deteriorate, making ETA less attractive compared with other private investment opportunities.
The paper discusses several adaptations:
- Entrepreneurs may demand higher compensation or pursue alternative careers such as consulting, startups, or franchising.
- GPs may fund more searches to increase the number of acquisitions, although this only partially offsets lower SARs and may intensify competition.
- LPs may renegotiate fee structures, require greater GP co-investment, invest with higher-performing managers, or reduce exposure to the asset class altogether.
The authors conclude that declining acquisition rates represent a structural challenge rather than a temporary fluctuation. More buyers, more sophisticated sellers, changing market dynamics, and evolving talent allocation have reduced the likelihood that searchers successfully acquire businesses. As a result, the financial attractiveness of ETA has weakened for entrepreneurs and investors alike. Unless compensation structures, investment models, or market conditions adjust, the ETA ecosystem may become smaller, more selective, and less attractive than it was during its earlier period of high acquisition success.
Read the full case in: https://som.yale.edu/sites/default/files/2026-07/The%20Pernicious%20Effects%20of%20Falling%20Acquisition%20Rates%20in%20the%20ETA%20Ecosystem.pdf
