The goal of any search is to find a business to buy and operate. But anyone who has actually conducted a search can tell you that the process is more like a marathon than a sprint. Before you take that first step, you need to know the route that will hopefully lead you to the finish line. Based on conversations with many of our friends in the search community (some of whom have purchased businesses and some who are still searching), we’ve written a high-level guide that walks through the major steps involved in initiating and executing a search.
While the process may vary based on considerations such as whether your search is funded (link to searcher interviews) and how you balance proprietary versus brokerage trade flow, what follows should be relevant for day-to-day trading Good general overview. For most searchers, this is the order of the day until they find an acquisition they want to pursue in depth (we’ll go into more detail in a later post).
1. Build technology stack
The first task is technology stacking. Most crawlers will set up a basic website and enough email addresses to manage workflow and avoid bottlenecks when they are blocked or hampered by the volume of emails they send. Database subscriptions are another consideration when starting a search. There are several primary sources of information about private companies, such as Grata (and Sourcescrub) (subscriptions typically cost $5,000-$10,000 per year.
Searchers looking to explore brokerage deals can also set up accounts on sites like BizBuySell (free). There are also niche brokers that specialize in specific industries or regions, which according to the searchers we interviewed, is often where they are based. We found better deals. Historically, many searchers split approximately 80%-20% of their time between proprietary trading and brokerage trading, but this is ultimately a matter of personal choice. Today, some searchers spend most of their time brokering deals, especially if they are funded and focused on larger goals.
2. Recruit interns
Once the technology stack is determined, it’s time to recruit interns if the searcher plans to use them. This has become a controversial practice because most interns have historically been unpaid students looking to bolster their resumes or earn college credit. But these days, searchers are increasingly paying interns. Posting an ad on a site such as Searchfunder (which may get you hundreds of applications from enthusiastic candidates in just a few days) is a reasonable target number, with one to five interns being a reasonable target number, depending on the searcher’s needs, with more than seven The number of interns is extremely high).
What will an intern do? Typical responsibilities include sorting through libraries or web crawls, flagging companies that meet the criteria as potential targets, and then helping to send initial outreach emails to them. A friend of mine streamlined her search by paying an intern (an MBA student) a slightly higher salary to manage others, which further allowed the searcher to prioritize higher-level tasks.
3. Populate the target list
Any repository subscribed to in the first step becomes the platform used to sort and build a list of potential targets. But if the searcher’s wallet doesn’t allow for subscriptions, there’s always the “old-fashioned” way of compiling a list of potential acquisition targets via LinkedIn, trade association registries, and other free or low-cost sources. Criteria for sifting the wheat from the chaff typically include size, geography, industry, the history of the business, and any other characteristics relevant to the investor’s thesis or desired focus area.
“Setting thoughtful parameters up front is key,” one searcher told me, “although you have to maintain a balance between focusing on the goals that make the most sense for your search while keeping a broad enough net because you know the best you can do is Get a 2-3% response rate from the companies you contact.”
4. Reach out for help
As the list of potential targets continues to grow, it’s time to engage with them. Most searchers do this initially via email, although some also start cold calling early in the campaign. By leveraging automation and artificial intelligence tools, you can easily send 5-10 customized emails to each target on your list over the course of several months. By adjusting the wording, timing, and frequency of contact, you can AB test what gets the best responses and steadily improve your response rates over time.
Here, as with any sales task, it’s important to remember that you’ll often hear “no” (or in many cases just silence). The most successful searchers don’t let this put them off and quickly move on from dissatisfied owners and targets who are not interested in finding others more willing to accept their services.
5. Answer the phone
If you’ve reached this point in your search (and assuming the far end is working well), you’ll start receiving responses to your outreach. Searchers are now focused on communicating with responding businesses to further determine their eligibility.
“Perhaps your most important job,” one searcher told me, “is to learn to say ‘no’ quickly, not only by building a good scorecard, but also by developing an intuition for which deals are worth pursuing and which should be passed up. .”
A scorecard is a checklist of criteria such as profitability, growth rate, ownership structure, business model, and customer mix (and possibly dozens more) that can help searchers determine accurately whether a business is worth pursuing further. A properly constructed scorecard should contain a wealth of information that is not always easy for a cautious business owner or executive to tease out, either because they are hesitant to share the information; Often there is no or no understanding of what the information requires. One searcher told me that even after three calls to a potential target company and a very detailed explanation of the required profit metrics, they still presented the sales figures as profits!
This does highlight one of the benefits of brokerage transactions, which is that brokers will typically collect at least some of this information and can share it immediately once confidentiality measures are in place. Having at least some solid information from day one can make it faster and easier for searchers to determine whether a business is worth digging into, without having to have multiple conversations about the difference between sales and profits.
Watch out for diamonds
It bears repeating that the search is a marathon, not a sprint. It usually takes at least six months, and in many cases 2-3 years, to find a suitable target. It’s a bit like dating. Over time, a cycle develops: adding to the target list, reaching out to each new potential target, following up on responses, and then going back to check on previous companies that may have had a tepid response or no response at all. While there are no hard and fast rules, a good goal is to advance your search to the point of submitting 1-3 IOIs per month and 1-2 LOIs per quarter (for more information, see: Letters of Interest) . Keep in mind that investors (if the searcher has investors) will typically want a report on the progress of the search every quarter or so.
If this sounds overwhelming, remember that your search doesn’t have to be exactly like everyone else’s. How you allocate your time among different activities can vary greatly.One hunter told me the key is to “work smart, not hard. If you have the right tools, you can easily complete most hunts in 20 hours a week.” I might add, work smart Work and Difficulty is not a bad thing, but I definitely agree that there are a lot of opportunities today to use tools like artificial intelligence to streamline workflows (LINK). And more tools like this are being released every month.
Hopefully, as your exploration progresses, magic will eventually happen. From the hundreds or thousands of potential targets your search has parsed, one business will eventually stand out like a polished diamond. That’s what every searcher is working toward (or maybe 20 hours a week turns into 80 hours a week). Once a high-priority target is found, a searcher’s day-to-day work becomes very similar to private equity due diligence—negotiating with management, developing models, arranging financing, and meeting with lawyers and accountants. It’s definitely a chore and we’ll be doing more posts in the future specifically about this critical and high-stress phase. But without getting the daily rhythms discussed above right, that busy and wonderful phase will never arrive…or worse, a less-than-ideal goal will emerge.
Learn more about private equity transactions with ASM’s private equity training courses. ASimpleModel.com’s private equity training courses are developed by industry professionals. The following content goes beyond the leveraged buyout model to explain how private equity professionals find, structure and close deals.
