How to Build a Better Search Thesis

A search thesis is your strategic blueprint in business acquisitions, focusing your efforts and allowing you to build strategic networks in support of your goal. A strong thesis integrates industry, geographical preferences, financial targets, and operational strategies into a set of coherent narratives. 

While simply jumping into the market might seem tempting, dedicating time to crafting a solid thesis can represent the difference between a successful acquisition and a lot of wasted effort. Buyers with a defined thesis that clearly explains what they’re looking for and why appear more serious and professional in the eyes of brokers, investors, and sellers, opening doors to relationships that may have been otherwise closed. This article will explore the creation of a search thesis and how you can get the most out of it.

Put Yourself in Broker’s (or Seller’s or Investor’s) Shoes

Consider two hypothetical scenarios.

Scenario 1: Adam, a searcher, approaches a broker with these statements:

  • “I’m industry agnostic but am looking for a company with more than $1M EBITDA and a diverse customer base.”
  • “I worked at McKinsey. My number one priority is to preserve the seller’s legacy.”
  • “I’m going the SBA route and will raise funds for my down payment. Here’s a letter of support from my bank.”

Scenario 2: Beatrice, a searcher whose approach is built on the same basic framework as Adam’s, approaches the same broker with a much tighter thesis:

  • “As a healthcare professional with a forward-looking opinion about regional demographics, I’m looking to buy a home health agency.”
  • “I may not be able to beat an offer from a private equity (PE) firm, but here are my plans to structure the transaction to maximize your cash at close.”
  • “I’ll use a hybrid of SBA debt, seller financing, and equity I have already raised. Here’s my proof of funds.”

Which searcher is more likely to see success?

Advantages of a Good Search Thesis

Before we provide the answer to this question, let’s explore why a thesis is an indispensable tool in a searcher’s arsenal. A well-planned search thesis offers multiple benefits:

  • It gives a clear direction, helping you avoid unsuitable opportunities.
  • It facilitates communication of your goals, distinguishing you from less serious searchers.
  • It builds credibility by showcasing your in-depth understanding of the market.
  • Brokers often favor searchers with clear, well-articulated theses as they streamline the seller matching process.
  • Sellers are assured they’re dealing with serious, well-prepared buyers.

Given this information, the answer to the question likely seems obvious: If you thought Beatrice’s pitch was better, you’re correct!

Her specific, industry-aligned thesis makes her a more appealing candidate to a seasoned broker. She steers clear of clichés like “preserve your legacy,” focusing on her financial edge and being transparent about how she’s orchestrating the transaction. Her pitch demonstrates to her counterparty that she is ready to transact. It clarifies her area of expertise, allowing brokers, sellers, and investors to provide highly specific and targeted help if they can, and pass quickly if they cannot. In this way, Beatrice will receive more useful assistance more quickly than Adam, whose pitch largely consists of generalizations and platitudes. 

In the current landscape, there are many frustrated searchers like Adam, who zero in on a specific-sized deal instead of focusing on fundamentals such as deal structure, industry and geography – elements that truly make a searcher stand out. In a marketplace where sellers and brokers get a lot of attention from potential buyers, it can get quite challenging to aim for top-quality deals without offering a compelling “why.”

Notably, searchers do not need to have a single thesis to be successful. However, even searchers that are relatively industry-agnostic can improve their odds by crafting multiple messages and delivering the one that is most relevant to the broker and seller in front of them. For example, if you’re an industry-agnostic searcher thinking about home services or technology companies, craft separate pitches that allow you to appear as “Adam the focused home services searcher” to corresponding brokers and “Adam the focused technology searcher” to others. At Private Market Labs, this is one reason we allow buyers to craft multiple separate searches with unique profiles!

How to Approach Your Search Thesis

It all starts with developing and communicating your focus. This should come from a solid understanding of your strengths and articulate your priority industries or sectors to brokers and sellers.

Consider leveraging a Private Placement Memorandum (PPM) as a foundation. It offers a transparent view of the search fund’s financial structure, terms, and risk assessment, which is instrumental in building trust and confidence with investors. Moreover, it should be clearly communicated to brokers and sellers to convey the searcher’s financial backing and strategic intent.

However, while a search thesis is essential, it should not become a constraint. The SMB market has matured, and most searchers have a thesis today. What sets them apart is a nuanced and flexible approach to it. Adaptability allows you to pivot as market conditions change or new information becomes available. For example, consider the overall strength of a business over strict financial benchmarks. A robust business with slightly less than $1M EBITDA might still be the right fit – don’t dismiss it based solely on initial criteria.

A thesis-driven, industry-focused search can serve as a powerful differentiator. Conducting a deep, thorough analysis within a specific industry boosts your credibility and increases the likelihood of forging meaningful connections with business sellers. The combination of personal enthusiasm and professional understanding enables the searcher to ask insightful questions and showcase a genuine interest in the seller’s business. 

In Conclusion 

Crafting the ideal search thesis is both an art and a science. The most successful searchers blend a methodical approach grounded in personal experience and robust market knowledge with a relentless curiosity and openness to new possibilities. This balanced mix of insight and flexibility is the key to making the most out of your SMB acquisition journey.

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