How to Buy, Run & Exit a Company Through ETA

Preparation is where you define your search fund model, target industries, and personal financial runway. The 2024 Stanford Search Fund Study shows that 37% of searchers never acquire a company despite a two-year dedicated search. You need to be ready for that outcome.

Work on three fronts simultaneously. Personal: build 18–24 months of living expenses, align with your family, and plan a career bridge if the search fails. Strategic: choose your model (traditional, self-funded, accelerator-backed, or single-sponsor), pick 2–3 industries that match your background, and define your target company size ($1–3M EBITDA for first-time searchers). Network: connect with former searchers, QoE accountants, M&A lawyers, and potential investors before you launch.

A traditional search fund raises $400K–$600K from 10–20 investors. Each investor gets a pro-rata right to co-invest in the eventual acquisition. Your PPM (Private Placement Memorandum) must articulate your industry thesis, deal criteria, search strategy, and fund economics clearly enough for investors to underwrite both you and your approach.

Investor selection matters as much as the capital raised. No single LP should control more than 30% of your fund. Prioritize investors who bring deal flow, sector expertise, and operating experience alongside their capital. Legal setup requires M&A counsel experienced in search fund structures (Delaware LP/LLC in the US, Luxembourg SCSp in Europe). Budget 4–6 months for fundraising, not the 2 months most first-time searchers expect.

Deal sourcing runs through three channels: proprietary outreach (cold emails, calls, and LinkedIn messages to owners), intermediated deals (business brokers and M&A advisors), and referral networks (accountants, lawyers, and wealth managers who advise owners on succession planning).

Specializing in 2–3 sectors significantly improves your conversion rate. Focused searchers develop pattern recognition faster, build stronger broker relationships, and move quicker when the right deal appears. Maintain a pipeline of 50–100 qualified leads at all times. The biggest risk in this phase is deal fatigue: months of near-misses can cloud your judgment when a genuinely good opportunity finally surfaces.

It starts with the Letter of Intent (LOI): purchase price, structure (asset vs. stock), financing contingencies, exclusivity, and working capital peg. Once signed, you run financial, legal, commercial, and operational due diligence in parallel under time pressure.

The Quality of Earnings (QoE) report is your most critical deliverable. It validates or challenges the seller’s EBITDA claims. Financing typically layers senior debt (40–60% of the price, often SBA 7(a) in the US), equity from your investors (30–50%), and a seller note (10–20%). Most deals that die in diligence fail because of surprises in working capital, customer concentration, or undisclosed liabilities, not price disagreements.

The first 100 days set the tone. Conduct a listening tour with every employee, customer, and key supplier before making changes. Quick wins (fixing inefficiencies, addressing employee concerns, upgrading financial reporting) build credibility and buy time for bigger initiatives.

Retention is your number one risk: 47% of employees leave within the first year after an acquisition. Build trust with the inherited team before restructuring. Once stabilized, shift to value creation: pricing optimization, sales team development, new customer channels, and bolt-on acquisitions. Establish a governance rhythm with your board (monthly financials, quarterly meetings, annual strategy reviews). This phase typically lasts 3–7 years, and it determines whether the investment returns 0x or 10x.

Start exit planning 18–24 months before the target event. Four main routes exist: strategic sale (corporate buyer paying a synergy premium), financial sale (PE firm or another search fund), dividend recapitalization (refinance to return capital while keeping the business), or long-term hold (distribute cash flows indefinitely).

Preparing the company for sale means audited financials, a management team that operates independently, documented processes, and a compelling growth story. A competitive auction typically yields 15–30% higher valuations than a negotiated single-buyer deal. Post-exit, distributions follow the waterfall in your operating agreement. Then comes the next question: another search, an investor role, or something entirely new.