What Industries Are Best for Search Funds?

Industry selection is one of the most consequential decisions a searcher makes. The Stanford 2024 study shows that the best-performing search funds tend to acquire businesses in industries with specific characteristics: recurring revenue, high switching costs, fragmented competition, and resistance to disruption.

This guide ranks the most popular and successful industries for search fund acquisitions based on historical data, practitioner experience, and structural analysis.

What makes an industry “search fund friendly”?

• Recurring or contractual revenue: Maintenance contracts, subscriptions, retainers, or recurring billing create predictable cash flows and higher valuations
• Low customer concentration: No single customer should represent more than 10-15% of revenue
• Fragmented market: Many small operators with no dominant market leader, creating buy-and-build opportunity
• Non-cyclical demand: Essential services or needs-based spending that doesn’t collapse in recessions
• Low technology disruption risk: Industries where software disruption is a growth lever, not an existential threat
• Succession dynamics: Aging ownership base creating a large pool of motivated sellers (the baby boomer wave)
• Scalable operations: Ability to systematize through technology, processes, and professional management
• Reasonable multiples: Businesses purchasable at 3-6x EBITDA with standard financing structures

Tier 1: The classic search fund industries

1. Business services & B2B services

The most popular search fund category by deal volume. Includes staffing, facilities management, waste management, pest control, janitorial, and outsourced business functions.

• Why it works: Contractual revenue, low capex, scalable, high fragmentation
• Typical multiples: 4-6x EBITDA
• EBITDA margins: 12-25%
• Key risk: Employee-dependent businesses can face retention challenges

2. Software & SaaS

SaaS businesses are increasingly popular search fund targets due to their recurring revenue, high margins, and scalability.

• Why it works: 90%+ gross margins, predictable ARR, high switching costs, strong unit economics
• Typical multiples: 4-8x ARR (higher than other industries)
• EBITDA margins: 20-40%
• Key risk: Technical debt, key developer dependency, competitive threat from larger platforms

3. Healthcare services

Healthcare businesses benefit from non-discretionary demand, aging demographics, and insurance-based revenue.

• Why it works: Recession-proof demand, aging population tailwind, high barriers to entry (licensing), fragmented
• Typical multiples: 4-7x EBITDA
• EBITDA margins: 15-30%
• Key risk: Regulatory complexity, reimbursement rate changes, practitioner dependency
• Sub-sectors: Dental practices, veterinary clinics, home health, behavioral health, specialty clinics

4. Home services & field services

Home services including HVAC, plumbing, electrical, roofing, and landscaping are among the most fragmented industries in the economy.

• Why it works: Essential services, maintenance contracts, huge fragmentation (100K+ operators per trade), ideal for buy-and-build
• Typical multiples: 3-5.5x EBITDA
• EBITDA margins: 10-20%
• Key risk: Technician recruitment and retention (skilled labor shortage)

5. Professional services

Accounting firms, engineering consultancies, IT managed services, and specialty consulting firms. See our professional services playbook.

• Why it works: Relationship-based revenue, high margins, low capex, recurring engagements
• Typical multiples: 4-7x EBITDA (higher for IT/MSP)
• EBITDA margins: 15-30%
• Key risk: Key-person dependency, client relationships tied to the owner

Tier 2: Strong but more specialized

6. Manufacturing (niche)

Niche manufacturing businesses with defensible positions, specialty fabrication, custom components, precision machining, can be excellent search fund targets.

• Why it works: High barriers to entry, long customer relationships, pricing power in niches
• Typical multiples: 3.5-6x EBITDA
• EBITDA margins: 10-20%
• Key risk: Capital intensity, supply chain dependency, cyclicality for some sub-sectors

7. Education & training

Education businesses including test prep, corporate training, vocational schools, and tutoring companies.

• Why it works: Counter-cyclical (enrollment rises in recessions), growing demand for workforce development
• Typical multiples: 3-5x EBITDA
• EBITDA margins: 15-25%
• Key risk: Instructor dependency, regulatory (accreditation), digital disruption

8. E-commerce & D2C brands

E-commerce acquisitions have grown in popularity, particularly Amazon FBA and Shopify-based D2C brands.

• Why it works: Scalable, data-rich, global addressable market
• Typical multiples: 3-5x SDE (lower than traditional industries)
• EBITDA margins: 15-35% (varies widely)
• Key risk: Platform dependency (Amazon can change rules overnight), CAC inflation, low barriers

9. Financial services & insurance

Insurance agencies, wealth management firms, and specialty finance businesses offer exceptional recurring revenue economics.

• Why it works: Renewal-based revenue (85-95% retention), high margins, strong roll-up economics
• Typical multiples: 6-10x EBITDA for insurance (premium sector)
• EBITDA margins: 20-40%
• Key risk: Regulatory licensing, compliance burden, higher multiples reduce entry attractiveness

Industries to approach with caution

• Restaurants & hospitality: Low margins (5-10%), high failure rates, labor-intensive, discretionary spending
• Retail (physical): E-commerce disruption, declining foot traffic, inventory risk
• Construction (general contracting): Project-based (no recurring revenue), highly cyclical, low margins, bonding requirements
• Media & publishing: Structural decline in traditional media, advertising revenue uncertainty
• Commodity manufacturing: Price competition, no differentiation, exposed to imports
• Agriculture: Weather risk, commodity pricing, capital intensive

Industry selection by searcher profile

First-time operator (no industry experience)

Prioritize simple, well-understood industries: business services, home services, or distribution. Avoid highly regulated or technical sectors (healthcare, financial services) where domain expertise is critical.

Technical background

SaaS and IT services use your technical skills and give you an edge in evaluating technology assets, technical debt, and product roadmaps.

Healthcare/legal/finance background

Regulated industries reward domain expertise. Your understanding of compliance, licensing, and industry dynamics is a significant competitive advantage.

The data: what Stanford says

According to the Stanford data across 681 search funds, the most common acquisition industries (by deal count) are:

• Business services: ~25% of acquisitions
• Healthcare: ~15%
• Technology/SaaS: ~12%
• Education: ~8%
• Manufacturing: ~7%
• Other services: ~33%

The highest returns have historically come from technology/SaaS and healthcare acquisitions, though past performance doesn’t guarantee future results. For thorough return analysis, see our search fund returns deep dive.

How to pick your industry

• Start with your thesis: What industries do you know, understand, or find compelling?
• Validate the structural characteristics: Does it check the “search fund friendly” boxes above?
• Check the deal flow: Are there enough businesses for sale in your target geography and size range?
• Assess your competitive advantage: Do you bring relevant experience, relationships, or insights?
• Talk to operators: Reach out to search fund CEOs operating in the industry, they’ll share what surprised them

For a broader overview of the ETA market, see our What is ETA? guide, and for valuation benchmarks by sector, check our EBITDA multiples by industry reference.

Frequently Asked Questions

How important is industry experience when buying a search fund business?

Industry experience is valuable but not required for most Tier 1 sectors. The Stanford data shows that first-time operators without prior industry experience perform well in straightforward industries like business services and home services, where transferable management skills matter more than domain expertise. Regulated industries like healthcare and financial services are the exception, domain knowledge significantly reduces compliance risk and accelerates the lifecycle.

Do certain industries have higher search fund failure rates?

Yes. Industries with project-based revenue, high capital intensity, or secular decline have disproportionately higher failure rates. The Stanford data shows losses are more common in commodity manufacturing, construction, and traditional retail. Our analysis of why search funds fail identifies wrong industry selection as one of the nine most common mistakes. Choosing an industry with structural tailwinds provides a margin of safety that compensates for the first-time-CEO learning curve.

How much do search fund-friendly industries typically cost to acquire?

Tier 1 industries trade at 3-8x EBITDA depending on the sector: home services at 3-5.5x, business services at 4-6x, professional services at 4-7x, healthcare at 4-7x, and SaaS at 4-8x ARR. Our search fund cost guide breaks down the full capital requirements beyond just the purchase multiple, including DD fees, legal costs, and working capital needs.