ETA Glossary

A comprehensive dictionary of search fund and acquisition terminology — 62 terms defined.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Acquisition Financing: The combination of debt and equity used to fund a business acquisition. Typical search fund capital stacks include senior debt (50-60%), equity (30-40%), and seller financing (10-20%). Learn more →
Add-On Acquisition: A smaller, complementary acquisition made after the initial platform purchase to accelerate growth, expand geographic reach, or add capabilities. Also called bolt-on acquisition. Learn more →
Adjusted EBITDA: EBITDA modified to reflect the true recurring earnings of a business by removing one-time expenses, owner perks, above-market compensation, and non-recurring revenue or costs. Learn more →
ARR (Annual Recurring Revenue): The annualized value of recurring subscription or contract revenue. A key metric for SaaS and subscription business valuation, typically valued at 3-10x ARR depending on growth and retention. Learn more →
Asset Purchase: An acquisition structure where the buyer purchases specific assets and liabilities rather than the corporate entity itself. Offers tax advantages through asset step-up but may require consent for contract transfers.

B

Book of Business: The portfolio of client accounts and associated revenue in a financial services or insurance business. Valued based on renewal rates, commission structures, and client demographics. Learn more →
Buy-and-Build: A growth strategy where a search fund CEO acquires additional companies after the initial platform acquisition to create scale, expand capabilities, and drive multiple arbitrage. Learn more →

C

CAC (Customer Acquisition Cost): The total cost of acquiring a new customer, including marketing, sales, and onboarding expenses. A critical metric for e-commerce and SaaS due diligence. Learn more →
Cap Table: A capitalization table showing the ownership structure of a company, including shares outstanding, investor holdings, option pools, and dilution scenarios. Essential for understanding search fund economics. Learn more →
Cash Conversion Cycle (CCC): The number of days it takes to convert inventory and other resource investments into cash flows from sales. Calculated as DSO + DIO – DPO. Lower is better. Learn more →
Client Concentration: The degree to which a business depends on a small number of customers for its revenue. A red flag when any single customer represents more than 15-20% of revenue. Learn more →
Contingent Consideration: A portion of the purchase price that depends on future performance metrics being achieved. Includes earn-outs, milestone payments, and performance-based adjustments. Learn more →

D

DCF (Discounted Cash Flow): A valuation method that estimates the present value of future cash flows using a discount rate. Less commonly used for SME acquisitions due to projection uncertainty but standard in larger deals. Learn more →
Deal Flow: The pipeline of potential acquisition opportunities a searcher evaluates. Typical search funds review 100-200 opportunities to close 1 acquisition. Learn more →
DIO (Days Inventory Outstanding): The average number of days a company holds inventory before selling it. Part of the cash conversion cycle calculation. Learn more →
DPO (Days Payable Outstanding): The average number of days a company takes to pay its suppliers. Extending DPO (within reason) improves working capital. Learn more →
DSO (Days Sales Outstanding): The average number of days to collect payment after a sale. Reducing DSO is one of the quickest working capital improvements a new CEO can make. Learn more →
Due Diligence: The comprehensive investigation of a target business before acquisition, covering financial, legal, operational, commercial, and environmental aspects. Typically takes 60-90 days. Learn more →
Dutreil Pact: A French tax mechanism that can reduce inheritance and gift taxes by up to 75% on business transfers, provided the business is held for a minimum period. Important for structuring French acquisitions. Learn more →

E

Earn-Out: A contractual provision where a portion of the purchase price is paid based on the business achieving specified financial targets post-closing. Used to bridge valuation gaps between buyer and seller. Learn more →
EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. The standard profitability metric for SME valuation. Search fund targets typically have $1-5M EBITDA. Learn more →
EIS (Enterprise Investment Scheme): A UK tax relief program offering investors 30% income tax relief on investments up to £1M in qualifying small companies. Relevant for UK search fund structures. Learn more →
Enterprise Value (EV): The total value of a business, calculated as equity value plus net debt. Search fund acquisitions typically range from $2-30M enterprise value.
ETA (Entrepreneurship Through Acquisition): The process of acquiring an existing business to run as CEO, rather than starting one from scratch. Encompasses search funds, self-funded searches, and independent sponsors. Learn more →
Exclusivity Period: A binding clause in an LOI that prevents the seller from negotiating with other buyers for a specified period (typically 60-90 days). Critical for protecting the buyer’s due diligence investment. Learn more →

G

GAP (Garantie d’Actif et de Passif): The French equivalent of representations and warranties in an acquisition agreement. Protects the buyer against undisclosed liabilities discovered after closing. Learn more →
GmbH: Gesellschaft mit beschränkter Haftung — the German limited liability company form, equivalent to an LLC. The most common structure for SME acquisitions in Germany, Austria, and Switzerland. Learn more →

H

Holdback: A portion of the purchase price (typically 5-15%) retained by the buyer in escrow for a set period to cover potential post-closing adjustments or indemnification claims.

I

Independent Sponsor: An acquisition entrepreneur who identifies and negotiates deals before raising capital on a deal-by-deal basis. Similar to self-funded search but with different economics.
Integration Fiscale: A French tax consolidation regime allowing a holding company to offset the interest on acquisition debt against the operating company’s taxable income. A key structuring tool in French ETA. Learn more →
IRR (Internal Rate of Return): The annualized return on an investment accounting for the timing of cash flows. Search funds have historically delivered ~35% aggregate IRR according to Stanford studies. Learn more →

K

Key-Person Risk: The risk that a business’s value is heavily dependent on one or a few individuals (often the founder). A critical due diligence item, especially in professional services. Learn more →
KfW: Kreditanstalt für Wiederaufbau — Germany’s state-owned development bank. Offers favorable lending programs for SME acquisitions including ERP-Gründerkredit and ERP-Kapital für Gründung. Learn more →

L

LOI (Letter of Intent): A preliminary agreement outlining the key terms of an acquisition before due diligence begins. Typically non-binding except for exclusivity and confidentiality clauses. Learn more →
LTV (Lifetime Value): The total revenue or profit a business expects to generate from a customer over the entire relationship. LTV/CAC ratio above 3x is generally considered healthy. Learn more →

M

Management Buyout (MBO): An acquisition where the existing management team purchases the business, often used as an exit strategy for search fund CEOs or as a succession solution for retiring owners. Learn more →
Mittelstand: German term for the small and medium-sized enterprises that form the backbone of the German economy. Often family-owned, highly specialized, and export-oriented world-market leaders. Learn more →
Multiple Arbitrage: The strategy of buying a business at a lower EBITDA multiple and selling at a higher one, often achieved through scale (buy-and-build), professionalization, or market repositioning. Learn more →

N

Nachfolge: German term for business succession. Germany faces a massive Nachfolge crisis with ~190,000 businesses needing successors, creating significant opportunities for ETA. Learn more →
NDA (Non-Disclosure Agreement): A confidentiality agreement signed before receiving detailed information about a target business. A standard first step in the deal process.
Net Revenue Retention (NRR): The percentage of recurring revenue retained from existing customers including expansion, contraction, and churn. NRR above 110% indicates strong product-market fit in SaaS. Learn more →

P

PPM (Private Placement Memorandum): A legal document provided to prospective investors in a search fund, describing the investment opportunity, risks, terms, and the searcher’s background. Required for SEC compliance in the US. Learn more →

Q

QSBS (Qualified Small Business Stock): A US tax provision (Section 1202) allowing exclusion of up to 100% of capital gains on qualifying stock held for 5+ years. Can eliminate federal taxes on search fund exits. Learn more →
QoE (Quality of Earnings): An independent financial analysis that validates a target’s adjusted EBITDA, identifies risks, and evaluates the sustainability and quality of its earnings. Typically costs $20-60K. Learn more →

R

Reps & Warranties: Statements of fact made by the seller in the purchase agreement about the business (financial condition, legal compliance, contracts, etc.). Breach of these can trigger indemnification claims.
ROIC (Return on Invested Capital): The total return earned on all capital invested in a search fund, including search costs and acquisition equity. The Stanford study reports 4.5x aggregate ROIC for search funds. Learn more →
Roll-Up: A consolidation strategy of acquiring multiple small companies in a fragmented industry to create a larger, more valuable combined entity. Common in home services, healthcare, and professional services. Learn more →

S

SBA 7(a) Loan: A US Small Business Administration loan program providing up to $5M in acquisition financing with favorable terms (10-25 year terms, competitive rates). The most common debt source for US search fund acquisitions. Learn more →
SDE (Seller’s Discretionary Earnings): A measure of a small business’s earnings that adds back the owner’s salary, benefits, and personal expenses to EBITDA. Used for smaller businesses where the owner is also the operator.
Search Capital: The initial funding raised by a traditional search fund to cover the searcher’s salary, travel, and operating expenses during the 18-24 month search period. Typically $400-500K. Learn more →
Self-Funded Search: A search approach where the entrepreneur funds their own search period (from savings or part-time work) rather than raising investor capital. Offers more equity (70-100%) but less support. Learn more →
Seller Financing: A portion of the acquisition price financed by the seller through a promissory note, typically at 4-6% interest over 2-5 years. Common in search fund deals (10-30% of deal value). Learn more →
Seller Note: A promissory note issued to the seller as part of the acquisition consideration. Typically subordinated to senior debt and may include standby provisions during the initial post-closing period. Learn more →
SRL (Società a Responsabilità Limitata): The Italian limited liability company form, equivalent to a GmbH or SARL. The most common structure for SME acquisitions in Italy. Learn more →
Step-Up: The conversion of search fund investors’ search capital into equity at a discounted rate (typically 1.5-2x their investment) when an acquisition is completed. Learn more →
Stock Purchase: An acquisition structure where the buyer purchases the shares/ownership interests of the target entity. The company continues as-is with all contracts, liabilities, and tax attributes intact.
Subordination Agreement: An agreement between a senior lender and a subordinated creditor (often the seller) that defines the priority of claims and restricts the subordinated creditor’s ability to collect during the senior loan term. Learn more →

T

Traditional Search Fund: The original search fund model where a searcher raises a pool of capital from 10-20 investors to fund a 2-year search, then raises acquisition equity from the same investors. Searcher receives ~25% equity. Learn more →
TUPE: Transfer of Undertakings (Protection of Employment) — UK regulations that automatically transfer employees and their terms to a new employer when a business is acquired. Learn more →

U

Utilization Rate: The percentage of available billable hours that are actually billed to clients in a professional services firm. Healthy rates are typically 70-85% depending on the subsector. Learn more →

W

Working Capital Adjustment: A purchase price adjustment mechanism that ensures the buyer receives a normalized level of working capital at closing. The target is typically set as the trailing 12-month average.
Working Capital Peg: The agreed-upon target level of net working capital that the seller must deliver at closing. Deviations result in dollar-for-dollar purchase price adjustments.

Ready to start your search? Join SearchFundMarket →