How to Build Your Search Fund Thesis

Your acquisition thesis is the strategic framework that guides every decision during your search: which industries to target, what business characteristics to prioritize, and what your value-creation plan will be post-acquisition. A strong thesis helps you search efficiently, communicate clearly with investors, and evaluate opportunities systematically.

Why a thesis matters

• Search efficiency: Without a thesis, you’ll waste months reviewing businesses that don’t fit. A clear thesis narrows 10,000+ potential targets to a manageable pipeline. A strong thesis also complements your ideal company profile
• Investor confidence: Investors fund searchers, not deal flow. A thoughtful thesis demonstrates analytical rigor and strategic thinking
• Decision framework: When a broker calls with a deal that’s “close but not quite,” your thesis tells you whether to pursue it or pass
• Post-acquisition planning: Your thesis includes a value-creation hypothesis that becomes your operating playbook after closing

Components of a search fund thesis

1. Industry selection

Pick 2-4 target industries based on:

• Tailwinds: Aging infrastructure (HVAC), regulatory complexity (healthcare), digital transformation (traditional services), demographic shifts ( boomer succession)
• Fragmentation: Hundreds of small competitors, no dominant player, consolidation opportunity
• Recurring revenue characteristics: Recurring revenue (contracts, subscriptions, maintenance agreements)
• Resistance to disruption: Low technology disruption risk, essential services, local/relationship-driven sales
• Attractive unit economics: Healthy margins (15%+ EBITDA), low capex requirements, positive working capital dynamics

2. Target profile (ICP)

Define your Ideal Company Profile:

• Revenue range: $3M-$20M for traditional search; $1M-$10M for self-funded
• EBITDA range: $1M-$5M for traditional search; $500K-$2M for self-funded
• EBITDA margin: 15%+ for services, 10%+ for manufacturing
• Growth rate: Stable to moderate growth (3-15% annual). Avoid declining businesses
• Customer concentration: No customer above 10-15% of revenue. See concentration risk guide
• Owner dependency: Low to moderate. Existing management layer preferred
• Geography: Cities or regions where you’re willing to live for 5-7 years

3. Value creation hypothesis

How will you make the business more valuable than when you bought it? Common levers:

• Organic growth: Sales team buildout, marketing investment, new customer channels, pricing optimization
• Operational improvement: Process standardization, technology upgrades, procurement optimization, capacity utilization
• Add-on acquisitions: Buy-and-build to reach platform scale, capture synergies, and benefit from multiple arbitrage
• Professional management: Replace entrepreneurial chaos with systematic management, reporting, and accountability
• Geographic expansion: Replicate the business model in adjacent markets
• Product/service expansion: Cross-sell or upsell to existing customers

4. Acquisition economics

• Target multiple: 3-6x EBITDA entry ( industry-specific benchmarks)
• Capital structure: 50-70% senior debt, 10-20% seller note, 10-30% equity
• Returns target: 25%+ IRR for investors, $5M+ CEO equity over 5-7 years
• Exit strategy: Strategic sale, financial sale, or dividend recap in 5-7 years

Thesis examples by industry

Example 1: Home services roll-up

“Acquire a home services platform (HVAC, plumbing, or electrical) with $1.5M+ EBITDA in a mid-size US metro. Execute a buy-and-build strategy to reach $5M+ EBITDA through 3-5 tuck-in acquisitions. Value creation through route density optimization, centralized dispatch, and recurring maintenance contracts. Target exit at 7-9x EBITDA to a PE-backed consolidator.”

Example 2: B2B SaaS

“Acquire a vertical SaaS platform serving a niche industry with $2M+ ARR, 90%+ gross margins, and net revenue retention above 100%. Value creation through sales team buildout, product investment, and adjacent vertical expansion. Target exit at 6-10x ARR.”

Example 3: European industrial services

“Acquire a professional services or industrial services business in Germany or France with €1.5M+ EBITDA. Target Mittelstand businesses facing generational succession. Value creation through digitalization, operational excellence, and geographic expansion. Exit to trade buyer or PE in 5-7 years.”

Testing your thesis

Before committing to a thesis, validate it:

1. Deal flow test: Spend 2 weeks sourcing, are there enough businesses for sale in your target industries and geographies?
2. Investor test: Present your thesis to 3-5 search fund investors. Do they find it compelling?
3. Expert test: Talk to 5-10 industry operators. Do your assumptions about margins, growth, and consolidation hold up?
4. Financial test: Model a representative deal. Does the math work with realistic assumptions on valuation, financing, and growth?
5. Personal fit test: Can you see yourself running this type of business for 5-7 years? Visit some operations, talk to CEOs in the industry

Common thesis mistakes

• Too narrow: “I only want a SaaS company doing $3M ARR in Austin”, you’ll never find it. Expand geography or industry
• Too broad: “I’ll buy any profitable business”, you’ll waste months on dead ends. Pick 2-4 industries
• Ignoring deal flow reality: Your dream industry may have zero businesses for sale. Test supply before committing
• Overweighting passion: You don’t need to love the industry, you need to love running the business. The best search fund targets are often “boring” industries
• Thesis rigidity: Good searchers evolve their thesis as they learn. Your thesis at month 6 should be more refined than at month 1. See how thesis development differs between search funds and independent sponsors

Ready to start? Begin with pre-search preparation and learn about deal sourcing strategies to turn your thesis into a pipeline.

Frequently Asked Questions

How long does it take to develop a search fund thesis?

Most searchers spend 4 to 8 weeks developing their initial thesis during pre-search preparation. However, a good thesis evolves throughout the search as you learn from reviewing deals, talking to operators, and receiving investor feedback. Expect meaningful refinements through the first 6 months of active searching.

Can you change your thesis during the search?

Yes, and you should. The best searchers treat their thesis as a living document. Common pivots include expanding geography after finding limited deal flow, adding adjacent industries that share similar characteristics, or adjusting size criteria based on financing reality. The key is making deliberate, data-driven adjustments rather than chasing every new opportunity.

Do investors prefer a narrow or broad thesis?

Investors prefer a thesis that is specific enough to demonstrate strategic thinking but broad enough to generate adequate deal flow. A thesis targeting 2 to 4 industries, 3 to 5 geographies, and clear financial criteria (such as $1.5M to $5M EBITDA) strikes the right balance. Presenting a thesis that is too narrow signals inexperience with deal sourcing realities.