Robert Graham and Jordan Carter thank you for joining me today on acquiring minds glad to be here will excited to talk to you thanks for having us will you guys uh are both acquisition entrepreneurs you both bought businesses Robert I believe you have acquired multiple businesses in the Home Health Care space and Jordan you were a guest this past summer and we covered your acquisition story then but today you are both here in a different capacity as partners in search Investment Group Sig that's a name that will be familiar to a lot of the audience Sig is a firm that invests in and advises self-funded Searchers you both are proponents of the self-funded model of search um and Sig is a is a firm's really devoted to that path um and one of the the points of contrast is with traditional search funds so self-funded versus traditional search funds Robert you participated in a debate here on acquiring minds with Greg geronimus oh earlier this early part of this year um while this will be airing in 2023 so early part of 2022 and you were arguing for the merits of self-funded over traditional and one of the things that came up in that debate multiple times was the fact that the self-funded search World lacks the data and visibility that traditional search funds have thanks largely to the Stanford study that people cite all the time it comes out I think biannually uh and it's it's been published now for some number of years self-funded is more of a black box um and and so we were all kind of Flying Blind in terms of being able to actually put numbers behind the merits or lack thereof of self-funded search Sig the two of you and the the rest of the folks at Sig have now tried to rectify that you have been conducting a what I think is the most comprehensive uh study of its kind of self-funded Searchers over the last six or so months to try to bring visibility to this whole space and so that report is being dropped today is being published today and it is what we are going to spend our time on in this conversation so with that before we dive into all of that let's um let me have you just give quick intros of yourselves and Sig in your own words Robert if you want to start us off absolutely thank you will thanks for having us on um so my background I was uh I'm from Texas originally I was an engineer for several years went back to school got my NBA at Harvard Business School worked in private equity on a couple of Roll-Ups and then went out with a business partner and started acquiring Home Health home care and hospice companies uh so we started our first Acquisitions for 19 we acquired three companies total ebitub about close to a million uh and since then we've made a total of six Acquisitions uh and current group uh total ebitda is uh just over 8 million of even uh um should be on track to be at 10 uh run rate wise uh shortly and um you know I've done all of those Acquisitions utilizing the self-funded search methodology um and so I together with Jordan and another business partner started Sig to help other Searchers find and acquire businesses you know and go down the same path we did because we saw it as a you know a great path to entrepreneurship owning your own business and creating intergenerational wealth that not everyone knew how to approach so um that's kind of what I've been up to and who I am and Jordan before you go uh tell me how like give me a sense of the deals and transactions now that Sig has been involved in how many some parameters yeah great question so uh I think in total Sig I don't know the total number but it's it's well over 10 transactions we've done with self-funded Searchers over the last two years uh in 2021 we help six Searchers close deals and in 2022 we help six Searchers close deals as well so we closed the deal about every other month of the Searcher uh in 2022 average ebitdo is 2.5 million and Searchers kept close to 71 percent ownership in the companies that they were acquiring so every one of the deals we're doing with a Searcher generally speaking is a life-changing event um you know most people if you own 71 of a company generating 2.5 million of ebitda that changes your life and that's a super rewarding thing that we get to be a part of um and excited to do it uh in 2023 thank you Jordan please yeah Will so just to add to that to you know all of the all of the deals we talk about transactions or Acquisitions these are these are the the other entrepreneurs it's their deals right we are in a support role we're here to help them enable them to get the Lion's Share of their of the upside the Lion's tier of the common Equity I mean this is like this is what it's about since all three of us founding Sig Partners pursued this path uh we did self-funded we funded our own search we washed our checking accounts go down month over month as we devoted to this path we felt a calling to help other people come behind us and be successful and hopefully improve the overall success rate so we do have a uh what we call a full-time Support Program where we are in the trenches directly with live full-time self-funded Searchers we're Partners together they're gonna win the most of that right they're getting you know all that upside but we're here to support them make sure they get all that fund funding make sure they're credible out there in the marketplace make the right decisions save themselves time and hopefully close on so far right now most of our Searchers that have worked with us in that program that full-time support have closed within 12 months so um in fact nobody's nobody has lasted longer than 12 months they keep closing their deals with us so I think that's helpful um my background so I did invest in banking uh as an analyst in New York and then I went into private Equity as an associate did that for a couple years and went to Wharton business school and uh really thought about pursuing a search and I didn't know exactly what type of search so traditional self-funded accelerator I ended up feeling that self-funded was going to be that give me the most things that I was looking for which was autonomy uh longevity I wanted to be able to control the company hopefully for my whole life right and maybe even pass it to my children have that flexibility and also also just uh um benefit from the upside right have majority Equity control so I did a self-funded search I bought a company in July 2020 that does Professional Services and software for cities across the country and two months later started search Investment Group with Robert and our other business partner Aaron and that's Aaron Blick correct it is great I'll have to meet Aaron one of these days that's great thank you for that guys um so I touched on it already about the the historically there's been this lack of data around self-funded search but expand a little bit on that for me what what motivated you to want to do this study what problem are you solving and and how can um you know the Searchers in the audience who are um looking for a business to buy how can they benefit from this data is this an academic exercise or is there applicable data here the whole goal of this is to be informative when I say you know cell phone and search has been the wild west because there's no data that's not helping anybody it's not helping investors understand what is possible what they should expect in investing in these deals but more importantly it's not helping the Searcher I've I've had uh lots of calls with prospective Searchers who are considering different paths and they're like I read the Stanford study I kind of know what I'm getting into there but when I go to self-funded it's just a black box it's a it's a big opaque unknown and hopefully this is very practical you know we're not not here as representing a university we want it to be usable advice support that can that can help someone go you know what I should probably structure my search like that or you know what I'm thinking about um doing something maybe that's not so good of an idea based on the data right and so we're going to continue to get better with this over time we're going to do this annually but as a first run I I think it's uh I'll let people decide for themselves but I hope it's incredibly useful in practice I think there's really two types of people that we're trying to help by releasing a study like this the first one is groups of people deciding if they want to even do ETA if they even want to pursue entrepreneurship through acquisition and go out and buy their own business this study provides comprehensive data to show that this is a viable path to creating intergenerational wealth owning your own business controlling your own destiny um you know and the second piece of it is we're trying to help folks once they have decided to make that that jump and and pursue this path you know what is what does a successful search look like right what do successful Searchers look like how much even even tactical things right so like how much should you be paying for you know legal fees and how much should you be paying for a QV um you know how long should your search likely be running things like that right what kind of terms do you need to offer to investors so we're really I think helping at two points for for folks the decision Point as to when they want to pursue this path and and also once they've decided you know how to actually navigate um you know this this river which a lot of people don't understand fully um and uh you know for almost everyone who's doing a search is their first time doing it um you know I will say I think that um the data in this study is going to be a bit controversial for certain people a lot of people aren't going to like that we compiled this data and are releasing it to the public um you know and there's a lot of I'd call them almost special interests right within the traditional search investing space and within the third party advisory space that are not going to like that this data is being released and you know we may uh you know earn some enemies I hope we don't but we decided to do it anyway there's Searchers out there that are paying two hundred thousand dollars in legal fees who don't need to be doing that um there's also Searchers out there taking horrendous terms from investors and they don't need to be doing that and that's that's our philosophy at Sig helping the Searcher and that's the purpose of releasing this study well you just touched on them and I'm going to push push harder on on you for for the particular particularly controversial bits in the data Robert when as we get into it um and just the last step before we do exactly that is let's hear the methodology where did this this data come from so this methodology uh that we used we had to really come up with our own methodology because the methodology that the Stanford uh study uses has a relatively well-defined set of traditional Searchers because those are folks who have taken capital from a certain subset of investors on certain terms and with certain stipulations so that is a pretty well defined cohort of people self-funded search is not well defined at all people start searching for a business to buy and stop searching and pause their search and search part-time and you know it's not well defined at all so we had to come up with a novel way to collect this data and what we did was we decided the best way to find a good selection you know and also randomly select participants was to to leverage social media and so we utilized three social media platforms LinkedIn searchfinder.com and Twitter to find people who self-identified on those platforms as self-funded Searchers or who could pretty readily be identified as self-funded Searchers and we sent over well we we hired a third party firm to help us randomly select participants from those social media platforms and then we sent close to a thousand invitations a little more than a thousand invitations uh to folks to participate once they agreed to participate number one we filtered out more than one submission from an IP address so an IP address could only submit one time and then in addition we also filtered out anyone who didn't self-identify in the survey as a self-funded Searcher from the results so we think that was a relatively good way to get the responses we did and to focus on the responses that we decided to focus on so we ended up getting close to just over 250 270 something responses to to the survey that were usable responses which we believe is a a pretty robust data set great and as you said it is it is challenging to identify people who are part of you know who are in this this black box of self-funded search and how fluid it is they're in they're out they're searching they're not searching and so on so there were there there is at the at the end to your credit at the end of the report which I'm looking at here a little bit of an appendix on shortcomings that you guys recognize um that are just kind of inherent to the process and inherent to the the very opaque and messy nature of self-funded search why don't you just highlight those a little bit first uh Jordan you wanna you wanna take that one yeah sure sure will so you know Robert described a little bit of the the methodology which inherently is different it's going to be different than the traditional search fund study that's out there that everybody's used to and um I think it is uh the fact that it is a sample uh has inherent you know questions of where does the sample come from how did you assemble the sample one of the things to follow up what was just discussed is that surveys were not uh pulled out for any reason other than those those reasons like technical issues or some kind of a duplicate or something just to clean the data we never looked at answers and said huh this doesn't support our uh approach or something like that it was we pulled it all in and just looked at the data and and we're releasing it and honestly you know we're going to use this going forward this next year right um to look at things and kind of kind of read some things out read the tea leaves a little bit so if it's useful for us we clearly uh took that approach the um so the fact that it is participative I think is one of the first ones that could potentially have an issue right so you you might argue that someone would only participate in this study if they had kind of a good experience right why would someone even respond in fact people do this all the time particularly with self-funded search they they put on their linkedins that they are doing a search they get their search fund name their website little I I've seen this a couple times now I go back I check in with someone hey how's the search going I look at their LinkedIn it's gone it just says they were an independent consultant so I think there's a natural human uh drive to kind of dust that under the rug and kind of move on and that person's probably not gonna also participate um in in the in the survey itself the other thing is yes we had IP addresses that were pulled as part of it but they were scrambled in terms of knowing which which responses did which right we can't we don't know who said what we just know that this many people responded and here's the data so I think from now it's perspective we're going to get as honest of a response as we can get um but yeah that's what I saw Robert do you want to share any other shortcomings yeah I think you know you already kind of touched on it Jordan but um the fact that this self-funded space is not as well defined as the traditional space you know you've got people starting and starting searches all the time and so there's really no data in here or conclusions that can be drawn related to the success rates of folks during the search phase right um that data is so far we have not figured out a way to to reliably you know pull that data and infer from it so um that's you know obviously one big piece that's missing here and then uh the method we even use to send the invitations You could argue there are shortcomings with that right so going through social media well number one the subset of Searchers who are on social media is probably different than the total population uh in addition to that if you think about the people that would have been sent invitations by the third party we hired um that Contracting for arm would have received you know would have seen other profiles of self-funded Searchers that were in our own network or in you know networks that were closely tied to ours right our second and third level order networks uh at a higher rate than they would see people that were completely out of our Network so that in itself would have you know in some ways probably biased the the group of people who were invited to participate in the study um there's also some signs even of you know some bias for example you know something you mentioned will and in our email there's a relatively high percentage of respondents with mbas um that could be reflective of a few different things um you know and another thing to notice is um a high percentage of post-close entrepreneurs that were respondents had been only operating their business for a short time so um you know close to 80 percent less than three years you're three years or less um and that could be caused by a lot of things for example our own networks are could be relatively early in the ETA space which could have led to that um there could have been rapid growth in popularity in this self-funded search path and so because of that the folks who are responding are relatively early in the process at a higher rate than really the the overall population and then um it could be that older or operating or exited Searchers are not as present on social media uh and are not publicly identifying themselves as Searchers on social media um so there's there's all kinds of biases and shortcomings this survey could have had we tried to do our very best to eliminate as much of that as possible and use reasonably you know statistically kosher methods to to uh to collect this data and I think we overall did a really good job at a really difficult problem yeah thank you for that that's great and um yeah I think it's great that you guys acknowledge so transparently these potential shortcomings because um obviously uh data is only as good as kind of the collection method but with all of that understood it is still the only thing like it out there and it is a lot of data and so how I want to proceed with this is I want to give the audience just kind of a high level kind of chapter by chapter what's included but there are so many data points here we would spend hours in this conversation going through each one so we have each of us all three kind of come up with a a few findings that were particularly interesting to us individually and we'll and we'll go through those um but before I ask you for each of yours let me just paint a picture for the audience here um so it's a how many pages is a 70 page report and the way you guys have laid it out is kind of in the sort of chronology of an actual search so you start with what kind of the demographics and background of Searchers looks like so that's kind of interesting what does a self-funded search look like then you go into data about the search phase so things like part-time versus full-time how many hours a week are allocated to a search the range the ebitda range the revenue range of the acquired Target cost of living during the search phase Solo or partnered sourcing the acquisition you know what what methods are people using intermediary versus versus cold Outreach um so that's kind of a lot there's a lot of data there just under the search then you move into the actual acquisition phase lots of you know more data around the acquisition phase we're only halfway through I mean this thing is really robust then funding how how Searchers self-funded Searchers use debt use use equity work with investors what the parameters that have emerged what kind of what that looks like uh and then the operating phase that's a that's a slightly shorter section and then finally the returns um both for investors and for Searchers themselves so it really you know as Searchers are out there and and perhaps using this as a resource they can kind of you know drill into wherever they are in their search they can kind of map that to that part of the report and really and and really you know quickly cross-reference like what they're experiencing with what the data shows um so it's it's laid out really nicely and intuitively that way that said I actually want to start with the last page the last finding which is the on the in the return section the the net Equity proceeds to the Searcher and that's really like what do did a self-funded search do for the net worth of Searchers and the reason I want to start there is because there are many reasons that people get into search but obviously Financial benefit is probably the the top or certainly top two or three reasons how much real you know wealth can be generated by this path and and I think we all believe that that it's significant and that's why so many of us are interested in it and this puts some numbers around that Robert why don't you um tell me what you guys found in terms of the net Equity proceeds that self-funded Searchers enjoy in aggregate so sure sure will happy to to talk about that and before I say you know mention my highlights here I think it's really important to view these all within the context of who the respondents are and that gets into a really important point that I made earlier in this conversation 81 percent of respondents had operated their company less than three years three years or less so that's that's really important here right and within three years or less 53 of Searchers would have had proceeds of over a million okay 29 would have had proceeds of 3 million or more um that's pretty incredible so I think the the big takeaway here for me is this you know clearly looking at this data it appears that self-funded surge is a reliable path to making several million dollars um and creating true intergenerational wealth it's probably not a reliable path to earning several hundred millions of dollars but it's definitely one where you can create intergeneral relational wealth at you know with relatively high probability compared to other forms of Entrepreneurship so I think that that was a a great takeaway from this report and and one hopefully that's encouraging to a lot of people considering this path yeah excellent thank you for that Robert Jordan why don't you share with us uh one of your one finding that struck you yeah and will on that point you know 86 percent of Searchers in the study that people will see retain greater than 60 common Equity ownership so not only are they generating the the returns that Robert just shared uh that you know if we basically asked the question if the business were sold today what would be your net Equity proceeds right Robert just shared those numbers well you know you look at kind of the average size of the deals that people are doing and they're retaining you know substantial majority Equity control they're actually going to govern if and when they sell so that's not including the calf distributions that that you know CEO and majority owner is keeping throughout the life of the hold period that was just looking at the exit actually and Jordan let me let me also add something to to that the so you have 10 of uh of Searchers would say 10 million or more 12 5 to 10 million two percent four to five minutes so essentially 25 of Searchers four million dollars and up and above and 10 10 million dollars so according to this data which which we've copied but you know one in ten Searchers this has been a path to to have 10 million dollars in in net worth and and one in four almost one and four call it one and five five million dollars and above so um that's really quite striking like when you look you know when you look at the top the top 10 or the top twenty percent it it becomes you know really eye-popping these numbers those percentages are only reflective of Searchers who have closed deals so it's not like ten percent of self-funded Searchers are going to end up with proceeds of over 10 million that's that's only the subset who actually bought a business I just I want to make that very clear yeah yep thank you yeah so so will on that point you know if you look throughout the study you're going to find clues that kind of come out of the data how does how do you get there right I think who would not pursue a self-funded search and try to go for that right try to go for a 5 million you know net Equity proceeds or 10 million net Equity proceeds and you know one of those things you can do is to buy larger right because you can still retain the same you know North of 60 60 plus common Equity retention at a one million ebitda or a two million dollar ubit dot deal and you can put 80 plus debt on the business this all helps you unlever and create those net Equity proceeds over time so to me what's also striking about that is that a lot of these deals are being done with 80 90 percent debt to value on the business so when you buy a company at let's say you know four times or four and a half times ebitda now you've demonstrated to the entire world that that company can transition ownership successfully let's say you run it for two years because that's always a question you buy a company that's been around for 20 years can it survive will the employees leave you right is some are there are there tons of skeletons in the closet they're all going to come out so by the fact that you demonstrated that that action can can transition ownership it becomes sellable your company now can be transacted again and people don't have that question mark of I don't know can it can it sell so that actually helps certainly growth helps increase your valuation multiple um but yeah that there's there's all sorts of different uh inputs into that but let's drill in a little bit to the post-close performance so um to the extent that Searchers grow revenue and or grow ebitda obviously now we're talking about Searchers who have closed because we're talking about post close uh performance so one of the things that struck me was um how the number of successful Searchers who close who saw revenue and ebit.decline it was was was reassuringly low so for ebit.performance I think it was nine percent um saw ebitda decline post-closing reassuring of course because the big risk here is that you buy business and then the business starts tanking or going down for whatever reason either you bought a lemon or you're mismanaging it so nice to see that that happens less than one in ten times um and I'm talking about ebit.performance not profit performance now um what was interesting to me is actually a lot it was a bigger number that maintained ebitda performance so it looks like about 54 percent of folks of Searchers maintained I actually would have thought that there'd be more who increased profit almost 45 percent grew their businesses into from a profit perspective but a a large 54 percent maintained did you guys have a reaction to that yeah first of all that's incredible given the short hold period that we're that on average the respondees uh indicated so when you come in there your your um one of the things we don't know whether the respondent was comparing to evada you know pre-loading in kind of all the post-close operational expenses they have to put in now I'll tell you for me I had to hire a controller I heard a director of operations and operations analyst a bookkeeper you know and added my own salary in there and still grew even da so that's it it's it's tough to do but um I think the fact that uh there's people that have maintained Eva does so far in such a short hold period uh is is a good indication of things to come to get their feet into them well I think there's two really important things to realize when you look at the maintenance percentages the folks who have maintained ebitda and compare that to the amount of folks who have had who would expect pretty high proceed exits from their business and the first thing here is the great thing about self-funded Surge and utilizing a leverage structure to buy a small business at a low multiple is you don't have to knock it out of the park to make great returns that's the truth of the matter these businesses generate good cash flow they pay down debt they pay good distributions because people are buying them at three to four times ebitda um and putting on 80 LTV the returns are just through the roof because of the nature of how these businesses are being Acquired and so maintaining ebitda isn't a bad return situation actually for these entrepreneurs which is an incredible takeaway here right you don't have this isn't VC you don't have to knock it out of the park you just have to not let it go off a cliff and so yeah there are five and a lot of people who haven't knocked it out of the park but are maintaining the business and uh and they're doing just fine um so I think that's one thing and the other thing here is again let me point back to the fact that you know eighty percent of the folks that were responding to these questions were under three years of hold okay so that's not a ton of time if you're holding a business for two years to have you know the chance to grow ebitda a ton and that's that's usually what happens right when someone buys a new small business there there is oftentimes a slump at the beginning where you're learning the operation you're turning things around you're heavily investing in growth and then that turns around so I think that it's not fair to assume that those businesses won't grow in the future they probably will it's just a relatively short-haul period we're looking at and they're generating great returns even while maintaining the current level of even death now I think one thing about the performance that's a huge takeaway for me is revenue and ebit is probably going to catch up but look at Revenue in those numbers a very large percentage I think it was 15 percent uh had increased Revenue by over 5 million that's not that impressive when you think about a big business but it is impressive when you consider that 75 percent of the Acquisitions in the study had under 10 million of Revenue so you're talking about people growing Revenue by 50 or more 15 of them growing Revenue by 15 or more in the first two to three years on average that's pretty amazing excellent Robert back to you in any any finding that you want to pluck out and share yeah I think a big highlight for me that was you know really an important one here was that um you know uh Searchers are uh overwhelmingly ending up with true pure controlling ownership of their business um you know of the of the Searchers we we studied who uh had closed a business 42 percent had Boards of that 42 55 controlled the majority of the board um and so if you assume that the uh the ones who didn't have boards you know control their businesses for the most part um you could draw the conclusion that north of 80 of the self-funded Searchers who closed deals in this study effectively maintain control of the acquired company that's incredible and I think that really points to the fact that if you pursue this path uh there's a very very strong chance that you have the ability to uh acquire a business that you will control and effectively you know own and control fully um which I think is is great great to see and and really proves out the path my my reaction to that Robert is that that is that is great news but it it does kind of just reaffirm what we all already understood about self-funded search that's one of the strong Arguments for self-funded search is that as compared to traditional search funds for example is is the level of control that you retain and and and so now we see that born out here in the numbers yeah I think it's important though I think it's an important point for people considering this path who are questioning whether they really can control their own business because they're getting information from a bunch of other different sources including investors on the traditional side saying that it's just unrealistic for you to control your own you know control and own your own business and you can see right here in the data it's that's not unrealistic that's very real Jordan what what other finding struck you yeah so will throughout the study again if I were searching if I were starting over and this existed which I wish it had uh it it it's leaving Clues it's giving insight into how to set up a search and or if you are considering doing a search in the future what kind of experience you want to get to maximize your probability of success just like startup entrepreneurship entrepreneurship through acquisition I'm pretty sure everybody who does this and everybody who does a traditional search even they all want to be in the the in the bucket that not only successfully completes a deal before two years completes but also is in the top tier and generates the most returns and wins the biggest right but at the end of the day it is a statistical game you can influence the outcome and you should use some of these insights in order to do so do that so it out of the 279 respondents of which you know some are still searching so that is a copy ad but only 39 percent had successfully acquired a business so to me it tells you that this is not an easy game it's hyper competitive right it's 2023 there's a lot of people doing this and they're probably probably will be more people doing this as the economy continues to to uh degrade at a macroeconomic level we saw this happen in 2008 2009 it creates more Searchers so it's going to get more competitive uh that being said you know there are a lot of you know part-time Searchers out there I I truly believe that going full time will enable you to devote the amount of time necessary to increase your odds of success and not let things creep in like oh my gosh my checking account is now getting to a dangerous level or my spouse is it can't take this anymore or I can't mentally take it anymore kind of thing right so there is advantages to moving fast and how can you focus your search in such a way that maximizes your opportunity to get that one cell that one sale that's which is what you're going for I think that's very insightful yeah no it that is interesting and let's just also talk about that private Equity observation the you know I've heard Searchers uh Express intimidation by the fact that there are it seems to be that there are a lot of former private Equity people doing search for obvious reasons they're basically doing you know search it up at a professionalized level in private equity and they say to themselves hey why don't I do this individually um but it turns out that maybe those those uh are over represented in our mind the the the the participation of former private Equity folks is actually fewer than we think and Jordan you just had a kind of interesting uh anecdote about your own psychology uh when you did uh have it coming come from private Equity obviously you are former private Equity who did successfully acquire business but it it actually in some ways got you got in your own way because of your private Equity training elaborate on that that was interesting yeah well I think that the interesting thing about private Equity it comes from the fact that when you are essentially trained and every day of your life as a as an investment team associate is to really be selective I mean you look at the pipeline of of deals let's say in the lower rental market where um that's where I was anywhere from about 50 million dollars in in company value up to up to 750 million uh in total total Enterprise value of companies we were looking at and we would we would go through thousands of companies look at you know thousands of Sims right talk to investment bankers right for those size of companies we would turn away so many different companies and go to investment committee and people would find the one thing that made us not want to hold that in our portfolio so it does make you very selective or picky and now you're about to go down to companies that are that are being bought for between um you know my target was between like five to Fifteen million I know a lot of cell phone and Searchers are looking at total Enterprise value of you know two and a half million uh up to seven and a half million but but um regardless it's a different it's a different uh type of company and when you come into these companies you're gonna have to load in a lot of management team operational expenses fix things right uh and not necessarily turn around but none of these companies that we look at and that we support in partnership with our full-time support Searchers none of them would pass the criteria to be able to acquire as a private Equity associate you would be embarrassed to to send that on to your um to your partner and yet these are fantastic opportunities um but you just have to re-re uh Target your scope or rescope it if you will I just wanted to add something to Jordan's answer really quickly I spent some time at a PE firm also and the m a market at the level of you know 25 million of Ubuntu north of that is completely different than the m a market at one million to five million it is a different Universe um and I think folks with PE backgrounds come into self-funded search with a bunch of preconceived notions about how things should work in terms of sourcing deals and closing them and that can be a real hindrance because they will go months before truly adjusting to the realities of the lower lower Middle Market give you one example you can look in the study and see 2.4 executed Lois for every closed deal but if you if you thought about my experience at a PE firm right if you submitted an Loi and it got executed there was probably north of a 75 percent chance of the deal closing that's just not the case here and you're not on the other end of the table from Goldman Sachs you're on the other end of the table from a broker or no one and just dealing directly with the business owner it's a very different environment so just for the Searchers out there who don't come from private Equity backgrounds and feel that they're at some that they have a disadvantage there um maybe it's just the opposite maybe the private Equity folks get in their own way and and uh you not coming from that background um are maybe more clear-headed about the opportunity than private Equity folks so but talking about kind of credentials and backgrounds let's let's talk about this MBA number so 63 of the Searchers who responded to the survey had an MBA that number was very large um to me obviously a lot of my guests indeed went through MBA programs so I was expecting to see you know a lot a lot but 63 percent is almost like wow if I don't have an MBA do I should I be playing in this game how did you guys respond to that to that number well I'll say this first of all most of the top MBA programs Now teach ETA or search as part of their curriculum and they churn out a ton of Searchers every year so it's not that surprising to us um I'll also caveat the number uh that you cited will you know part of it is probably due to some of the shortcomings of our study right so invitations were sent to folks through social media and there was bias likely there in terms of who would receive received an invitation because of our own networks within social media even though those folks were randomly selected by the third party firmly contracted there were still a higher likelihood that folks within our own network would receive an invitation so that is you know a shortcoming that we need to acknowledge um if you don't have an MBA I don't discourage you from pursuing this path we've had several Sig Searchers without mbas be incredibly successful at this and I don't think it's necessary yeah I'll I'll add to that just sort of anecdotally I I think you're right I mean the three sources of your survey respondents search funder LinkedIn Twitter you know the feel of the search communities each each of those they have a feel and search funder is very kind of education yes I mean you see a lot of mbas on there and in fact search funders kind of baked that into the user experience I mean everybody's got like where they're at school or where they went to school like right next to their name so naturally there's going to be a you know preponderance of NBA folks coming from that Community meanwhile on on SMB Twitter a lot of the big names there so I I don't know them their educational bios aren't right there on their Twitter profiles but I suspect a lot of of those folks are not mbas and so it this is just again to to Echo what you just said Robert this just kind of comes down to where that where the data came from um but to to amplify what you said at the very end there Robert people should not be discouraged if they don't have an MBA um even though when they see this big number in the data completely agree so will you know we even uh one of our full-time Support Services just successfully completed an acquisition and his background was Marine Corps officer no MBA um there's there's all sorts of ones uh out there that are successful doing this I do think at a business school there's a little bit more of a buyer to go bigger um and to you know to seek that a little bit more comfort in raising capital from investors because pretty much everybody who touches foot on campus at a business school where search is discussed has heard a presentation from a traditional search investment firm or an accelerator investment firm and that is by definition investor Capital it's just coming up front before you even start searching so there's a little bit more again to the shortcomings there's a little more of that bias towards that kind of model and you know I recently did a poll on my Twitter where I asked just the people following me I said hey what what size companies you're looking for and overwhelmingly it was smaller it was a smaller size of company so I think you're right well there's a little bit of a cohort um kind of scoping effect yeah um I just want to interject here with just an observation of um kind of the the in the aggregate what what these the LOI numbers just just piggybacking on on the stat that you just pulled out Robert so what do is what do successful searches look like according to this data uh Searchers that successfully acquired I'm quoting now acquired targets submitted an average of 6.9 Lois during their the search phase with 2.4 of those Lois executed on average so the average self-funded Searcher puts out seven and two and a half are executed yep um yeah and and then the median total time between discovering the target so not necessarily sending the LOI definitely not sending the LOI just discovering the target the business that you want to go try to buy to actually closing the deal was between four and six months so that was the median within pillar Health Group we've had several deals that have taken unfortunately over three months to close and I don't think that that's uncommon at this level these deals have more hair on them uh and oftentimes you're dealing with the SBA which requires a ton of documentation uh before you can close um you know and and oftentimes the seller is involved in day-to-day operations of the business so they can't just drop everything and collect all the data you need so it's not uncommon at all for uh the the phase from finding the business to closing to taking several months unfortunately but that's just the reality of the space yeah yeah Jordan did you want to add something yeah so well this is part of the the make or break of your search you know if you're a self-funded Searcher and you're putting it all on your back and it takes you on average four to six months from discovering a Target to successfully closing a deal and with you combine that with the submitting seven letters of intent and only 2.4 of those essentially getting executed before successfully completing a deal time moves pretty fast so you go after one or two deals that ends up dying at the fourth or fifth month you've already you've already exhausted over half your search or close to it um and you know I I know some cell phone and Searchers who actually are still searching and it's been like three or four years it's rare um but most people set a timeline to this they say you know what I'm gonna give it 24 months and that's just what makes this all the more meaningful for you to find those things and and make sure you're making the right decision when you're going after a company company because the the sell side the broker and the seller will happily entertain your process and carry you all the way through because they want to sell their company but what if you discover in that four month 4.5 you're like oh my gosh I just discovered a deal killer I cannot do this uh business purchase this is my life right this is my career getting my personal guarantee on the SBA note so again just just goes back to making sure you're making the right calls that's critical to success let me add one more thing to that so we're talking about the time period from finding the business to closing it but also in the study is the time period from deciding to start a search until closing on a deal right and if you look at the Searchers who successfully acquired companies um that those are pretty encouraging numbers 53 percent of Searchers who acquired companies did So within 12 months and at 83 percent uh within 24 months those are those are pretty good percentages I think yeah for the people that successfully acquired they did it within two years basically Robert at the top you had you had given as an example uh a sense of costs deal costs as one of the ways that this report can be really applicable um to a Searcher so let's touch on that really quickly the the two big costs uh discussed um in the report are your quality of earnings report costs and legal costs what did you find there well well I think it's really important that we collected this data I'm so glad we did there are unfortunately there's there's a lot of advisors in this space who in some ways I think almost take advantage of the fact that self-funded Searchers often have never closed a deal before and they don't really know what's necessary in terms of spending on legal and accounting due diligence and other forms of due diligence or when to do those uh diligences when to turn on an advisor and start paying them um so I think you know important takeaways here 85 of Searchers in the study spent less than thirty thousand dollars on a q of E 68 spent less than 50 000 on legal due diligence and document prep combined um so you do not have to spend an arm and a leg here you do not need to go to Deloitte and get a you know 150 000 Acuity done I Didn't Do It Jordan didn't do it none of the Searchers in Sig do and really very few of the Searchers in the study did that also so you can really get the due diligence you need done for pretty reasonable costs um the other really good news about deal costs 75 of Searchers racked up less than 25k of dead deal expenses so even though you know less than 50 percent of llis that get executed lead to an acquisition um folks are mostly walking away with dead deal expenses that aren't terrible right um almost everyone's walking away with less than 25k of dead deal expenses and Robert just pull out you had kind of gone through the number but just so people have a just a a quick takeaway what do you feel based on your experience and then based on what the data is here what is the band The Range that a q of e costs uh and then and then legal expenses per deal well will you can spend as much as you want on either one of those things but you know kind of the numbers I I spoke to almost everyone spends less than 30k on a QV most of you know rsig Searchers are spending less than 30k I would say a typical QV is probably going to cost you and these are numbers outside of the study somewhere between 10 and 25k you can get a really solid QV done and on legal diligence like I said 68 spent less than 50k you know our Searchers are typically spending somewhere around 30 30k 25 30k on legal diligence and document prep that's really all you need to spend unless it's a very complicated deal Robert these were a couple of the controversy the points that you thought might attract a little controversy were there any other points that were controversial in the in the data now Now's the Time to to Stir It Up yeah well you know I like to do that will uh I guess the other controversy are things we already talked about right where um well I'll say one that we haven't really touched on that much but we kind of did is boards right the the whole Mantra on the traditional search side is that you know these crazy uh self-funded Searchers are going out and buying companies and they they you know they're cowboys they just run them however they want and uh you know the investors don't have any control at all well you know even though that is true oftentimes well the the wild part in the you know Cowboy part's not true but the control part is true many times there are a lot of self-funded search deals that have formal boards right so this whole idea that none of them have boards or any kind of oversight that's I don't think that that's uh very accurate you look at the data 42 percent of the uh of the businesses had a formal board which is uh I think you know um obviously counter-intuitive uh to to what uh has been the message out there uh the other piece of it is that um you know I think a bit of a controversial one here is um the ownership that Searchers are able to keep right um I think that there's there's obviously a lot of investors on the traditional side and even some on the cell funded side that have their own self-interest uh to watch out for and that self-interest uh includes trying to beat Searchers down to give them you know the worst terms that that Searchers will take uh well the fact of the matter is from this study you can see that you know Searchers are getting great terms if a Searcher used a preferred Equity structure 86 percent of the time they kept over 60 percent common Equity ownership that's pretty incredible Jordan uh what other findings uh do you do you jumps out at you yeah so a big finding for me is everybody's always asking how do we set up a search how do I should I focus on one or two industries should I go abroad I think it's kind of clear in some of the the uh the charts here and the data that pursuing a industry opportunistic strategy that's what I would call it a generalist strategy had a higher representation uh in the acquired Searchers versus the uh the one to three Target now I think this gets really to this doesn't mean you're just shooting a shotgun and just like having no no discipline to your search and just taking anything that comes at you um you know what I'd like to know beyond that is how people set up that industry opportunistic strategy in my own search I had a I had a essentially a selection of a few industries that I was pursuing pretty pretty fully and then as one or two of those kind of disqualifies themselves through some early you know primary research I would I would funnel those out and I would replace them with more Industries so it's not like you're looking at 20 different Industries all at once that being said you do have to have that component of your search that is devoted on a weekly basis to uh to actually responding to and being open to industries that are outside of something you ever thought you'd consider personally I never knew I would buy a company that was going to serve cities with Professional Services and software uh as a as a you know essentially a business process outsourced Service uh in Grants I never knew that right and but I was open to the opportunity that maybe there's something here and and most of these a lot of uh self-funded search industries of Interest are niches they are niches you've never heard of and those are often some of the best businesses and best subsets of Industries broadly in which to you can take territory easier the competitive environment is is lower even if the the barrier to entry is relatively high right it doesn't necessarily have to be fragmented uh and easy to start a business in that space But if the total addressable Market is 150 or 200 million dollars and your business is making five million dollars in Revenue you have a lot to go you can do pretty well so I think that's a really good Insight uh that people should feel confident about but it does open up that question of how do you make sure you do it in the most efficient way possible and not burn time going with your deals you shouldn't given the fact that you're gonna look at Industries you don't really know about great guys let's talk a little bit about uh structure of deals so I was surprised that do I have this right that that 45 used some form of seller debt financing or a seller note that struck me as low just because I I have kind of assumed that some piece 5 10 15 percent at least for an SBA deal I mean almost all my guests have used seller notes so I was surprised that actually it's it's just a little bit less than half um did in this data so can you react to that Robert yeah I think uh will you asked me to to stir things up a little bit so I'll inject a bit of a controversial opinion here or maybe counter-intuitive opinion um the conventional wisdom I think out there within a lot of uh groups is that you should never buy a company without a seller note I've heard a lot of people say that I would never buy a small company without a seller out um that's just not really a fair blanket blanket statement to make um a lot of people I think don't know that seller notes aren't required by the SBA um and they may not always actually be the best option um you can look at the numbers in the study and see that um for the most part um the seller notes usually have shorter terms um you know and amortization uh likely then uh than SBA debt right so 81 percent of the seller notes um you know in in the study had terms less than 10 years and a large percentage of those uh were within you know just less than five years so that's not as attractive necessarily as you know for example SBA 78 at where you've got a 10-year amortization and a 10-year term um I'll also mention that the interest rates are not as low as people may think so 56 of the seller notes in the study charge an interest rate of six percent or more which um you know doesn't sound uh as bad today in the current interest rate environment but keep in mind that a lot of these deals were closed you know in the last two to three years the ones that are you know when we're looking at them in the study and so uh you know an interest rate over six percent uh you know a year and a half ago was it nearly as attractive as it would be uh potentially today um so I think that folks who think that you know seller notes or this huge source of value I don't think they're necessarily all they're cracked up to be um I personally would be comfortable closing a deal uh without a seller note if it was the right deal um and I'll say that um I think they're nice to have but I don't think they're a necessity and the study proves that what about the sort of psychological alignment of incentives that it you know you you get your seller in there and onboard and incentivized to you know help you transition the business as successfully as possible you know they're incentivized to see you be successful um so putting aside any financing any rates any any of the kind of the numbers just pure getting them on your team to make sure that they get paid out uh 100 of what they're due don't you think that that that um works pretty well as a as a as a technique there's definitely an argument there well um and you know that's the conventional wisdom so I don't think I'm adding anything by just agreeing to that so I'll give you some some a counter argument there I think a lot of sellers immediately discount a you know a five six seven year 10-year seller note as being potentially lost Capital anyway I think that they they kind of put it as a Gamble and a lot of attorneys advise them of that so you know how much value are they really putting on that anyway and usually seller notes are 10 or less of the total deal so you know sellers usually walking away with several million dollars and uh and I think they're putting a low probability of payback on that extra 10 percent anyway um still hey look seller notes are nice to have all I'm saying in here and clearly from the study it's not necessary yeah so there are other ways why why is the seller node useful as well what you said which is that it adds a little bit of alignment it adds incentive to the seller to want to make sure that not only you as the buyer are successful but that they believe that the company is going to survive through the transaction there's not something waiting to just explode well in my deal in in the business that I purchased there was no seller note what did I do instead I I used an escrow so there are other methods you can you can use you can set money aside mine was on an 18-month escrow everything I was going to find about that company uh whether there were skeletons in the closet or or issues that that would have been not disclosed properly I would have figured out honestly probably within the first three months so 18 months is sufficiently protective and that money sits in a neutral third-party account that is managed by essentially a trust company that only releases it upon successful completion of that time period and having no outstanding claims against that escrow so there's you got to be creative if if a seller it doesn't like a you know want to do a seller note it doesn't necessarily indicate that they don't believe in the company they may be open to other options or they just want something a little bit shorter so yeah I just wanted to add that yeah that's great and just on the point about um the kind of relationships with sellers what are the things that jumped out at me was the overwhelming frequency of positive relationships with sellers post close so I think the number was about 80 percent high 70s of acquisition entrepreneurs have what they would consider a really positive relationship with their seller um maybe that's not surprising I mean deals you know deals usually torpedo if the relationship gets sour um but it is a theme on acquiring minds over and over and over building the Rapport the trust uh that's really often kind of the the the the ingredient that doesn't show up on paper but the key ingredient that gets the deal across the finish line and that I feel like that's kind of borne out in this in this number did you guys have a reaction to it so I have a very positive I would be in the extremely positive uh you know cohort in figure 42 on this on this question and I'm not really that surprised that there's been there is a positive you know relationship with the sellers given the the way that the companies have performed based on the data that we that we've gathered uh in the study it also indicates you know there is a correlation between people who successfully close uh business purchases with a seller very personal thing they probably liked you uh that yes money is a component of what they're considering but you know in an environment where maybe there's five different self-funded Searchers who are all saying the same thing I can take care of your legacy I'll take care of your employees and your customers they're going to go with the one that they feel uh the most akin to and they feel like they could actually be proud of introducing to their friends to their family because it is a personal uh you know engagement it's not just a transaction uh so so I think there's a little bit of correlation there between the people who are successful they've developed good relationships good rapport with the seller and that just only you know continues um post close numbers were very surprising to me given my personal experience because I'll just tell you in our deal the first deal we did uh within pillar Health Group uh the seller we got a letter from the IRS within about three months of closing uh proposing several hundred thousand dollars of fines uh we had to call the police on the seller and ended up in a several hundred thousand dollar lawsuit with them um so it was uh definitely counter to uh to my experience but we'll have to do a separate podcast on uh on that experience because uh it was pretty colorful but uh you know it's awesome to see that you know 78 of Searchers in this study had positive relationships with uh with the seller that's that's great to see and it's you know obviously another argument for uh for for the uh for this path well gentlemen I want to I want to start winding up here is there any um anything about the reporter the data that that we didn't touch on that you really want to make sure people hear before we close uh you know one thing I was going to mention really quickly is a lot of folks think that if you go the self the self-funded path you really need to go buy a business and buy a small business and the fact of the matter is a lot of self-funded Searchers are buying larger businesses they're utilizing things really attractive debt structures like SBA debt and they're also bringing in outside Equity so one thing that was kind of surprising I talked to a lot of self-funded Searchers who have no concept of the fact that you can go raise Equity from investors which is one thing that Sig does helps Searchers do all the time and we do a really good job of helping Searchers do that but uh 62 percent of the Searchers in this study had raised outside Equity to help fund their acquisition while self-funding their actual search phase so don't don't limit yourself to buying a 200k ebitda company um you know Searchers you can get out there and and look at larger companies and and put in place pretty attractive debt structures and also raise equity on really attractive terms uh to buy a larger business Jordan you want to say anything to close out yeah I think it's related well which is that there is something quite special about focusing your search between between roughly 1 million and kind of two two and a half million of evada if you look at the acquired ebitda by acquisition multiple range so looking at basically the how much you're paying for that ebitda all the way up to 2 million uh the the uh the group that spent less than four times three to four times uh ebitda to buy the company was 46 percent so between one and two million dollars of Evita so you can buy at a really good valuation that is able to generate cash flow even at 90 percent debt to value and just maintain the ebitda level of the company and watch your Equity creation personally flourish and I think that is part of a big uh upside of doing self-funded searches because you are going to be the majority benefactor of that of that Equity value creation so focusing on that size range and you know working with uh investors to help you fund it or fund a hundred percent of the equity Capital uh is is just a fantastic opportunity to generate really um over year over year cash flow to yourself and ultimately an asset that you can hold forever or sell at your discretion foreign and the two of you um are are very vocal on this point uh of size of deal and um and it is something that probably as strong Believers as you are in it you need to be vocal about because so many folks when they decide they want to buy a business aim a little low uh we were talking about this pre-call probably because they're maybe they're intimidated by buying a business with a million dollars in cash flow I mean that's going to be a larger business so there's more head count there uh it it's a you know it's a big scary number it's a you know a bigger personal guarantee and so on and so they they're The Reflex of many is to buy something that's 200 300 400 000 of sde and I have to I have to admit that that my own kind of reflexes has continues to sometimes be that um although I've I've heard you loud and clear and I the argument for buying bigger if you can get it is um is is basically pretty clear is very clear um so anyway it's it's been kind of pouring out in your data here um but I know it's uh it's it's something that you're really really strong on um if you if you can find that business that is another reason people buy a little smaller is because finding that million dollar ebit.business is is no easy feat so there's that guys I want to close out um but tell people where they can find this so this so we're talking now in just at the end of the year late December but this will air on the date of launch of this report and it will be live for people to go and download where should they do that so you need to go to the search invest Group website and go to the study tab so we've got a 2023 study Tab and if you go to searchinvestgroup.com forward slash study you can download a copy of the study completely for free okay and um and there's just so as I said at the top there's just this is a really big piece of uh I mean a lot of data a really sizable report so much that we didn't even touch on I mean Robert kind of started touching on on it on the end there uh about working with investors and the structure of deals and the financing and the returns and the returns to investors not just to Searchers but to investors we didn't get it into really any of that so there's there's just really a lot there a real education for people and a resource as they as they continue doing their own searches so um I commend you guys on what's it's a really neat project and much needed um thank you for coming on thank you for um sharing it with the acquiring minds audience first I really do appreciate that of course the link the URL that you just gave Robert will be in the show notes anyway so people can just open that on their phones and click through and download it directly and uh we'll I guess we'll look forward to you know see how this study evolves over over the years there will be more to come in from from Sig on this so thank you guys very much and uh until till we meet again thanks for having us will really enjoyed it thank you will I hope you enjoyed that conversation with Jordan Carter and Robert Graham of Sig make sure you subscribe to the channel below I am releasing two new interviews per week now so lots of great stories and content about buying businesses to come stories and content that will help you along your own path to acquire a business