Sourcing Tips for Searchers

As summer wraps up, deal flow is bound to pick-up during the fall to close out 2025. Tariff noise is largely behind us, the public markets have stabilized (some indices reaching record highs), and private equity firms are back to deploying capital despite a challenging fundraising market and lack of exits (hello continuation vehicles). Investment banks both small and large will have CIMs tee’d up to be sent out after Labor Day weekend as investors look to close new platform investments before year-end. We’ve surpassed the midway point in 2025 and I wanted to send out a fresh set of tips for searchers after recently helping a handful of clients close deals during Q2 and early Q3 with multiple new post-LOI transactions in the works. One topic of focus as of late is sourcing and the question of breadth vs. depth. I hop on calls weekly with post-MBA searchers who just kicked off their search – with a completed crisp website, fancy logos, and renowned search investors / board members spread across their homepage they can’t wait to find that diamond in the rough business to acquire.

One of the first questions any new searcher asks me is how have your clients found success with sourcing over the past year? It’s a great question given the private markets to acquire a small business are only becoming more competitive. You have a growing search universe of individuals targeting companies with $500K to $6 million of EBITDA. You then have HoldCo vehicles that are looking to acquire small businesses and hold for 10+ years – these evergreen vehicles may have a different cost of capital and ability to pay-up for assets given the longer hold period with likely recaps along the way. VC and growth equity have gone completely out of style (at least for the time being) and you have more limited partners adjusting their allocations and moving to small buyout assets and businesses that are cash flow positive. On top of all of this, you have lower middle market private equity firms that continue to move down-market to acquire small businesses in less competitive processes and cheaper valuations given the middle and large markets have become so efficient. Funds that are $200-500 million in size continue to creep down to acquire $2-5 million EBITDA businesses or even acquire a handful of $1 million EBITDA businesses to stitch together to form their own platform at a valuation far cheaper than acquiring a $7-10 million EBITDA business. AI and digital marketing tools now make it easier than ever to find small business owners and contact information and there are a plethora of brokers (some highly unsophisticated) who actually source some interesting opportunities despite not being able to describe a net working capital peg (making confirmatory diligence pre-closing all that much more fun). Below are some tips to newly launched search funds as you think about sourcing and differentiation in an increasingly competitive environment.

Breadth vs. Depth

I continue to preach the concept of breadth vs. depth with the searchers and independent sponsors I work with. I see it time and time again – a searcher is a year into their search and getting a bit fatigued with sourcing. What began as a niche industrials focused search has now turned to “What are your thoughts on med spa? I really hit it off with this owner who likes me and plan to submit an LOI”.  As a searcher, anytime you submit an LOI or feel like the ‘favorite’ in a mini broker or proprietary process you have to ask yourself (i) What would my investors think of me sourcing this deal and (ii) why would the owner select me as the preferred buyer? I hate to say it but 90%+ of the time the owner is selecting a buyer based on price, not because you aren’t a private equity firm and 'won them over'.

I always tell searchers to stay in their lane and focus on what they know best. Yes post-LOI diligence may take 90-120 days, but you will be operating in this subsector for the next 4-7+ years. Sector-focused private equity funds have generated stronger net returns to limited partners than generalist funds over the past two decades and the concept of specialization continues to outperform. An LP will invest into a lower middle market industrials fund because (i) the lead Managing Partners have an extensive track record of operating and investing into these niche subsectors in the past, (ii) the GP has a robust network in these subsectors including C-suite members, board members, and operators who can immediately add value post-closing, and (iii) the manager understands the intricacies of the subsectors, posed risks / threats, and very specific tailwinds to invest behind. There are always unforeseen risks with investing, but by investing in what you know through experience and prior pattern recognition you're eliminating common sector risks and only exposed to the tail-end, unknown risks (i.e. who thought we would enter a global pandemic in 2020). An industrials fund today may have a car wash roll-up, a metals fabricator, a transportation / logistics business, and a waste management company. If the GP looks to acquire a contract manufacturer of cookies into the fund, chances are LP’s will not appreciate the consumer exposure as (i) they want their manager to focus on what they know best (industrials), and (ii) they are likely getting their consumer / food & beverage exposure via a consumer-focused manager. The reason they backed you and provided you with capital is because they want you to pursue what you know best and to invest into sectors that you have been most successful in the past. The same rule holds true for search funds. Your investors are looking at you as an expert in your niche subsectors of focus. I know it is hard if you are 18 months into your search and struggling with sourcing, but staying specialized will pay off.

Tradeshows & Conferences

Going to tradeshows and conferences within niche subsectors is one of the best ways to generate authentic conversations with family-owned businesses. Not only can you gain insights from speakers and panelists on current trends and potential challenges in a sector, but many CEO’s and business owners attend these conferences as a way to build their own network of lenders and investors, some of which may not be ready to sell today, but are building a portfolio of potential buyers to act upon over the next 12-24 months. Many of these conferences are cheap and a great way to build stronger relationships with business owners vs. cold emails. Not every conference needs to be in New York, Miami, or Los Angeles to be worth attending. Many niche sectors have regional conferences in smaller cities such as Charlotte, Phoenix, Salt Lake City, and Indianapolis, which can be even better for networking with small business owners.

The benefits of attending conferences and trade shows extend beyond just sourcing and will provide valuable insights and perspectives into real-time industry trends. For example, if you attend an ABA therapy conference the networking across different viewpoints is invaluable. You can chat with smaller investment banks who may find businesses with $1-2 million of EBITDA that are too small for traditional private equity investors and they're looking to bolster their investor list. They can also offer insights into the pulse of the M&A market and how buyers are thinking about valuations and how sellers are thinking about transaction dynamics (seller rollover, openness to a seller note, valuation expectations, etc.). You’ll meet other private equity firms who are likely conducting a buy-and-build strategy much larger than yours – you can ask them what they are looking to buy in the future as they are likely a natural acquiror of your business down the road (and would love to build a relationship with you). You’ll meet other C-suite members and operators, some of whom may be transitioning jobs or companies and may be open to a board seat or being involved in your operations post-closing. You may meet clinicians, in this case Chief Clinical Officers, BCBAs or RBTs, who can offer valuable insights into staffing, compensation, and clinical challenges that practices face, providing a valuable clinical operational perspective. And finally, you may meet a CEO or business owner that is looking to sell their business and may hit it off with you culturally. Industry conferences are a great way to gain different perspectives and understand current trends in a sector. I'd highly recommend attending 2-3 per year - again, not just a broad healthcare services conference, but finding that niche ABA therapy or autism investor conference.

Focus on Niches

We’ve all heard the cheesy phrase ‘the riches are in the niches’, which has been thrown out during the first five minutes of the past six Harvard ETA conferences, but...it’s true. Really hot subsectors today include car wash roll-ups, med spa, roofing, HVAC, clinical trials and landscaping, just to name a few. Just because your business focuses on residential vs. commercial roofing doesn’t mean it is niche. Hot subsectors will mean owners will know of friends who recently sold their business for a sky-high valuation and may be more stingy in negotiating terms and have the same valuation expectations despite being smaller in size and a less-sophisticated business. Just because a sector is hot today does not mean it’ll be hot when you exit in five years. For example, private equity was all over veterinary clinics back in 2020 – people stayed at home during the pandemic and bought or adopted dogs driving a veterinary boom. Private equity roll-ups raced to acquire sizable assets paying 15-25x pro forma run-rate adjusted EBITDA for higher-quality businesses. The market has since rebalanced and normalized and those same practices are trading for 8-15x EBITDA with much less credit for de novo maturity adjustments. The investors who took a risk and invested into veterinary clinics pre-COVID were rewarded by exiting into an inflated environment. The multiple expansion achieved from 2021-2022 drove outsized returns far greater than if the private equity firm had chosen to continue operating the business for another 3-5 years and sell at a normalized exit multiple.

I always remind searchers not to chase – just because there are 10 active private equity med spa roll-ups and four active med spa search deals that are all presumably going well doesn’t mean you need to acquire a med spa deal or now is the right time to enter the space. Easier said than done, but it is much more advantageous to be ahead of the curve, buy something niche, and sell into a hot M&A market. Had you bought an aesthetics / Botox business back in 2019 you probably didn’t underwrite selling your practice for 15x EBITDA, but outsized returns are often achieved through multiple expansion and timing your exit. Your entry point is just as important as the point at which you exit. Be thoughtful on where subsectors are in their cycle. Dental has been a hot subsector over the past 20 years, however, is completely out of style today as practices have been hit hard with clinician turnover and inflationary pressures, while reimbursement rates have not kept up with rising costs leading to margin declines. Private equity won’t touch dental today, but it may not be a bad time to acquire a high-quality regional practice that focuses on cash-pay and has a rock-star clinical staff. Last time I checked Americans are still having their teeth cleaned twice per year and AI has enhanced the consumer experience (i.e. identifying cavities in X-rays), not disrupted it. Another example coming out of COVID is clinical trials. Every healthcare services firm is moving away from physician practice management (PPM) deals and diversifying with HCIT, revenue cycle management and pharma services. Don’t just buy a clinical trial business and pay a turn lower than private equity (for likely a worse / smaller business with customer concentration). Find a unique way to play the subsector you like and know well – look at cold storage for clinical trials or a logistics provider that services these trials. While there will be fewer target assets within niches, your chances of convincing an owner to sell may be higher as they don’t have a dozen private equity firms simultaneously emailing them steeper valuations and more advantageous terms to sell their business and partner.

In-Person Meetings

Some of the searchers I’ve worked with who have had recent success in signing an LOI have really pushed for in-person meetings early (and often) with the business owner. Rather than negotiating an LOI via email on a thread of 100+ emails and multiple lawyers CC’d, fly to the company headquarters and meet the owner face-to-face. Get dinner with the owner or their family and casually discuss what they’re looking for and what their expectations are for a transaction. There are so many creative ways to drive alignment and meet the needs of both your investors and the seller through earnouts, rollover, notes, holdbacks, etc. Understand their concerns and build a strong relationship in-person – not only will it increase your chances of signing an LOI but you can also see if the seller is real and reduce the risks of broken deal costs if you believe the seller isn’t ready for a transaction or may walk away. Spending two days with the owner in discussing the LOI and your excitement to grow the business will go a long way, even if you just completed a business tour / onsite a month ago. By meeting in-person you'll also gain insights into the business owner's personality and how they interact with people - how do they interact with people, are they patient waiting for an Uber, are they polite to the waitress? In a world of back-to-back-to-back Zoom calls, in-person meetings are advantageous and so important. You'll also gain insights to avoid shady business owners or sellers who lack transparency.

Proprietary vs. Broker

Searchers always ask me if prior successful searchers have been closing on deals through their own proprietary network or brokers. The short answer is both. I always tell searchers to not waste their time with legitimate investment banks. Their buyers list is long, you'll be paying a full valuation (which your investors will not appreciate), and you'll likely be outbidding a private equity firm in order to win the auction (which you shouldn't be). Then there are the business listings - fun to scroll all sorts of interesting niche businesses with a boatload of willing sellers at your fingertips. I personally advise most searchers to stay away from these listings. Many of the companies have $400K-$1 million of SDE or seller discretionary earnings, essentially adding back the owner's salary (which I hate). Most of these companies are too small for traditional search (may be fine for self-funded) and lack any infrastructure to truly scale. A lot of these companies are also tied to cyclical sectors and operate in industries that most private equity firms pass on such as restaurants, real estate, oil and gas, and cyclical consumer discretionary products. A question you should always ask yourself when sourcing is who will buy this business in five years? The business listing sites have some very interesting companies and I have had dozens of conversations with self-funded searchers who are eager to pull the trigger on a sub-scale business they think they can grow. But who buys this business in five years? While the roofing and med spa deals are incredibly competitive to enter, you know you have dozens of larger PE firms above you anxiously waiting for you to achieve a minimum EBITDA threshold to bolt-on to their roll-up. You have a clear path to exit. If a business is too niche, cyclical, project-based, asset-heavy, or off the beaten path you may struggle to find a buyer at exit, especially one willing to pay the same valuation as your entry multiple. I helped a self-funded searcher evaluate an interesting business that stores backpacks, purses and bags outside of sports stadiums and events - items that are too big to be brought through security. I've seen the company operate outside of multiple sports stadiums including TD Garden in Boston. Really interesting business and a clear path to growth - expand geographically and cater to more event types. The challenge was there were plenty of EBITDA adjustments, the seller wanted to add back their entire salary (again, I hate seller discretionary earnings or SDE if you want to pay yourself a salary), and I kept going back to the question of who buys this business in five years? There was a reason that this mini-brokered process had no interest from sophisticated private equity firms and there was not a logistical strategic acquiror. It's hard to have high valuation expectations when your buyer universe is so small.

Where I advise searchers to spend most of their time is the sweet spot in between sophisticated investment banks and the plethora of business listings. There are very small boutique investment banks that operate regionally - they may not have a top-notch team, but may specialize in a couple of subsectors and source $2-5 million EBITDA companies. I advise searchers to build a relationship with these boutique banks and tell them the 2-3 areas you are focused on to get into their deal flow. Most boutique banks will post tombstones on their website of successfully closed transactions which lists the buyer and seller in the deal. Look at the investment bank's closed transactions and see if your private equity friends know of the private equity firms buying their deals. If the private equity firms or independent sponsors are very small or not as well known, it may be more interesting to get into the bank's deal flow. If the buyers are Nestle, Hormel, Coca Cola and larger private equity firms with $500 million to $5 billion funds I would suggest moving on as you cannot and do not want to compete in these auctions.

Sourcing deals fully proprietarily is incredibly challenging these days given the amount of cold emails, cold calls, and garbage that ends up in everyone's inbox. It's still worthwhile to pursue proprietary outreach on a very targeted and customized level (time consuming and often results in no response), but more and more searchers are finding deal flow through smaller brokers. Axial is another sourcing engine that comes up quite a bit in conversation. There can be some interesting deals posted there and I have seen searchers close deals through Axial, which have gone on to perform very well. Just be cognizant of the sourcing fees as Axial charges a hefty premium to buyers to acquire platforms from the site (especially for how small the businesses are). My advice is focus on 2-3 subsectors and send out consistent proprietary outreach weekly (emails, direct mail, cold call), but build a valuable network of mini brokers and small investment banks in those subsectors. Through specialization, you'll present well to both the banks and sellers, and build credibility as a legitimate buyer. Receiving CIMs of similar businesses, competitors, or slightly larger companies can be very helpful to assess operating metrics, KPI's, historical growth rates, and margins, which will help you make a better informed decision when you find the right business.

Investor Preliminary Approval

I continue to tell searchers this early and often – overcommunicate with your lead investors and cap table and get their blessing or preliminary approval around the LOI stage to dig in further. Be nosy. Ask for advice. Push for questions. Send follow-up emails until you get a response. The best investors are not the ones who don’t ask questions and sign up for their pro-rata share of a deal – they’re the ones who dig in, ask questions, poke holes, review the downside risks, and help you gain even more conviction in the opportunity. If you’ve found an interesting deal and are near signing an LOI your top investors should know. Get the blessing of your investors early. This doesn’t mean having your investors sign up to do the deal – it simply means having preliminary conversations about a deal, why you’re excited about the opportunity, and being transparent about the risks or boxes that need to be checked during diligence in order to get to the finish line. Searchers often reach out to RiverStone within a week or two after signing an LOI looking for modeling and investor memo help as they are stressed and swamped to make progress during a short exclusivity period. One of the first questions I ask them is how does their cap table feel about the deal? The most successful searchers have a quick answer to this and understand the risks of raising the full amount of debt and equity. Push your investors (especially top 2-3 leads) to dig in, ask questions, and even offer to fly out and meet them in-person for a diligence day. Chances are, your investors have seen similar opportunities and will have valuable insights and suggestions to mitigate the biggest risks the deal offers. Leverage your resources and over-communicate. It’ll save you time on the back-end of the LOI phase if your investors are already up to speed on the thesis, sector, and transaction structure and will increase the probability of your transaction closing (time is the #1 killer of deals). A quick 'no' from your investors may be painful, but will save you a ton of time, capital, and resources, and you can move on to the next opportunity. Over-communicate with investors and get an initial read from them on deals you are serious about digging into and pursuing.

Conclusion

Sourcing is one of the hardest parts of searching. I’ve seen plenty of searchers wrap-up their fund after two years having dug into a handful of opportunities, but not successfully close on one. Some were not aggressive enough in submitting LOI’s and digging into real opportunities lacking the confidence / persistence to wrangle up a deal. Other searchers submit too many LOI’s in competitive processes and ran with deals that had too much hair on it, becoming a 6-month time-suck, that had very low probability of closing. I always urge searchers to evaluate the equity required to close on a deal after debt, the seller note, and any potential earnout payments - raising $5-10 million to close a deal is much easier than raising $15-30 million. Make sure the deal size and equity check is within the sweet spot of your cap table as you are bound to have investors pass, creating the need for gap equity.

We hope you find some of these tips helpful as your search progresses in finding high-quality businesses. If you’re a self-funded or traditional searcher that may benefit during diligence from institutional private equity and investment banking experience, feel free to reach out. We are happy to lean-in with messy raw data, building out KPI’s, developing a more institutional investor presentation, and building a more detailed, bottoms-up LBO projection model, that can be leveraged as the framework for a go-forward operating model post-closing. As a solo or duo searcher, you’re often competing with private equity firms that have 4-5 person deal teams, 2-3 pre-identified board members who intimately know a subsector and drive operational due diligence (customer calls, supplier relationships), a much larger diligence budget (these funds are often $200-600 million in size), and ample third-party resources (consultants, market study, QoE, insurance / benefits, competitive landscape benchmarking, etc.). RiverStone Reporting has collaborated with over 45 searchers over the past three years. We have strong alignment with our clients as 50% of our compensation is fully at-risk and success-based to reduce dead deal costs (we hate growing transaction fees just as much as you). RiverStone can provide ample references from prior search clients and investors, both from searchers who successfully closed on deals as well as searchers who wound down their search. We often rollover our compensation as sweat equity into your transaction as well as continue to assist post-closing with board materials and ongoing financial reporting to make sure things get off to a strong start. Good luck with sourcing and happy searching!