Take Five #200: Recent report finds opportunities brewing in rural micro-markets with no buyers in sight, and more
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Take Five #200: Recent report finds opportunities brewing in rural micro-markets with no buyers in sight, and more
1. “Are Search Funds Moving Up Market?”
The most notable insight that came from further segmenting the data concerned which of the ETA models are primarily moving up-market:
Only 8% of those pursuing a funded search said that they’re now pursuing larger companies than they were 6-12 months ago, in comparison to 60% of searchers from other models of ETA
Taken together, our survey seems to suggest the following (though, again, all conclusions are subject to the limitations of our modest sample size):
Funded searchers aren’t moving upmarket as much as they’re continuing to lean towards the larger end of the range of what has been purchased historically
Prospective searchers seem to be particularly interested in acquiring larger targets, which provides at least one reason to believe that a bias towards size may become more pronounced in the years to come
Those pursuing non-traditional forms of search seem to be demonstrating the most “upward mobility”, albeit off of a smaller base
Why Pursue Larger Targets?
Given that the median has remained relatively consistent over the past 10 years (at ~$1.7M – $2.5M of EBITDA at acquisition), we asked those searchers who were targeting a larger business why they were doing so.
Stripping out the “long tail” of responses that we received less than a handful of times, below are the four major themes that emerged (ranked in order from most frequently mentioned to least frequently mentioned):
Better Personal Economics / Equity Outcomes: By far the most common response we received discussed the fact that, all else being equal, a larger company can produce a better economic outcome for the searcher (i.e. a larger dollar amount of carry) when compared against the same magnitude of value creation in a smaller business with a lower quantum of dollars involved
Operational Depth, Infrastructure & Platform Potential: Respondents also seemed to believe quite strongly that larger businesses have deeper management teams, more diversified revenue streams, greater operational maturity, and stronger infrastructure. Several responses also mentioned that larger companies present a more appropriate foundation upon which to pursue an acquisitive growth strategy, something that seems to be growing in popularity of late as we see more committed capital vehicles being raised.
Read Mineola Search Partners’ post here.
2. Quality of Assets (QoA) could be just as important as Quality of Earnings (QoE) in asset-heavy acquisitions
3. How to stage an SMB for a smooth exit
As you approach the final 12–24 months before selling your business, the focus shifts to increasing its value. This period is all about refining financial performance, reducing operational risks, and preparing materials that will position your company as a premium asset to potential buyers.
Strengthen Financial Performance
Start by normalizing your EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). This involves adding back one-time expenses, non-recurring costs, and discretionary spending tied to ownership. Doing so gives a clearer picture of your company’s true operational performance. Valuation multiples vary depending on the industry - manufacturing businesses may see multiples of 4–6x, while high-growth areas like SaaS can reach 10–15x.
Recurring revenue streams often drive higher valuations. Consider locking in long-term contracts or introducing subscription-based models to boost recurring revenue.
Another key step is obtaining a sell-side Quality of Earnings (QofE) report. This report helps identify any financial inconsistencies early, ensuring your numbers are accurate and trustworthy. It’s also crucial to separate personal expenses from business accounts well in advance - ideally 12–24 months before the sale. Clean, transparent financials build buyer confidence and reduce skepticism.
Once your financials are in order, turn your attention to operational risks.
Address Operational Risks
Buyers will examine your business for any vulnerabilities that could impact future performance. One common concern is customer concentration. Ideally, no single customer should account for more than 10% of your total sales. If you’re close to or exceeding this threshold, now is the time to diversify your client base or secure long-term contracts with key customers.
Review your contracts for “change of control” or “anti-assignment” clauses, which could complicate a sale. These clauses are often found in leases, supplier agreements, and customer contracts. To avoid surprises, have legal counsel conduct a pre-sale audit well in advance.
Address any unresolved litigation, expired permits, or compliance issues, as these can lead to uncertainty discounts that lower your sale price. Additionally, ensure all intellectual property - such as patents, trademarks, or proprietary software - is owned by the company, not you personally. Documenting Standard Operating Procedures (SOPs) is also essential. Showing that your business can run smoothly for 30 days without your involvement adds to its appeal and value.
Once operational risks are minimized, it’s time to organize your materials for potential buyers.
4. Two ways to use SBA financing to buy a business and its real estate in one transaction
Sometimes the cleanest solution is a single SBA 7(a) loan. Other times, the best outcome is to close with a 7(a) and later refinance or bifurcate the real estate into an SBA 504, using carefully drafted first right of refusal (ROFR) or purchase option language baked into the original transaction.
This article walks through:
How SBA financing treats business + real estate acquisitions
When a single 7(a) makes sense
When and why a 7(a) → 504 split is the smarter long-term play
How first right of refusal language protects the buyer
Common mistakes that derail deals
A real-world timeline approach that actually works
This is written for serious buyers—not seminar attendees.
The Core Concept: Business + Real Estate = Two Assets, One Strategy
At a high level, you are acquiring two distinct assets:
An operating business (cash flow, goodwill, equipment, workforce)
Owner-occupied commercial real estate (land + building)
The SBA allows these assets to be financed together or separately, provided:
The buyer is an owner-operator
The business occupies at least 51% of the property (or 60% for new construction)
The transaction meets SBA eligibility and underwriting standards
Where most buyers go wrong is assuming there is only one “right” structure.
There isn’t.
Read the rest of Ryan Smith’s post here.
5. Recent report finds opportunities brewing in rural micro-markets with no buyers in sight
Among the wide range of small businesses, we evaluated “middle market” companies and below, defined as firms with revenue below $1 billion. Lower-valued firms face greater risk of closure in the Great Ownership Transfer, even when they are economically viable, because the markets for acquisition are the weakest. Our analysis finds that nearly 80 percent of projected exits will likely occur among micro and emerging middle-market businesses—small, locally owned, community-based companies valued at less than $2 million. These firms form the backbone of local economies but often fall below traditional-deal thresholds.
Higher-value SMBs face different dynamics. They generally benefit from robust buyer interest and can tap professional intermediaries, but they account for a smaller share of total transitions. In short, most ownership changes will occur among small, local firms, even as most enterprise value sits higher upmarket.
Micro businesses (valued under $500,000) include the restaurants, small retailers, auto-repair shops, salons, and neighborhood service providers that form the backbone of community life. They are deeply local, labor intensive, and often family run. While individually small, they collectively account for the largest share of projected ownership changes and face the highest likelihood of closure because they lack access to buyers, advisers, and financing.
Emerging middle-market firms (valued between $500,000 and $2 million) can include small medical and dental practices, construction trades, HVAC companies, and franchises employing a few dozen workers. These firms often have stable cash flows and strong community ties, but limited access to professional intermediaries or institutional capital. They sit in the “missing middle” of the acquisition market—too large to be informal, yet too small to attract private equity or corporate buyers. As a result, many viable companies remain invisible to the market and are more likely to close than transfer.
Lower middle-market firms (valued at $2 million to $25 million) encompass regional manufacturers, logistics providers, B2B services, and healthcare practices. These firms anchor regional supply chains and are increasingly likely to attract independent sponsors, search funds, and mission-driven investors. However, many still face limited buyer reach in rural areas and capital gaps for acquisition financing.
Middle-market companies (valued between $25 million and $100 million) are often specialized manufacturers, software companies, and niche distributors. While fewer in number, they hold substantial enterprise value and often drive productivity and exports. They are attractive to institutional investors and strategic acquirers, and their transitions are typically managed through professional intermediaries and institutional capital.
Upper middle-market firms (valued between $100 million and $1 billion) are diversified enterprises in sectors such as advanced manufacturing, technology, and healthcare services. These companies attract robust buyer interest from private equity and corporate strategics, but concentrated ownership among aging founders and family groups can create succession risk if leadership pipelines are weak.
Taken together, these segments illustrate the broad economic footprint of the Great Ownership Transfer. Most transitions will occur among smaller, locally rooted firms that sustain everyday commerce and employment, but more enterprise value at stake sits upmarket. Ensuring continuity across this full spectrum is critical to protecting community livelihoods and regional competitiveness.
Yet most micro and emerging middle-market businesses operate at deal sizes too modest to attract institutional capital or traditional private equity buyers, leaving them largely invisible to the market. Many lack the advisory support, financial readiness, or buyer access required to complete a sale, making closure more likely than transfer—even when the business itself is viable.
This gap reflects a structural weakness in the business ownership system, not just a market inefficiency. Whether the Great Ownership Transfer becomes a story of loss or renewal will hinge on the availability of the capital and ability of infrastructure to adapt to the high-volume, small-deal segment that anchors local economies.
Find the complete McKinsey report here.
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