How to Win Deals as a Searcher in a Crowded ETA Market

How's everybody doing? I'm here to wake you up, and here's how I'll do it. Most of us are here to learn anecdotes and stories, and to the extent we can share tactics, we'll try our best.

A year and a half ago, I sourced an opportunity on Peter's platform, and had it not been for Axial, there is no way I ever would have sourced that deal. We're based on the East Coast buying within an industry all around the country, and the sell side broker was not on my list, wasn't on anybody's list. Without sharing too much, after having found it, all the way to close, EBITDA essentially tripled and purchase price stayed the same. So for us, it worked out really well. We're huge fans of Axial.

Peter is the founder and CEO of Axial, which for all of us doing ETA is a startup. Without further ado, Peter Lehrman, thanks for being here.

Thank you, Sam. It's a pleasure to be here. There are a lot of conferences out there and a lot of ways to spend your time as an owner, operator, and CEO. Sam has assembled a great team. SMBash is a great force for good in this market.

I want to spend time talking about what I've learned building a sourcing engine for buyers of businesses, how we've gone about doing it at Axial, what we've seen the very best do in the world of sourcing, and what we think is fundamental to excellence in sourcing. The longer your time horizon as an acquirer of businesses, the more you can lean into these methods. The shorter your time horizon, you have to make trade-offs.

What I've laid out here are some of the very best practices, some of the very best approaches. It rhymes with what you saw downstairs with Josh. You don't just go from zero to what he's laying out in terms of playbooks and operating principles and execution quality. It's a process and a lot of hard work. Sourcing is similar. It takes a lot of work, and you have to really want it.

For those of you already in the hunt and committed to an ETA chapter of your career, I think that's fantastic. For those thinking about it, the most important thing to understand is that even though it's having a moment as a fashionable thing to do, it's going to take a lot of hard work to be great at it. Think carefully about how seriously you want to pursue this path.

Let me lay out a couple of things at a data level. The market share of sell side brokers selling businesses in the lower middle market is highly fragmented. The very highest production brokers are a tiny percentage of total market share. You can't just meet 10 brokers and have access to 70% of the deal flow in the market. It's a hyper-shareded market of sell side sources of deal flow, and that long tail creates a lot of challenges. The top firms are going to market in any given year with not more than 75 to 100 transactions. Last year on Axial, there were 10,100 attempted transactions, and we represent a lot of the market but truly not all of it yet.

On the buy side, 60% of buyers on Axial are strategics. Within that strategic buyer category are a lot of private equity owned businesses where the business has been bought by a private equity firm and that business is itself making acquisitions. The buy side and the sell side, both on Axial and in the real world, are super fragmented. That lays out the context for what you're up against.

For those of you who have been in sales, you think about territory design. In sourcing deals, there's actually a lot you can crib from territory planning for a sales force. In the world of small business acquisitions, call it 5 to 100 million dollar transactions, we tend to think about three tiers of M&A advisors and brokers. What I shared here is essentially number of deals being executed per year, the number of managing directors at those firms, and the relevant sourcing strategy for you on the buy side.

If you're very specific in a certain geography or industry, you want to think about your territory in a way that reflects that. If you're industry agnostic, you have to appreciate that you're not going to be at the top of the list for certain specialist brokers. If a specialist broker only sells dental clinics or only works on selling HVAC, and you're an industry agnostic buyer, you have a bit more of a hill to climb than someone who's a specialist in that category.

When you look at the market of brokers and investment bankers whose radar you want to get on, you have to be thinking: who am I, what is my thesis, what am I looking for, how specific can I be, and how do I want to design a coverage plan that maximizes my return on time? The brokers who are most active in the industries or geographies where you want to transact are the ones you want to spend the most time building a direct relationship with. That is where you should not rely on Axial or newsletters or anything else. Lean into the part of the market where there's the greatest amount of repeat yield in the form of opportunity flow that's relevant to you. Then think about your coverage plan for the rest of the market.

When you're in the ETA buying category, you are up against private equity buyers, strategic buyers, and independent sponsors who may have a track record of buying businesses. You're not at the top of the totem pole. It's important you find a way to get competitive relative to these more predictable, more well-established forms of capital.

At least on Axial, there's a huge spectrum of methods by which the brokerage universe sells businesses. Some share the deal with every recommended buyer we recommend on the platform. Many don't. Many say, I'm only going to share it with people in this geography, or people who are not private equity, or I have a client who really wants to sell to a searcher. They want to sell to the son or the daughter they never had. So the search fund market is very relevant.

What this shows is that as the number of buyers approached by the sell side goes down, their openness to receiving inquiries goes up. When a seller says I really want to run a narrow process, they can do that on Axial. We allow you, if you're excluded from that process, to write a love note and say, here's why I'm interested in this business, would you consider inviting me into the process? The more selective they are, the more open they are to a really good inquiry.

Look at the inquiry acceptance rates: even though the search fund inquiry acceptance rate is the lowest, if you write a compelling inquiry on a deal you're excluded from, you have a 46% chance of being invited into the deal. Just doing the shoe leather, putting in the work, sending a note saying, I'm a searcher, I'm Texas based, this is an interesting opportunity, here's my connection to it, here's my angle. The more thoughtful that shoe leather is, the higher the likelihood you can get into transactions where you're being excluded because the broker is nervous a search fund doesn't have capital or isn't a qualified buyer.

Question from the audience: is that all traditional search funds or self-funded search? There are roughly two forms of search. Traditional search is where you raise capital for an 18 to 24 month period from investors and use that capital to fund a search. Self-funded search is where you're not really raising outside capital until you potentially have a transaction on hand, and then you raise some outside capital alongside the debt. We consolidated both, but the largest category of search fund activity on Axial is self-funded.

We looked at 8,600 inbound inquiries where the buyer was excluded from the deal initially and then was accepted as a result of their inbound request. Authentic personal messaging works. Sector fit or thematic expression of why you're interested works. Tailored expression of why you're interested in this specific deal works. Institutional credibility works. If a family office has decided to back you, share that. Use your assets. Remember, the broker has a limited number of buyers they can put in front of the seller. The broker doesn't get paid unless the transaction closes. Put yourself in their shoes. Work backwards from the shoes of the seller and the broker.

I tried to consolidate the methods into three areas: memorable online narrative, credibility and reputation, and a data-driven and software-enabled approach to your search.

What do I mean by a memorable online narrative? An acquirer in the pet category, Bill, has worked very hard to be synonymous with pets and pet products. When pet food businesses are being sold, there's strong synonymous recall between Bill and that category. He's easy to find online, he's worked hard to create content, he's built a thesis and committed a holding company only to this category. Look at what Josh and Reg did with Kazacast. They became known for foundries.

I'm not recommending you commit to some esoteric niche that's not exciting to you or too narrow. When you commit to a niche, you get nervous you're going to miss opportunities outside the niche. But the more you can develop a theme or a thesis around your search and become synonymous with it, it really helps you figure out where to spend your time, who the brokers are you want to meet with, who the sellers are you can develop a relationship with. The wider your search is, the harder it is to set up your territories and prioritize your work.

A friend just left a private equity firm in New York. He spent a huge amount of time investigating flavors and fragrances businesses. His search fund is focused on that market. Chemicals, flavors, fragrances. He's instantly credible even though he's no longer with that private equity firm. Other people are 100% focused on something geographic. Build around something clear and precise.

The commitment to a niche also makes it easy to think about what content you can produce. A guy DM'd me on Twitter the other day, and his Twitter handle is HVAC Jack. I don't know him well yet, but he's in my mind now. If someone talks to me about HVAC, I'm going to start thinking about him. Think about yourself as a brand. You need to stand for something. It needs to be clear who you are and what you're going after. Don't think of yourself as industry agnostic, geography agnostic, just opportunistic. You can't afford to do that.

We have about 100,000 page views a month on Axial just because we publish a directory for all of our members. As a member of Axial on the buy side or sell side, you get free traffic by having a profile. My broader point: make sure you have a website, an excellent LinkedIn page. Make it easy for people to quickly find you on the internet. Don't hold your cards close to your chest. Don't do a stealth search.

For those who followed Blackstone, news started in the 1980s. For a long time it was a very staid Wall Street brand. In the last handful of years, they've done an incredible job of becoming way more accessible and creative. They have a hilarious annual video. They're outmaneuvering the old school legacy Wall Street brands with this approach. It's allowing them access to great entrepreneurs. Blackstone is a perfect case in point of someone that was legacy Wall Street and now they're making a bid for TikTok. They've been able to shift the brand in the direction where they want to build a pipeline of deal flow. That's not something that costs a lot if you have the right creativity.

We looked back at all the closed transactions on Axial in 2024. Roughly three quarters of transactions were closed by people who have discoverable, understandable, accessible online profiles and presences.

In the world of ETA, you're often thinking, how do I merchandise myself? I'm not someone who's done a ton of transactions. How do I make myself as credible as possible? An incredible woman I met in Texas a few months ago, who I interviewed on my podcast: Hagen was a pure-play operator for the first decade of her career. She was working at Terminix and Pest Control, ServiceMaster, corporate background. It was super clear from Taylor's background that she'd been in franchising and worked in those categories before deciding to start a home services roll-up in smart home automation. She made it very clear she was an outstanding operator in the category.

Some parts of the market are interested in working with financial players, and some parts of the market are excited to work with operators. Don't sell your background short. Even if you haven't closed transactions and don't have an investment banking background, if you have an operating background, use it. It is very attractive to a large number of people selling businesses to talk to operators rather than finance people. Once you make your first acquisition, put yourself out there, show that you're transitioning from operator to someone who can make acquisitions. A huge part of this market is excited to sell to an operator who's never done a deal before. That's a very credible preference many sellers have.

Clint is here. He's a professional who has sold a ton of businesses in this market. He will affirm what I'm saying: if some overly financed type shows up to a small business management meeting, it's usually the kiss of death in terms of winning the transaction. When someone shows up in blue jeans and has a history of being a credible operator, it's a pretty good look. Don't undersell your resume. Make whatever your operating background is as visible as possible. Then as you start doing transactions, make sure they're super visible.

What's so different about this market today versus when I started Axial in 2009 after the world practically ended with Lehman Brothers: this market didn't read blogs, there were no podcasts, SMB Twitter did not exist, there was no way to cultivate an online audience, and nobody was revealing their playbooks. There was no such thing as Josh sharing a playbook. Everything was close to the chest. Today there's so much you can access, contribute to, and be part of. You have the tools to cultivate a reputation, a memorable narrative, and credibility around yourself. Combined with the fact that there are so many business owners selling their company in the next 10 years, that's why ETA is surging so much, to meet the demand.

The more you can show online related to operating credibility and transaction credibility, the more likely you are to be taken seriously by the broker. The more you hold things close to the chest, the harder it is to work your way into these processes.

This is almost like a tech stack you could crib. It's incomplete. Some are pricier, some are free. It's important that people take advantage of either low-cost or free software to power your search. You don't want to be managing things exclusively out of Google Sheets.

Whatever you do, you must resist the very tempting desire to AI-bot your search and email blast your search. This is an email from someone reaching out to me asking if they can buy the company. It's all about them: when can I talk to you to determine whether your firm is a good fit for us. There's no relationship. It's just spam. Good business owners aren't going to respond to this. You wouldn't want to buy a business where the owner responds to this kind of outreach. A business owner who has run a business for 5, 10, 20, 30, 40 years, maybe inherited from the prior generation, is going to be thoughtful about who they spend time with. This can't be the top of your funnel.

I had some fun last night and asked Grok to summarize this. The response, remove me, underscores the email's failure aligning with industry advice on avoiding common cold outreach mistakes like poor preparation and generic messaging.

Here's a compelling alternative. Cam is an associate at a Boston-based private equity firm. Subject line: PSG Axial priority interest due to alternative assets thesis. When that's in my inbox, it's already more interesting. It's clear why he's reaching out to me. This is not a canned email. The temptation with all the software is to write generic emails, blast them out, measure open rate, and work your way through the funnel. The problem and the opportunity is that everybody else is doing that now. This is the time to be more thoughtful, to zig while everybody else is zagging. Instead of blasting thousands of emails, take your send volumes down by 90% and take your customization rate up by 500%. Get focused, get thoughtful, do the real work, and your open rates will go through the roof. Your reply rates will go through the roof. The first impression you're making with an owner thinking about talking to you versus everybody else emailing them puts you in a much better position at the top of the funnel. This builds pipeline.

Axial is not for sale, but if I were thinking about selling the company, I would respond to him. I'd say thanks for the email, happy to get to know you and build a relationship over the next couple of years. Business owners are getting both kinds of emails. You want to be in the one camp and not the other.

Three things, you can build them to greater or lesser degrees over time. This takes work and time. You can't mail it in. Being visible and memorable online, building a credible reputation around something core and authentic to you, and using the tools of the internet and software responsibly works well.

Q&A:

Question: Your website has a section for closed deals that's one of the better uses for figuring out multiples. Is that coming directly from your sourced deals, and have you seen any changes on the platform on multiples or use of cash?

Answer: We have a closed deals page that shows all transactions closed by Axial members. There's also a set of transactions attempted on Axial that don't successfully close on Axial but close in real life. The seller uses Axial to sell the deal but isn't exclusive to Axial. We measure both and publish both. The closed deals page on Axial is Axial only. The other is the bigger, broader data set. The average close rate we observe across the whole market is roughly 20 to 30% each year. Of 10,000 attempted transactions last year, we have line of sight on about 2,500 successfully closing.

We operate in four or five industry categories. Industrials, where I started the business, is still the largest category, about 25% of activity. Healthcare, tech, services, and consumer are the other top four. There's no question valuations came down as the price of money went up in 2022 to 2023. There was a big pause in the market related to the rate of change in interest rates. Once interest rates settled at four or 5%, the markets reorganized. The markets hate change. I'm delighted that yesterday happened around tariffs and policy, but I pray there isn't a changing of minds every single day. Stability is key for buyers and sellers to self-organize and transact.

We had 60, 70 businesses go under LOI in the first quarter of this year. There's plenty of people putting skin in the game and incurring due diligence costs. I think tariff policy is probably the most profound change to due diligence processes over the rest of this year. There's going to be a whole new checklist for due diligence related to tariffs, tariff implications, supply chain. That will pause manufacturing and supply chain related transactions. It will extend LOI and diligence periods. Quick rule of thumb: average transaction on Axial from being under LOI to closing is about 130 days. It's not a 60-day close.

Question: I get constant questions about multiples and I'm seeing them stay high because there's not a lot of supply. What are you seeing?

Answer: It's tempting but misleading to prognosticate on multiples broadly. Businesses are so different. A software business that looks the same in every way: did you see the CoreWeave IPO? It's a really interesting example. This is a business in the hottest category, AI, AI, AI. They could barely get out because they have huge debt, they're not profitable, and 60-70% of their revenue is Microsoft. You always hear about customer concentration as the kiss of death in small business, but it can happen on a grand scale with a company like CoreWeave. They had to reduce IPO proceeds and take down valuation.

Great businesses are getting priced at attractive multiples today. Businesses that are challenged are either not trading or trading at substantially lower prices. I would encourage you not to worry too much about multiples. Focus on the micro. Build your pipeline. Meet with entrepreneurs. Focus on business quality and the ethics of the entrepreneur. Don't buy a good business from a sketchy business owner. There are too many skeletons in the closet. The last thing you need is to inherit a bunch of skeletons from someone unethical. That matters so much more than whether you pay four times EBITDA or four and a half.

Question: Could you talk about how pricing works on the platform?

Answer: We do not charge up front. We spent eight years trying to charge a subscription on the buy side. We were successful to the extent buyers were willing to pay a subscription, which most buyers are hesitant to pay. The rule tends to be: if we close a deal, I'm happy to pay it. I had an operating background working at a fabulous subscription business co-founded by my brother and thought subscriptions were the only way to make a business work. We switched to a transaction model in 2018 and got serious about it in 2020.

Today, you do not have to pay a subscription to join Axial. The Lehman fee is the pricing calculation we use for someone buying a business. The repeat buyers on Axial have benefited from a frequent flyer program where every time you buy a business on Axial, we issue you credits, $1 of credit for every $4, essentially a 25% credit. We've been trying to figure out how to extend that credit system to the ETA market. The problem is most of you are not repeat acquirers.

We haven't announced this, but we're going to take the credit system that applies to repeat buyers and apply it to people in ETA. We will do it if you are PG'ing a transaction. We will grant pricing relief to anybody PG'ing a transaction. The way it works: the more leverage you're taking on, the greater relief we'll provide. Think of it roughly as: the Lehman fee is 3% on a $5 million transaction. If you were a repeat customer, you'd get 25% off in credits. Now you'll get some of that off as a PG buyer on Axial. For most people buying $4 to $6 million businesses, it ends up being a 2 to 3% transaction fee.

Follow-up: do people usually roll that into the fees? Yes, you can roll some into the fee. If you're raising equity, you can use some of your equity. We also offer payment plans because a lot of times people want to pay out of cash flow. We ask you to pay 50% at closing and the remainder over 12 months, no interest. We just charge whatever your highest interest is. If your seller financing is 8%, we just get in line with whatever your term sheets are.

Question: The close rates are really interesting. Do you have line of sight on the skew of deals not closing and how much that's related to buyers and sellers?

Answer: Close rate is a super elusive number. You'll never meet an investment banker or business broker that says they have a low close rate. The data I shared, 20-25%, is self-reported, so it's not pure. I think the number is higher than that, but not a lot higher.

In terms of why they're not selling: small business owners are usually not well prepared to sell their business in terms of transaction readiness. The financials are hard to ascertain and get confident in. A diligent buyer has to spend a lot of time getting comfortable with that. It can reduce the interest of a lot of buyers. They have other pipeline, other opportunities. They're not going to spend nine months reconstituting financial statements from bank statements. It's too much work and not a big enough deal. The reason that's interesting is for anybody willing to do that work, you can probably buy that business for a really below-market price because you have to do all that work to get it correct. Financial readiness is a really big part of it.

It's a very anxiety-producing transaction. Entrepreneurs have to cut corners over the course of their business's life. Sometimes acceptable corners, sometimes corners they probably shouldn't have. They can withhold those things, and when they come out in diligence, it really breaks the trust that has to form between buyer and seller. That's a big reason transactions break: something comes out in the seventh bid of diligence and the buyer just can't move forward. Cards on the table is a way better approach, but a lot of entrepreneurs don't do that.

There's also a lot that happens on the buy side. ETA buyers are not flush with committed capital from CalPERS. You don't have an endowment that's just backstopping your deal. Things can get hairy on the buy side too in lining up financing and figuring out equity checks. Deals break for a lot of reasons. I really wish there was a magic wand that could help entrepreneurs get real about exit readiness. It would really help the market trade in a more liquid way. If I had another life, I think I would start a business focused only on that.

Question: You had a slide on the CRM system. Do you have a recommendation?

Answer: I think they can all work pretty well. There's some really good cheap or free software these days. I have a soft spot for HubSpot. I love the ethos of that company. They have a free or very low-cost CRM that does the job really well. A lot of the brokerage community uses Pipedrive, which is also reasonably priced. I have a ton of respect for DealCloud, which is an up-market institutional great CRM, but it's really expensive. I don't think it's necessary. You don't need to overpay. A CRM is like a gym. If you use it a lot, it's going to help you. If you don't use it, it's totally useless. It's really about what you put into it. Full disclosure, I'm a HubSpot shareholder.

Question: I just closed about 30 days ago, my first deal. As a searcher talking to brokers, they immediately discount you. Brokers are looking for strategics, deeper-pocketed buyers. Once we closed, I noticed clients were very concerned about the business being bought by private equity, and sellers are concerned about private equity as well. How do you balance that where brokers are discounting you looking for private equity, but a lot of sellers and their clients may not want that?

Answer: You need to sell against private equity as an ETA searcher. Your job as an ETA buyer is to get in front of the owner of a business you're excited to be talking to and to be the son or daughter they don't have, taking over the business. That's the way to win in search. Sell against private equity. Don't spend time working with brokers and owners who have no qualms selling to private equity. That's not your market opportunity. Don't try to climb that hill. There's enough of the market interested in selling to someone other than private equity. That's the basis of your addressable market. I wouldn't worry about how to overpower a private equity competitor. Spend your time elsewhere. It's like building a product company: there's a set of customers who are a good fit and a set in your broad market you can't serve well enough yet. In ETA, you're really looking to buy a business from someone who distinctly does not want to sell to private equity. I've seen that work well.

Follow-up comment: Have your story down when you get the inevitable question, where does the money come from?

Yes, you have to be ready for that. Who's buying this business? What's financed from debt, what's equity? Is it your savings? Do you have an investor backing you?