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Take Five #048: Top takeaways from the Wharton ETA Summit last week, and more

1. What exactly does "S Corp" mean and why are they popular in SMBs?

Incredible thread (concise, despite being 20 tweets!) on the implications of S Corps as a classification:

2. Lessons learned so far from a year and a half of searching

Great takeaways from a searcher who is still on their search about the day to day realities of finding a business to buy:

Hey there, my name is Tim and I've been searching for a business to buy for about a year and a half in British Columbia, Alberta and online. While doing this, I've been building up my own craft cider business as well as growing a local construction company. This journey has taught me an immense amount about acquisitions on both the technical and soft aspects of the process. Today, I'm sharing some of the soft lesson's I've learned along the way. Hopefully, they will be helpful for people looking into buying a business. Or, maybe you will have some advice for me after reading.

Here are the lessons summarized:

1. Keep your job. It’ll take longer than you think.
2. Your target will change.
3. It's kind of lonely.
4. You're a salesperson.
5. Be genuine.
6. Deal flow isn't always there.
7. Everyone has an opinion.

Loved this last lesson in particular on heavily debated topics and how to make them work for you personally:

Lesson 7: Everyone has an opinion. I gladly accept anyone’s advice. After all, I’m still pretty new to the M&A world. However, I realized quickly that there are many heavily debated topics and you’ll have to weigh what is best for you. For example, working with intermediaries is my approach because I believe they weed out sellers who aren’t ready to sell, get the company ready for a transaction, and help facilitate negotiations. However, some people are adamant that direct outreach is best because you can get better deals that are focused on your target area. Both methods also have drawbacks. Working with an intermediary could backfire if they miscalculate the valuation and set seller expectations too high. On the other hand, direct outreach is extremely time consuming. You will frequently encounter more debates on topics such as earnouts, multiples, and industries. I’ve learned that I need to listen to all these arguments, so I can make educated choices on what will work best for me.

From “Buying a Business: A Year and a Half Searching, Lessons Learned so Far” by Tim Woodward

3. Top takeaways from the Wharton ETA Summit last week

The Wharton ETA Summit was hosted last week (March 24th) and tickets were sold out quickly. Great recap by Bruce Marks on top moments from the event:

6:44 AM ∙ Mar 25, 202352Likes3Retweets

4. 7 ways to make your search less lonely

5. Ouch. When to give up on your search fund dream

Another case study from the folks at Yale (note: A.J. Wasserstein is incredibly prolific) about how to assess a failing search fund after three to five years, for both CEOs and investors alike:

According to the 2022 Stanford Graduate School of Business Search Fund Study, 34% of search fund entrepreneurs do not purchase a business, and 27% of the 66% who do acquire a business end up destroying wealth. Pursuing a search fund is a challenging, nebulous journey that requires an abundance of tenacity and grit. While we typically advocate for search fund entrepreneurs sticking with their projects and continuing to pursue their vision, we simultaneously believe there is a time when a flagging search fund dream should end, and a weak, underperforming business should be sold – even at a loss. We consistently observe search fund CEOs and investors who hold on to a shaky company for too long with aspirations of recouping destroyed equity value. We believe entrepreneurs pursuing a search fund pathway should enter the game with their eyes wide open and have a clear picture of when they should jettison a business that is not performing and creating value.

It is just as important to know when to give up on a dream as it is to know when to embrace a vision. A dream that has no tenability can easily slip into the realm of delusion. This case note will focus on when CEOs and investors should exit a poorly performing operating business in a search fund context.

From “When to Give Up on Your Search Fund Dream” by Matt Littell, David Rosner, A. J. Wasserstein

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