Buying a “Mid-Street” Business
Has anyone gone and done entrepreneurship through acquisition? I’m at a place in my life where I’m fairly certain I do not want to be a career banker but want to do a self funded search to go and buy a “mid-street” business (I saw a broker use this term to describe businesses that aren’t Main Street but aren’t at the $1mm EBITDA mark to be lower middle market). I’ve got a fair amount of transaction experience but it’s all been corporate banking or public finance save for two internships. I’ve got ties to a small city of about 100,000 which seems to have a number of targets that are of interest and I know the brokers, accountants and lawyers being from there.
My questions are: has anyone else done this?
How did you run diligence? I’ve spoken to a few QoE providers and local auditors, and feel comfortable about that part.
Did any industries standout? It seems the usual suspects are home service, healthcare, etc.
For those who are now a few years in are you happy operating?
Jumping straight into it, here's what you need to know about entrepreneurship through acquisition (ETA) and buying a "mid-street" business based on the most helpful WSO content:
1. Has anyone else done this?
Yes, ETA is a well-trodden path, especially for those looking to transition out of traditional finance roles like banking. Many professionals have leveraged their transaction experience to acquire and operate businesses in this space. It's a popular route for those who want to combine their financial acumen with hands-on business management. The key is to ensure you have a clear strategy for sourcing deals, financing the acquisition, and operating the business post-close.
2. How to run diligence?
3. Industries that stand out:
4. Are you happy operating?
This is a personal question, but many who go down this path find it rewarding. Operating a business allows you to directly impact its success, but it’s a different skill set from deal-making. Be prepared for the challenges of managing people, handling day-to-day operations, and making tough decisions. If you enjoy problem-solving and building something tangible, you’ll likely find it fulfilling.
Pro Tips:
If you’re serious about this path, it sounds like you’re already well-positioned with your transaction experience and local ties. Just make sure to approach it with a clear plan and the right team to support you. Good luck!
Sources: https://www.wallstreetoasis.com/forum/real-estate/how-is-anyone-getting-deals-done?customgpt=1, Cross-Atlantic Investment Shift | The Daily Peel | 7/12/2023, HF to PE post-MBA - my story and seeking advice (long-time poster)!, Q&A - Infrastructure PE & IBD, Private Equity or Pizza Equity?
You need to pause for a moment and do due diligence on what operating a business means and if you want the destination before you ask about the journey.
A Main Street business is a difficult thing to run, and if you don’t know how to diligence one I am not sure you could successfully fundraise for, and generate value creation through one.
Not trying to discourage you, but public finance and corporate finance on deal work isn’t interchangeable here.
I know a lot of people that did this at the LMM level and ended up in a rut because operating sucked for them
I grew up around small business, my father owned his own practice and my mom managed it. I’m acutely aware that there’s a lot of non sexy aspects, at the size I’m looking at there may be a bookkeeper or office manager, maybe an accountant or it may be the owner sitting there with Quickbooks. The freedom is oversold, but the autonomy is appealing. In banking it feels like you can’t do anything without a principal’s or compliance’s approval. At least owning a small business you can do what you want and if it’s wrong then it’s my fuck up.
I know at this scale there’s a lot of working in the business as opposed to on it, but for the life of me I can’t help, but feel if I ground it in IB at sixty five I’d regret not doing this.
When it comes to capital I’m not seeing outside dollars I’m using SBA debt with my own equity.
Haven't done this, but am thinking about it. I'd recommend looking into hiring small / medium business consultants that can give you good recommendations on how to run your business well and consultants who specialize in acquisitions and due diligence for the size and type of business you are acquiring.
Also read a lot of books on business because you need to know what to do from day one and maximize profits
If you are paying for consultants for the opco and acquisition, you shouldn’t be doing this.
Just spend a year working under someone who has done this already
What type of business did you have in mind and why does it interest you?
There are a few different areas that interest me:
Life safety, sprinklers, fire/burglar alarms: essential services that can potentially protect or save lives, cool business models with recurring or contractual revenue.
HVAC, plumbing: I know a bunch of people in the trades and honestly find the stuff fascinating. I like the concrete nature of it, you send out a tech and a problem gets fixed. High degree of essentiality and HVACR has a good business model with service contracts and semi-annual maintenance.
Porta-Potties, septic, liquid waste hauling: No one dreams of being the septic king of [fill in the blank] but in this market septic is common and there’s a decent amount of growth in rural areas which is surprising.
Mental health practices: non-licensed ownership is allowed here, recurring revenue, I worked in healthcare on the provider side previously so I’m familiar with the space.
RIAs: steady revenue with the AUM model, closer to the finance world and professional services space. I enjoy personal finance and would enjoy working with retail investors.
There are others, but that gives you a sense as to where my head is.
How much do you expect to cash flow after deft service on a business of that size?
Addressing your questions in order:
Smart move on utilizing SBA debt (former SBA lender here).
As someone who has been in the Search/ETA world for 10+ years, I'll counter that there are a lot of nonprofessionals in the space but you can totally do whatever you want because there's simply a lack of convergence on what's "standard" - talk to 10 different people and you get 10 different answers, each from their own opinions. Explosion of the space coincided with ZIRP and the post-covid reboot but has continued to grow, particularly around the top business schools/conferences offering classes/professors who invest in the space.
You can totally outsource diligence, but the question is if you'd want to (really depends on the level of comfort with the industry, the business itself, your level of comfort with expending the $ it takes into diligence vs equity into a deal, and the lender you partner with).
Ultimately, it's a question of what you want your "second mountain" to look like, where you want to optimize/focus. Ownership? Autonomy? Check and check. Income? You're likely familiar with the j curve post-acquisition, so taking that into account plus using up your potential runway on deal fees / close / exit liquidity has to all be factored in.
My wife and I bought in 2020, did a tuck-in in 2021, grew and sold in 2024. I was involved more on the systems/admin/finance side, and far more in the year leading up to the sale - this was more family/personal than it was business - sold ahead of when we would have liked but life happens outside of work. Seen plenty of deals while with the largest search lender by $, as well.
Industry-wise - if you have a geographic constraint, then it's often more about you deciding where your expertise best fits vs a particular industry, unless you have a very narrow thesis. That's my take - and rarely do first time searchers / acquirers have any specific industry chosen.
Coming from IB, you already know the deal mechanics, but SMB financials are an absolute mess compared to corporate/public files. Local CPAs are fine for tax filing, but most of them have no idea how to run a proper Quality of Earnings for a $1M-$3M transaction.
When I was looking at targets, I quickly realized local accounting firms just treat it like an audit and miss things like working capital adjustments or aggressive add-backs. I used Bedrock QoE for diligence because they focus specifically on lower-middle market deals, do flat-fee pricing, and actually get the turnaround done in a couple of weeks without charging Big 4 rates.
If you're doing a self-funded search, definitely don't skip a dedicated QoE provider. Finding a weird revenue recognition issue during diligence is usually what gives you the leverage to renegotiate the purchase price.
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