What are the characteristics of a good search fund target?

Good search fund targets typically share a common theme: they’re steady, resilient businesses with clear room to improve. Knowing the search fund target criteria helps investors and searchers identify these high-potential businesses. Investors and lenders look for specific traits that signal reliability and growth potential, and these same traits also make life easier for the incoming searcher. Understanding what to look for early on helps narrow the field and focus time where it matters.

In this article I have presented some key characteristics to look for in a search fund target:

Stable and sustainable revenue streams

A company with predictable and resilient revenue is far more likely to secure investor and lender support. This includes customer, product and geographic diversification. Customer concentration is one of the most common issues that can derail a deal, so understanding how revenue is distributed is essential.

A target with high reliance on individual relationships may be deemed riskier, as customers may be more likely to exit under a change in ownership or make pricing demands.

A detailed customer review as part of commercial and financial due diligence helps validate customer retention and assess whether any concentration poses a real risk. Typically, a track record of consistent revenue generation and contracts with key customers is indicative of a resilient business model. It also reduces the risk of extreme fluctuations in revenue.

Strong cash flow generation

Strong cash flow is the engine of a successful search fund acquisition. It supports debt repayments, provides financial stability and enables reinvestment in growth. Profitability alone is not enough. What matters is how consistently the business converts earnings into cash, how well cash reserves can cover payments during the working capital cycle, and how dependable that cash flow will be in future periods.

Management team

Dependent on the particular transaction, it may be important to consider the quality and experience of the target company’s management team. This includes assessing the team’s track record and specific industry expertise, as well as meeting and building a strong relationship with the team.

A reliable team gives the incoming searcher the space to focus on strategy and growth rather than becoming involved in every operational detail. Businesses with a self-sufficient leadership structure tend to offer smoother transitions and clearer opportunities for value creation.

In certain transactions, management will exit as part of the deal, here there may be more focus on the underlying processes and reliance on middle management.

Market position and competitive advantage

A good target should hold a clear position in its market and have something that sets it apart from competitors. This may be brand strength, loyal customers, operational excellence or a service offering that is difficult to replicate.

A defensible competitive advantage helps protect margins, maintain cash flow and support long-term performance. For lenders and investors, this stability is often just as important as financial metrics.

Operational efficiency and scalability

Well-run businesses with efficient processes are easier to scale and more likely to deliver sustainable growth. Searchers should examine whether the business can expand without needing heavy investment in people, systems or infrastructure.

It is also useful to identify opportunities where simple process improvements could deliver meaningful gains in productivity or profitability.

Clear exit opportunities

Even at acquisition stage, investors will expect clarity around potential exit routes. The business should be the type that would appeal to strategic buyers, private equity or other investors once it has grown.

Searchers should consider how the business might be valued in future and how its growth plan supports a credible exit. This assessment is especially important when modelling investor returns.

Alignment with your skills and experience

Although not a prerequisite and certainly not as critical as some of the financial and operational factors above, it is still worth considering whether the business operates in an industry where the searcher already has hands-on experience. Familiarity with the sector can help accelerate decision making, build early credibility with staff and customers, and make it easier to identify practical improvements once in the role.

That said, we recognise that prioritising only the industries you have worked in can significantly narrow the search, and previous experience does not always align with the kind of business a searcher is genuinely passionate about. For this reason, industry fit should be viewed as an advantage rather than a requirement. It is helpful when present, but its absence should not rule out an otherwise strong target.

Ultimately, the strongest search fund targets are not defined by a single characteristic, but by a combination of financial resilience, operational stability, and clear opportunities for value creation. By focusing on these elements, searchers can increase the likelihood of identifying a strong acquisition target.

Looking for support on your search fund journey? Speak to one of our advisers below or contact hello@geraldedelman.com.

For further information and advice on acquiring businesses as a search fund, read our guide here.