What types of companies do search funds typically target?

Search funds target a specific segment of the market characterized by established, profitable small-to-medium enterprises that fall between individual entrepreneurial capacity and institutional private equity interest. The ideal target company generates EBITDA (earnings before interest, taxes, depreciation, and amortization) between €1 million and €4 million annually, with €2 million being the sweet spot. Revenue typically ranges from €5 million to €40 million, though €10-15 million is most common. Employee counts usually fall between 10 and 150, ensuring the company has professional management depth beyond the owner but isn't so large as to be complex. These parameters ensure the business is substantial enough to support professional management and growth initiatives while remaining below the threshold that attracts larger private equity funds, reducing acquisition competition. Sector preferences strongly favor B2B (business-to-business) companies over B2C (business-to-consumer) operations. B2B businesses tend to have more stable revenue streams, long-term client relationships, lower marketing costs, and less exposure to consumer trends and economic volatility. Preferred industries include specialized manufacturing, industrial distribution, niche software and technology services, professional services, and healthcare services. Searchers typically avoid retail, hospitality, and capital-intensive sectors. The target must demonstrate consistent profitability with a track record of at least three years, recurring revenue models where possible, low customer concentration risk, and limited dependence on the current owner for operations. Strong existing management teams are highly valued, as searchers need operational support during the transition. Geographic considerations vary by region, but companies must be accessible for hands-on management. The search fund model works best with businesses that have stable fundamentals but untapped growth potential through operational improvements, geographic expansion, or add-on acquisitions.