What does a traditional search-fund stack actually contain?
Buying a manufacturing business with a searcher still starts with a buybox. The search-fund guide is the buyer-ops twin. Selling to a search fund is the seller twin. This page is the stack.
If the searcher wants 7(a), SOP 50 10 8 still requires a 10% injection and full-standby rules for any note treated as equity. Affiliation can trip a "I am an individual" speech. The lender decides.
Why is the Stanford $16 million median the wrong job-shop quote?
Grousbeck-Holloway Center data through 2025-12-31 put 2024–25 median purchase price at $16 million, with recaps describing a median target near $8.1 million revenue, $2.5 million EBITDA, ~25% EBITDA margin, ~30 employees, ~12% EBITDA growth, and 6.2x EBITDA (Source: Stanford GSB / Five Experts recap). A 12% EBITDA general fab with 40% concentration is not that company.
Searchers still buy manufacturers. They just underwrite them as labor, certificates, and owner-dependence problems. HedgeStone will not let a CIM paste 6.2x onto a job shop because a searcher signed an NDA.
How do searchers underwrite labor and certs harder than contracted services?
A contracted services firm with durable margin can survive a new CEO who does not quote. A job shop whose owner is the estimator cannot. Deloitte and the Manufacturing Institute estimated 3.8 million workers needed in 2024–2033, with 1.9 million potentially unfilled (Source: Deloitte/MI). BLS OEWS May 2025 medians — machinist $58,750, welder $53,750 — describe replacement cost, not a bench (Source: BLS).
Certificates (AS9100, ISO 13485, IATF 16949) are customer-access products. A searcher who has never sat an audit will still pay for the last CB report and a second-chair quality lead. How lenders underwrite manufacturers will ask for the same artifacts.
Where does the seller note sit next to investor equity?
Often as a defined junior piece after committed equity and senior. Sometimes as a sweetener when the searcher is at the top of a board-approved range. It should have a named job: gap, tax timing, or (if 7(a) is in the stack) SOP-compliant standby equity up to half the injection. It should not be the entire down payment.
| Stack piece | Who funds it | What must be true | Failure mode |
|---|---|---|---|
| Search capital | Original investors | Already spent; not acquisition equity | Confusing it with close cash |
| Acquisition equity | Investors / self-fund | Committed before exclusivity | "Board likes it" without a check |
| Senior / ABL | Bank | DSCR or base works | WIP-heavy base; concentration |
| 7(a) if used | SBA lender | $5M box; 10% injection | Affiliation; project over cap |
| Seller note | Seller | Named job; subordination | Current pay that fails DSCR |
| Earn-out | Future operations | Lender ignores for coverage | Used as fake equity |
Mezzanine and unitranche appear on some larger searcher files. They do not appear on a Main Street SDE shop because a searcher is in the room.
What kill shots show up in searcher credit memos?
Owner quoting with no deputy. A certificate that expires in the close window. Customer concentration the bank will not take. A working-capital peg that says customary. Inventory that is mostly hope-margin WIP. A searcher whose equity is "in process." Median search duration near 20 months (Source: Stanford recaps) describes hunting time. It does not entitle anyone to 90 days of exclusive hope.
Aggregate acquisition rate since the first study report in 1996 is 58%; recent 2021–24 launches sit closer to ~50% (Source: Stanford GSB). That is a searcher-success statistic. It is not your close probability.
How should a seller read a searcher who is still raising?
Ask for the equity commitment letter, the senior term sheet, and the uses-of-funds table. IBBA Q1 2026 put 83% of deals over $5 million at three or more offers (Source: IBBA). If your file is in that band, you can wait for committed capital. If your file is a thin SDE shop, a searcher may still be the wrong exclusive because the study median is not your multiple and the process may be slower than an individual 7(a) buyer.
Study-wide IRR 33.9%, ROI 4.75x, and PME 2.88 as of 2025-12-31 (Source: Stanford GSB) are investor-history figures. They are not a reason to discount your plant, and they are not a reason to believe every searcher closes.
What does a searcher stack look like on an $11 million EV plastics compounder?
$1.8 million EBITDA, 21% margin — below the study's ~25% median, above a job shop. Investors commit equity. Bank cash-flow senior plus a modest ABL for seasonality. Seller note with current pay that coverage can carry, not a fake standby. No 6.2x speech. Contrast a $3.2 million EV 14-person fab at 11% EBITDA: that file is an individual 7(a) conversation, not a Stanford-median conversation.
Jason Taken is a business broker. He does not raise search capital or sit on a search board. Educational information only. Confirm equity, debt, and SOP questions with the searcher's investors, lender, and counsel. Data current as of September 2026.
How should a quality-of-earnings report sit next to a search board memo?
Boards will ask for a QoE once add-backs could move a turn. If the report kills $400,000 of EBITDA, the stack must shrink or the price must move. Do not hide the report from the seller until exclusivity is almost dead. Share the delta. Rebuild uses of funds. The peg still needs a manufacturing definition after the QoE comments on WIP.
New core search launches stayed historically high in 2024–25 (Source: Stanford GSB). Volume of searchers is not the same as volume of closable manufacturing files. Process still beats slogans.
How should a seller test whether search equity is committed or merely enthusiastic?
Ask for the names of the institutions or individuals who will fund — not to publish them, and this page will not publish them — but to know they exist. Ask for a commitment letter or a signed sources-and-uses that the search CEO's counsel will stand behind. "My board is excited" is not a letter. "We have a 70% indication" is not a close.
If the searcher is self-funded, ask for proof of funds and for the senior term sheet. Self-funded does not mean unlevered. It means the equity source is different. The peg, the machine list, and the second-chair plan do not get easier.
Hold a date by which commitment must arrive. If it slips, the exclusivity slips or ends. BizBuySell's 223-day median (Source: BizBuySell) is not improved by a searcher who is still syndicating in month four of exclusivity.
What second-chair plan should a searcher bring that a 7(a) individual might not?
A named operations deputy, a quality lead, and a controller path. Study companies at ~30 employees and ~25% margin often already have some of that (Source: Stanford recaps). Job shops often do not. A searcher who plans to "be the CEO and the estimator" is buying a lifestyle, not a study-median company. Price the hires. Put them in the model the bank will see.
Search investors will ask for that plan because they have seen owner-dependent shops fail. Sellers should ask for the same plan because the earn-out and the note depend on the shop running. If the plan is "I will learn the Haas on weekends," keep another buyer warm.
How should ITAR, FAR, and foreign-investor participation change a searcher stack?
If search investors include foreign persons and the target is a registrant, DDTC notice and possibly CFIUS analysis sit on the calendar (Source: DDTC). That can kill a close date or kill a buyer. Ask the searcher's counsel early. Do not wait for the bank's counsel to find the registration in week ten.
FAR novation still applies to government work. A searcher SPV is a new contracting party. Write the novation plan. Write whether any facility clearance sits on people who will leave. These are not Stanford-median problems. They are manufacturing-file problems that search capital does not automatically solve.
How should a seller read a searcher's QoE scope before granting a long exclusive?
Ask whether WIP, percentage-of-completion, and customer concentration are in scope. A QoE that only tests add-backs on a job shop is a partial report. Search boards will still ask about the cage. If the scope is thin, the stack will be thin, or the reopen will arrive in week ten.
Study-wide acquisition rates near 50–58% (Source: Stanford GSB) describe searcher outcomes, not your exclusive. Grant time that matches a scoped report and a committed equity date. Then stop.
A searcher who wants 7(a) still lives inside $5 million and a 10% injection under SOP 50 10 8 (Source: SBA). A searcher who wants the study median usually does not. Ask which animal is in the room before you price the exclusive. Combined 7(a)+504 can reach $10 million only when occupancy and both programs fit (Source: SBA). That sentence does not turn a 12% job shop into a 25% study company.