Acquisition Entrepreneurs: A Solution to Succession Dilemmas

Acquisition Entrepreneurs: A Solution to Succession Dilemmas

Dec 15, 2022

By Michael A. Zaydon, CPA

pa-cpa-journal-acquisition-entrepreneurs-a-solution-to-succession-dilemmasThe next generation of aspiring small-business owners is playing a major role in facilitating the generational wealth and business transition wave currently underway. This group of entrepreneurs, it seems, may be the perfect fit for business owners and their advisers who care not only about the financial prospects of a business exit, but the emotional ones as well.  

Succession Dilemma

Retirement-age owners looking for a full or partial exit from the businesses they have built commonly wish to see their companies continue to operate in line with their vision under the right leadership. These owners may not have a succession plan in place, often driven by a lack of ability or interest among the next generation in their families. According to PwC’s 2021 Family Business Survey, only 34% of family businesses in the United States have a robust, documented, and communicated succession plan in place.1  

There are three key exit options for owners without succession plans. The first, depending on the size of the business, is a sale to traditional private equity buyers. This, however, may not be a viable option. If a company does fit the size criteria for these buyers, the owner may question the buyer’s post-acquisition intent around operational changes and staffing strategy.  

The second option is finding a strategic buyer, which could be a local competitor or a larger business looking for roll-up targets. While strategic buyers may be positioned to pay a premium price, the owner may have concerns regarding what aspects of the business will remain intact. 

A third alternative that has gained popularity in recent years, which owners in the lower middle market and their advisers should consider when planning for a sale, is the sale to an acquisition entrepreneur. 

Acquisition Entrepreneurs

Entrepreneurship typically elicits images of prototyping, startups, and angel investors, but these are not the limits to this term. Entrepreneurship through acquisition, or ETA, is the practice of buying an existing small business and taking over the leadership of the company, whereby the buyer becomes the owner/operator.  

ETA attracts professionals who are drawn to positions of leadership, have a level of financial and operational experience, enjoy solving complex problems, and have a strong desire for building businesses. ETA has seen increased popularity among a new generation of entrepreneurs: 30-to-40-year-old midcareer professionals with diverse backgrounds who are looking to expedite their path to ownership, leadership, and economic upside.  

“I’ve always been entrepreneurial, and while I had success moving up the ladder in a corporate setting, I knew I did not want to spend my entire career in the corporate world. I wanted to pivot into a path where I could be a leader and have more control,” says Michael Kelker, president of Timberline Pallet in East Moline, Ill. 

In a recent Wall Street Journal article,2 Lindsay Ellis discussed the rise in popularity of ETA-specific programs, courses, and networking events at top business schools – including Stanford, Harvard Business School, and Wharton, among others. Ellis pointed to a common theme: students at the nation’s top business schools are increasingly passing on the prospects of pursuing careers in investment banking, private equity, and consulting for opportunities to acquire and operate Main Street businesses.  

The key difference between ETA searchers (searchers) and startup entrepreneurs is that searchers care less about developing new venture ideas and care more about the idea of ownership, leadership, and building solid cash-flow-generating businesses with growth potential. “Many are family firms without a succession plan or companies too small to attract typical investors,” Ellis says. 

Searchers may focus on certain industries based on personal interest or they may even acquire a company in an industry in which they do not have any past experience. Searchers-turned-operators mitigate the potential pitfalls of the second scenario through a disciplined targeting and diligence process focused on identifying businesses with strong middle-management, engaged employees, and a track record for consistent profitability, coupled with their personal entrepreneurial drive, leadership skills, and business acumen. 

Kelker, who launched the search fund GBR Riverdale in 2019, is an experienced aviation and engineering professional. He may not have been the most conventional buyer candidate for Timberline Pallet, a manufacturer of crates and pallets, but that did not deter him. “When I met the previous owners ... they quickly understood I sincerely desired to carry on their legacy, provide additional opportunities for their employees, and continue to grow the business. They saw in me genuine interest in understanding what made their company successful over the last 40 years and that I was totally committed to keeping the business successful after I acquired it,” Kelker says.  

Transactions are typically structured like mini leveraged buy outs, with part of the acquisition being paid in cash and the remainder in some combination of traditional or nontraditional debt facilities and earnouts. Each sale differs in terms of transaction size, form, proposed structure, source of funding, and transition timeline. Certain transactions can be financed under the U.S. Small Business Administration SBA 7(a) program,3 a common financing strategy employed by searchers. 

Place at the Table

There is a broad ecosystem of searchers and models through which acquisition entrepreneurs engage owners, evidence their ability to finance and close an acquisition, and subsequently operate a business.  

Searchers seeking larger acquisition targets may be backed by equity investors, including high-net-worth individuals, family offices, and other patient capital investors specifically structured to invest in acquisition entrepreneurs. An investment vehicle called a search fund provides the searcher with the financial means to search for a target company, structure and finance an acquisition, and ultimately step into the role of CEO to operate the business – earning equity in the company at certain milestones.  

This model not only provides financial support to the searcher, but also professional mentorship from the searcher’s investors. According to Stanford’s 2022 Search Fund Study Selected Observations,4 the average purchase price for traditional search funds that closed an acquisition in 2021 was $16.5 million.  

Self-funded searchers may be interested in smaller businesses that align more closely to the SBA 7(a) program’s loan financing limitations (e.g., $5 million loan maximum). These searchers may prioritize personal and financial autonomy in their pursuit of becoming a business owner and operator, contributing to their focus on buying businesses that do not require additional equity investment beyond their own personal funds.  

Win-Win Outcomes

Acquisition entrepreneurs should be on the radar of business owners and their advisers as they explore succession planning alternatives.  

Owners benefit from considering acquisition entrepreneurs as buyers because this cohort expands exit options, provides an opportunity for mentorship, and values the owners’ interests in seeing their legacies continue. Searchers benefit from the potential for financial upside, the opportunity to build a company and lead people, and the ability to gain control over the direction of one’s professional life through business ownership.   

1 PwC, 2021 Family Business Survey: US Findings - An Approach for Lasting Family Business Success. 

2 Lindsay Ellis, “MBAs’ Latest Pitch to Investors: Skip the Startup, Invest in Me,” The Wall Street Journal (March 20, 2022).  


4 Peter Kelly and Sara Heston, 2022 Search Fund Study: Selected Observations, Case No. E807, Stanford Graduate School of Business (2022).  

Michael A. Zaydon, CPA, is the founder and principal of Crystal Park Legacy, a Pennsylvania-based small-business acquisition platform and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at

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