• Deal process
• For owners and buyers
• July 2026
• 7 min read

Stanford 2026 Search Fund Study

What Stanford’s 2026 Search Fund Study Means for Business Owners and Buyers

What Stanford’s 2026 Search Fund Study can teach business owners and buyers about diligence, financing, and certainty of close.

• LOI signed
• Confirmatory diligence
• Financing committed
• Definitive documents
• Close

The three middle stages are the open ones. Price, structure and financing can all still change there.

An owner can agree on price, sign a letter of intent, and still be a long way from closing. The letter normally settles the headline economics and gives the buyer a period of exclusivity. What it leaves open is the financing, the approvals the buyer still needs internally, confirmatory diligence, the definitive purchase agreement, and the conditions to be satisfied before funds move.

Letters of intent differ in what they commit each side to do, so whether a provision binds you is a question for your attorney rather than a general rule. What stays consistent is the distance between signing and closing, and Stanford Graduate School of Business publishes one of the few public datasets that puts numbers on it.

• 862 Core search funds tracked since 1984, United States and Canada
• 2.5 Letters of intent signed on average by 2024-25 buyers
• 6.2x Median purchase price to EBITDA

What Stanford studied

The 2026 Search Fund Study tracks 862 core search funds launched since 1984 in the United States and Canada, which Stanford describes as 99% of the search funds it has identified there. Entrepreneurs report their own fund details, acquisitions and outcomes to the researchers.

A search fund is one method through which an entrepreneur raises capital to find, acquire, and operate an established business. Individual owner-operators, family offices, private equity groups, and strategic acquirers also buy businesses in this size range, and each brings a different approval process and capital structure. The study is useful because it reports what one identifiable buyer group actually did, not because it describes the entire market for small-business acquisitions.

What unsuccessful LOIs reveal

Among searchers who acquired a company in 2024 and 2025, the average buyer signed 2.5 letters of intent. The first of those letters was signed, on average, about seven months into the search.

Stanford also asked what went wrong. Among respondents reporting an unsuccessful LOI, 79% cited a discovery during due diligence, 45% cited valuation differences with the seller, and 40% cited lack of investor support.

The report does not say that 79% of all LOIs failed. It says that among respondents reporting an unsuccessful LOI, discovery during due diligence was the most frequently cited reason.

Reasons cited for an unsuccessful LOI

Discovery during due diligence 79%

Valuation differences with the seller 45%

Lack of investor support 40%

Why diligence can change a deal

Diligence exists to confirm what the buyer believed when it made the offer. In practice it tends to test the same assumptions in most transactions: financial reporting, revenue quality, customer concentration, working capital, owner dependence, employee matters, legal and compliance matters, and operational issues. These are common transaction diligence considerations. They are not separate categories reported in Stanford’s unsuccessful-LOI data.

Most findings are ordinary. Statements get rebuilt on a consistent basis, add-backs get tested, a working capital target gets negotiated. A finding starts to matter when it changes one of four things: what the business earns, what a lender will underwrite, what the buyer’s investors will approve, or how long the process takes.

The mechanics explain why a settled price can move. If normalized earnings come down modestly, the price moves by that amount multiplied by the multiple. If a lender reduces the loan, the buyer has to find more equity, ask the seller to finance part of the price, or pay less. A letter of intent sets an intended framework. Diligence is where that framework meets the business.

What sellers should evaluate before exclusivity

The questions below are ours rather than findings from the study. They are the ones we ask when two offers look similar on price.

1. Who still needs to approve the acquisition?

   Ask whether the buyer can commit now, or whether individual investors, an investment committee, or a board still has to vote.

2. Where will the equity and debt come from?

   Committed equity and a lender that has already reviewed the financials is a stronger position than an intention to raise both after the letter is signed.

3. What must diligence confirm?

   A buyer who can name the three items they most need to verify is telling you where the price is most likely to move.

4. Which terms could change the price?

   Working capital targets, earnings adjustments, escrow, holdbacks, and seller financing all affect what an owner actually receives at closing and afterward.

5. What experience does the buyer have?

   Ask about transactions they have closed and businesses they have run. First-time buyers do close deals, and the answer tells you how much will depend on their advisors.

6. What is the expected timeline?

   Dates for diligence, financing commitments, and signing are easier to hold to than a general range of weeks.

7. What happens if financing is unavailable?

   The answer shows how much of the price depends on debt that has not been committed.

These questions do not remove risk from a transaction, and none of this is legal advice. They give an owner a way to judge whether an offer has a credible path to closing.

What buyers should have ready

Sellers are asking these questions more often, and a prepared answer is an advantage. Before requesting exclusivity, a buyer benefits from having these settled.

• A realistic capital plan Equity sources, amounts, and what each investor has actually committed to.
• Investor or investment committee alignment Agreement on the type of business, the size, and the price range before the letter goes out.
• A debt strategy A lender that has seen the financials and a view on how much debt the earnings support.
• Clear diligence priorities The few items that determine whether the deal works at the agreed price.
• Identified decision makers Who signs, who approves, and who can stop the transaction.
• A realistic closing timeline One that accounts for quality of earnings work, lender underwriting, and legal drafting.
• Transparent communication about material conditions Conditions raised at the letter stage rather than introduced in week six.
• Terms that can survive underwriting and diligence A price the buyer can still support once the financials have been rebuilt.

Preparation of this kind makes an offer more credible and shortens the list of problems that can surface during the weeks when a seller has taken the business off the market.

What recent search fund acquisitions looked like

The study also provides market context. For acquisitions completed in 2024 and 2025, the median transaction looked like this.

The median 2024 and 2025 acquisition

$8.1M

Revenue

$2.5M

EBITDA

25%

EBITDA margin

$16.0M

Purchase price

6.2x

Purchase price to EBITDA

These are medians from completed search fund acquisitions, not a valuation formula for every business.

A median is a midpoint, not a benchmark your business has to meet. Half of that cohort was smaller and half was larger. Price in an individual transaction depends on business quality, growth, margins, recurring revenue, customer concentration, industry, management depth, capital requirements, deal structure, and how many buyers are competing. That list is our own summary, not a valuation framework from the study.

What this means for business owners

• Evaluate the full offer rather than the price alone.
• Understand the buyer’s approval and funding path before granting exclusivity.
• Prepare for diligence before entering a process. Clean financial statements, a documented working capital pattern, and a clear view of customer concentration reduce surprises.
• Identify the issues that could affect value or closing, and decide how to present them.
• Avoid granting exclusivity only because one offer carries the highest headline price. Sometimes the highest offer is also the most certain, and then it deserves to win on both counts.

What this means for buyers

• Credibility begins before the letter of intent.
• Do not offer terms that investors and lenders have not seen.
• Raise significant diligence concerns early, while there is still room to adjust price or structure.
• Clear communication separates a prepared buyer from a hopeful one.
• Certainty does not mean removing every condition. It means being accurate about the path to approval and closing.

Source: Stanford Graduate School of Business, 2026 Search Fund Study: Selected Observations (Case E-967). Figures cited in this article are from that study. The commentary, checklists, and interpretation are those of SMB Exit Partners. Nothing here is legal, tax, or accounting advice.

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