How to Develop an Acquisition Thesis That Actually Works

The quality of your deal pipeline is directly proportional to the quality of your thesis. A thesis that says "we buy B2B services companies in the $2M-$10M revenue range" is not a thesis. It is a category description. A real thesis is specific enough that you can screen a company in 60 seconds and know whether it deserves further evaluation.

The Thesis Framework

A complete acquisition thesis answers seven questions:

1. What industry vertical, specifically?

Not "healthcare" — "outpatient physical therapy clinics." Not "home services" — "residential HVAC companies with a maintenance contract base." The more specific, the better your sourcing, your diligence, and your post-acquisition playbook.

2. What revenue range?

Define a floor and a ceiling. The floor ensures the business is large enough to justify transaction costs. The ceiling ensures you are not reaching beyond your capital capacity. For most search funds: $1M-$5M. For lower mid-market PE: $3M-$25M.

3. What profitability threshold?

EBITDA margin minimums matter. A $5M revenue business with 25% margins is a very different acquisition from a $5M revenue business with 8% margins. Define your minimum acceptable margin and understand what drives profitability in your target vertical.

4. What geography?

Geographic constraints are real. For roll-ups, proximity to existing locations reduces integration complexity. For search funds, living in the same city as the business you acquire is usually non-negotiable for the first 2-3 years.

5. What ownership profile?

Founder-owned businesses sell differently than PE-backed platforms. Family businesses have different motivations than partnerships. Your outreach, your negotiation strategy, and your integration plan all depend on who owns the business today.

6. What makes this business defensible?

Recurring revenue, long-term contracts, regulatory barriers, switching costs, brand loyalty, geographic density. If you cannot articulate what makes the target defensible, you do not have a thesis — you have a shopping list.

7. What is the value creation plan?

You need to know what you will do differently after you acquire the business. If the answer is "grow revenue," that is not a plan. Specifics: implement a CRM, professionalize the sales function, add a maintenance contract offering, consolidate back-office operations across multiple locations.

Common Thesis Mistakes

Too broad. "Services businesses" is not investable. You cannot build expertise, you cannot develop an operational playbook, and you cannot source efficiently.

Too dependent on a single buyer. If your exit thesis requires a specific acquirer to pay a specific multiple, your thesis is a bet, not a strategy.

No operational angle. Financial engineering alone does not create durable value. The best theses have a clear operational improvement plan that creates value independent of multiple expansion.

Ignoring the sourcing reality. A brilliant thesis for a business type that has 12 companies in the entire country is not executable. Validate that your target universe is large enough to support your acquisition cadence.

From Thesis to Pipeline

Once your thesis is tight, sourcing becomes dramatically more efficient. You know exactly what to look for, exactly what to ignore, and exactly how to prioritize. This is where Ted excels — translating a well-defined thesis into a continuous pipeline of scored, verified targets that match your specific criteria.