❤️ Thanks to everyone who brought our newsletter to the attention of new readers last week. The “share function” can be found at the end of the email. Today’s newsletter counts 935 words and takes about 4.5 minutes to read.

In case you missed out on our last episode, please find it here.

Today’s Rundown

• Seller financing in search funds

• AI-rollup 2026 predictions

• Operating leverage in search funds

• 11 mistakes to avoid when buying businesses

• 2 deal / launch announcements

Database Overview

Get access to our two databases of +400 search funds and +380 search fund investors as a premium subscriber.

• Preview search funds database

• Preview search fund investors database

Weekly Highlights

• Chris von Wedemeyer, founder of search fund investor Legacy Partners, shared his thoughts on why seller financing isnʼt a loan and why it can kill your deal:

  • Seller financing in ETA transactions functions economically as deferred purchase price rather than a true cash loan, even when it is documented as a debt instrument

  • In practice, seller notes commonly represent roughly 10–30 percent of enterprise value and increase in higher-risk deals with customer concentration, owner dependence, weaker reporting, or thin management layers

  • When sellers attempt to structure notes with senior-like protections such as security, aggressive amortization, or limited subordination, it often creates friction with banks, delays underwriting, and materially increases closing risk

  • Properly structured seller notes absorb intangible risk by aligning price with post-close reality, allowing part of the consideration to flex or be forgiven if goodwill assumptions such as customer retention prove wrong

  • In European ETA especially, seller financing works best when treated as junior, subordinated, and alignment-driven deferred consideration, whereas treating it like a standalone commercial loan frequently undermines bankability and deal execution

• Sahil Patwa, an experienced investor and entrepreneur, shared his bingo card for AI-powered rollups in 2026:

  • Sahil expects the AI roll-up ecosystem to expand from roughly 150 companies today to more than 400 in 2026, with total capital invested surpassing $3 billion while still representing only about 1 percent of global venture funding

  • Capital sources are likely to broaden meaningfully in 2026, with private equity providing follow-on capital in multiple deals, at least one venture debt product tailored specifically to AI roll-ups, and the launch of a dedicated $100 million-plus specialist fund

  • AI roll-ups are expected to move beyond pure software into the physical world, with several platforms using drones, robotics, and computer vision to drive operational efficiency in real-world industries

  • The model should globalize further, with at least one AI roll-up on every inhabited continent raising more than $50 million, and Europe emerging as a particularly attractive region due to fragmentation and regulatory complexity

  • The category is likely to mature culturally and analytically, with standardized AI roll-up metrics focused on sustainable margin improvement, broader mainstream visibility through viral content, and formal recognition via a major book or top-tier business school case study

• Richard Augustyn, founder of search fund investor Endurance Search Partners, published a piece on ETA: The 1% searching for the 2%:

  • The core claim is that only a small subset of businesses, roughly the top 2 percent, possess the structural characteristics that allow first-time CEOs to learn, make mistakes, and still compound capital under new ownership

  • Operating leverage is framed as a practical buffer rather than an accounting concept, where incremental revenue expands free cash flow and balance sheet breathing room instead of increasing capital intensity and execution risk

  • High-operating-leverage businesses show stable or expanding gross margins, SG&A growing well below revenue such as less than $0.20 per dollar of new revenue, and partially fixed labor costs that absorb growth with minimal incremental expense

  • Low-operating-leverage businesses compress margins as they grow, require proportional hiring or capex per customer, and force CEOs to absorb inefficiencies directly, shrinking the learning window and increasing covenant and liquidity risk

  • Disciplined screening for operating leverage allows the top 1 percent of operators to focus their effort on systems that persist and compound, turning operational improvement into predictable free cash flow and earlier equity value realization rather than repeated execution resets

• On his podcast Acquisitions Anonymous, Michael Girdley, an experience entrepreneur, shared 11 mistakes to avoid when buying businesses:

  • Drawing on 20-plus acquisitions and thousands of deals reviewed, he argues first-time buyers most often fail by buying themselves a job where the business depends entirely on the owner’s personal relationships, eliminating scalability, vacations, or a future exit

  • Many bad deals persist because buyers never ask why they are the “lucky” acquirer, especially when assets have sat on the market for months or years and better-informed insiders such as franchisees or competitors have already passed

  • He warns against extrapolating temporary performance distortions such as Covid-era revenue spikes or collapses, noting that valuing businesses at peak anomaly earnings leads buyers to overpay for results that are unlikely to persist

  • Structural risks frequently overlooked include expiring or fragile real estate leases, unfinanceable business models, heavy regulatory exposure, or industries that have already peaked, all of which can destroy earnings even if historical numbers look strong

  • Poor buyer–business fit also kills returns, whether through lack of customer ownership on platforms like Amazon, extreme operational difficulty, geographic mismatch, or high working-capital intensity that quietly absorbs cash and reduces true owner returns

Deal / Launch Announcements

• 🇬🇧 Soris Capital Partners, a search fund managed by Adam Johnson, sold Water Direct, a provider of alternative water supply solutions, to Eurazeo (link)

• 🇧🇪 Kaeron, a search fund managed by Frédéric Schilling, acquired Kaeron, a HVAC business (link)

Any suggestions, questions, or criticism? Any topics that should be covered in the future? By answering this email, you’re sliding right into my inbox.