Approximately 37% of concluded search funds in the US and Canada close without an acquisition, and among those that do acquire, roughly 31% generate losses, with only 11% achieving returns above 10x, highlighting that outcomes are far more dispersed than headline averages suggest

Internationally, about 28% of search funds fail to acquire and only 6% of acquisitions exceed 10x returns, while nearly half of gains fall in the 1–2x range, reinforcing that modest outcomes dominate and extreme wins are rare

One recurring value-destroying pattern is continued vendor involvement post-acquisition, where grief, ego, and informal influence from the seller undermine CEO authority and board governance, especially when sellers retain operational, board, or large equity roles

Leadership failure accounts for a significant share of underperformance, particularly when first-time CEOs fail to evolve from relationship-driven diplomats into performance-driven achievers, or when boards neglect fiduciary duties, delay hard decisions, or lack the experience to mentor effectively

The paper emphasizes that prevention and governance design matter, including limiting seller roles contractually, defining board removal mechanisms, actively mentoring coachable CEOs, and replacing uncoachable leadership early to protect enterprise value before deterioration compounds

Out of 413 searchers interviewed over the past year, only about 15% clearly stood out, consistently combining focus, credibility, and execution readiness rather than just general interest in entrepreneurship

The strongest candidates arrived with a clearly defined acquisition thesis and tangible operating experience, reducing transition risk and signaling they understood both what they wanted to buy and how they would run it post-close

Leadership depth and coachability were major differentiators, as top searchers demonstrated prior team leadership, asked high-quality questions, sought feedback, and showed humility about the learning curve of first-time ownership

Credible deal execution separated serious operators from hobbyists, with standout searchers having reviewed large volumes of opportunities, submitted multiple LOIs, refined their tactics, and proven stamina in what is often a multi-year war of attrition

Cultural alignment and professionalism mattered materially, as investors favored searchers who were easy to work with, entrepreneurial by track record, punctual, and likely to inspire similar confidence from sellers evaluating them side by side

The essence of special situations investing in the lower middle market is to focus on why an opportunity exists rather than just what the business does, targeting forced sellers, structural constraints, fund pressure, or personal circumstances that create asymmetric entry points

Many of the best deals come from misaligned incentives such as VC-backed “ghost ship” companies with solid revenue but no hypergrowth path, corporate non-core divestitures, or founders facing divorce, estate, or health issues, where circumstances - not fundamentals - drive the sale and allow disciplined buyers to unlock value

Patience is a structural edge, as legendary outcomes often require sitting out for years rather than forcing activity, with the biggest returns going to those who wait for fat pitches instead of deploying capital just to stay busy

Negotiation is about psychology more than spreadsheets, illustrated by the story of structuring an offer as $25 million plus a Ferrari 488, solving not only the seller’s financial needs but also an emotional desire no competing bidder addressed

The deeper lesson across all of it is that investing success rarely comes from complexity or genius-level modeling, but from seeing incentive misalignments, coordination problems, and human motivations more clearly than others - and acting decisively when those blind spots appear