Big Story

The Hidden Language of M&A

For most SMB owners, selling a business is one of the biggest financial and emotional decisions they will ever make. Many have spent ten, twenty, or thirty years building the company. They know the customers, employees, suppliers, and day-to-day realities better than anyone else. In most business situations, they are the expert in the room.

The problem with M&A is that it operates in a language and process most owners have never seen before. Buyers, brokers, lawyers, lenders, and accountants spend years learning how deals work. By the time they sit across the table from a seller, many have already worked through dozens or hundreds of transactions. What feels new and unfamiliar to the seller feels routine to everyone else.

This experience gap is one of the biggest reasons M&A feels confusing.

Many of the terms used during a deal sound straightforward, but mean something very specific in practice. A buyer may send an early offer showing a price range. Most sellers naturally interpret that range as a realistic expectation of what they will receive. Buyers often see the same document as a starting point that may change after they learn more about the business. When the final offer comes in lower than expected, the seller feels misled, while the buyer feels they followed a standard process. The confusion comes from different assumptions.

The same pattern appears with financial terms. A seller may hear the term "working capital" and think it simply means leaving enough money in the business to keep operations running after closing. Buyers often calculate it using formulas based on historical averages, seasonal patterns, inventory levels, and receivables. When that number turns out to be much higher than expected, sellers can feel blindsided.

Legal language creates similar misunderstandings. A seller may agree to statements about the business's condition, assuming they apply only to what is known today. Buyers may treat those same promises as protections that continue after the deal closes if problems appear later. Again, both sides may believe they understood the agreement while actually interpreting it differently.

Alongside the language, there are unspoken rules that shape how deals move forward. Experienced dealmakers understand these norms instinctively, but sellers are rarely told about them upfront.

For example, buyers do not usually make major price cuts late in the process without some justification because reputation matters in the deal market. Brokers generally follow certain expectations around exclusivity once serious negotiations begin. Small issues discovered during due diligence do not always lead to price changes because buyers understand that every business has imperfections. Sellers who are unfamiliar with these patterns often struggle to distinguish between a reasonable request and an aggressive negotiating tactic.

This is one reason selling a business can feel stressful, even when no one is acting unfairly. From the seller’s perspective, it can feel like everyone else understands rules that were never explained to them. Conversations move quickly. Terms sound familiar but carry hidden complexity. Decisions that affect years of work suddenly need to be made under pressure.

But the good news is that much of this confusion can be reduced through better communication.

Sellers who ask basic questions early almost always put themselves in a stronger position. If a buyer mentions an earnout, ask exactly how payments will be calculated, who controls performance decisions after the sale, and what happens if conditions change. If someone references working capital, ask how it is calculated and what could affect the final number. These questions may feel basic, but experienced buyers and advisors hear them all the time.

Slowing the process down also matters. Buyers often want momentum, but a good deal rarely collapses because a seller took extra time to understand the terms. In many cases, rushing creates more problems than caution.

Communication works both ways. Sellers also know important details about the business that buyers cannot easily see in reports or spreadsheets. A customer relationship that looks risky on paper may actually be stable because of a long history. An employee who seems replaceable may quietly hold the operation together. Context matters, and sellers who explain it clearly often build trust faster and negotiate from a stronger position.

M&A will probably never feel simple to first-time sellers. But much of the confusion becomes easier to manage once owners recognize that the process comes with its own language, assumptions, and unwritten rules. The strongest sellers are not the ones who pretend to understand everything immediately. They are the ones who slow down, ask questions, and make sure everyone in the room is talking about the same thing before decisions get made.

Governance Feed

1. A Quality of Earnings (QoE) report is one of the most important financial reviews in a business sale because it helps buyers understand whether a company’s profits are stable, repeatable, and likely to continue after the acquisition. Unlike a standard audit, which checks whether financial statements are accurate, a QoE audit looks more deeply into how the business actually makes money and whether reported profits reflect normal operations. The review often adjusts for one-time expenses, owner-related costs, unusual revenue, customer concentration risk, and working capital needs to arrive at a more realistic picture of ongoing performance. For SMB owners planning a sale, sell-side QoE can reduce surprises during diligence, strengthen confidence in the asking price, and limit last-minute price reductions.

2. Most small-business acquisitions are financed using a mix of funding sources. A typical deal combines SBA loans for smaller acquisitions, traditional bank debt, seller financing, where the owner leaves part of the purchase price in the business, buyer equity, and, sometimes, outside investors for larger transactions. Buyers rarely pay fully in cash, and lenders usually expect buyers to share risk through personal capital and seller participation. Businesses with steady cash flow, recurring customers, diversified revenue, and clean financial records are generally easier to finance and attract a wider pool of buyers. For SMB owners planning an eventual exit, reducing operational risk and maintaining organized financials can make a business significantly more financeable and easier to sell. 

3. AI is reducing the time required for diligence while increasing expectations around deal readiness. Buyers are using AI to review documents, identify risks, compare financial patterns, and accelerate analysis across large data sets. At the same time, faster analysis is leading to deeper scrutiny of assumptions, data quality, and operational claims. Companies entering a sale process with incomplete documentation, inconsistent reporting, or unclear operating metrics are facing more questions, not fewer, even as diligence timelines compress.

Thesis Principle

Businesses with $1M-$2M+ in earnings often shift from being valued on Seller’s Discretionary Earnings (SDE) to EBITDA, which can materially change valuation depending on how dependent the company is on the owner. Across industries, valuation multiples vary widely. HVAC businesses trade around 2.4x-3.5x SDE, IT services at 4.0x-7.5x EBITDA, SaaS at 2.5x-7.0x ARR, and healthcare IT at 5.0x-10.0x+ EBITDA. Operational factors can move valuation significantly. Recurring revenue can add 0.5x-1.5x to the multiple, consistent 15%+ annual growth can add 0.3x-1.0x, and a management team that can run the business without the owner may increase valuation by 0.3x-0.8x. The opposite is also true. A single customer contributing 30%+ of revenue or heavy owner dependence can reduce valuation by 0.5x-1.5x.

Resources & Events

📅 Booth-Kellogg ETA Conference 2026 (Chicago, Illinois - October 30, 2026) The Annual Booth-Kellogg Entrepreneurship through Acquisition Conference is hosted jointly by the ETA Group at Chicago Booth, the Polsky Center for Entrepreneurship and Innovation, and the Kellogg Innovation and Entrepreneurship Initiative. The event brings together search fund entrepreneurs, MBA students, search fund investors, faculty, and active participants in the broader ETA ecosystem for a one-day program in Chicago. The conference has grown into one of the largest gatherings of acquisition entrepreneurs in the country and is particularly useful for practitioners who want exposure to both the traditional search fund model and the self-funded model. The Polsky Center and Kellogg programs draw a large contingent of operating CEOs, lenders, and brokers, as well as the search community. Details →

📅SEETA Conference 2026 (Durham, North Carolina - September 18-19, 2026) 

The Southeast Entrepreneurship Through Acquisition Conference is co-hosted by Georgetown's McDonough School of Business, Duke's Fuqua School of Business, UNC's Kenan-Flagler Business School, and the University of Virginia's Darden School. The conference draws mid-career professionals, search fund entrepreneurs, search fund investors, and ETA service providers from across the Southeast United States. The format emphasizes accessibility for mid-career professionals, making it useful for practitioners who have already left corporate roles and are actively searching. Sessions cover debt and equity financing, deal structuring, post-close operating challenges, and case studies from recent searcher exits. Details →

📊 Report Spotlight: The Trillion-dollar Rebound (Cherry Bekaert)

Cherry Bekaert's annual private equity report shows that private equity is consolidating fragmented professional services industries at a pace that was almost nonexistent five years ago. By early 2026, nearly half of the top 30 CPA firms in the U.S. had received some form of PE investment or adopted an alternative practice structure, and the report tracks more than 50 PE-related transactions in the accounting sector through 2025 alone. The same dynamic is playing out in wealth management, where sponsors are pursuing fragmented RIA platforms with recurring fee revenue, and in field services like HVAC, plumbing, and residential services, where roll-up strategies have become the dominant model. The report identifies the common thread. These are industries with stable demand, predictable cash flows, founder-led operators near retirement, and clear opportunities for technology and operational improvement. Read → 

For the Commute

Principles over Playbooks (Master's in Small Business M&A)

In this episode, Eliot Kerlin, Founder and Managing Partner of Broadwing Capital, reflects on 25 years of evolution in the lower-middle market. The conversation walks through how fund sizes, leverage trends, purchase multiples, and equity contributions have shifted, and how seller sophistication has changed alongside the rise of independent sponsors and family offices. Kerlin shares Broadwing's investment philosophy and its focus on skilled trades, manufacturing, and services. He explains why operational alignment with management must be in place from the start, how the firm approaches founder alignment after a transaction, and why a rigid playbook often fails when applied to the unique realities of each company.