Rethinking Capital Expenditures in Search Fund Valuations

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Although the vast majority of Search Funds seek to acquire businesses that are both “asset-light” and “capital-light” (that is, companies that don’t have a large base of tangible assets that need to be added to, refurbished, or replaced to either maintain operations or pursue growth), I don’t believe that the mere presence of capex should necessarily disqualify a company from consideration.

In this episode, we begin by exploring the circumstances within which capex can be a tolerable part of any given deal, and we’ll conclude by discussing how buyers should adjust their approach to valuation based on the asset intensity of the target company in question.