The LOI is signed. Exclusivity is in place. Sixty to ninety days separate you from ownership.
This is the most dangerous window in the search fund process. Not because the business changed. Because deals die here. Deals die in due diligence. Deals die in purchase agreement negotiation. Deals die when capital can't be raised in time. Deals die when an SBA underwriter finds something your first pass missed.
The operators who close treat this window like a clearance operation. The sequence is fixed. The timeline is real. There is no improvising at the back end.
Here is what the 90-day closing window actually looks like.
What the LOI establishes
A letter of intent is non-binding on most terms. The only parts that bind you are exclusivity and confidentiality.
Exclusivity matters. It prevents the seller from running other processes while you work. Typical exclusivity periods run 60 to 90 days. If you need more time, you can ask for an extension, but you are negotiating from weakness. Sellers who feel the process dragging will start to wonder what you found.
The LOI also locks in the key deal terms you'll spend the next 90 days defending: purchase price, deal structure (asset purchase vs. stock purchase), earnout provisions if any, and the working capital target.
Everything else comes in the purchase and sale agreement.
Due diligence: the clearance sequence
Quality of earnings comes first. Hire a firm. Get the engagement letter signed within the first two weeks.
A quality of earnings (QoE) report is an independent analysis of the company's financial statements. It normalizes EBITDA by adding back non-recurring expenses, removing owner benefits, and testing the consistency of revenue recognition. The report typically takes four to six weeks. It is the document that validates or destroys your purchase price.
What QoE reviews look for:
- Revenue concentration risk (are two customers 60% of revenue?)
- Owner-dependent relationships (does the seller have relationships that won't transfer?)
- Add-back legitimacy (is that $200,000 "non-recurring" expense actually recurring?)
- Working capital volatility (is the trailing 12-month average representative?)
- One-time items the seller is pushing above the line
While QoE runs, legal due diligence runs in parallel. Your attorney reviews contracts, leases, litigation history, licenses, environmental exposure, and employment agreements. Key employees may have no-competition agreements. Some customers may have contract termination rights on change of control. Both of these can move the price.
Management interviews happen in this window. Walk every part of the operation. Talk to the people who actually run the business. You are validating two things: that the business is what you were told, and that there is a team you can lead. If the seller is the only one who knows anything, that is a problem.
Raising the closing capital
If you ran a traditional funded search, your investors have pro-rata rights. Once the QoE looks clean and the deal is tracking toward close, you send a formal exercise notice. Investors have a fixed window to confirm their participation.
Do not wait until the purchase agreement is signed to send this notice. Capital raise in parallel with due diligence, not after.
The typical funding sequence:
- Senior debt: SBA 7(a) or conventional bank debt, covering 50% to 90% of the deal depending on asset quality and lender appetite
- Seller note: 5% to 25% of purchase price, subordinated to senior debt, seller agrees to hold for three to seven years
- Equity: investor capital plus your personal contribution
- Search fund step-up: your 20% to 30% equity earned at close and vesting over time
The SBA 7(a) loan process typically runs 45 to 60 days minimum. You are submitting the SBA application in the first week after LOI. Not the fourth week. The first week.
Purchase agreement negotiation
This is where the LOI terms get codified and expanded. Key provisions:
Representations and warranties. The seller certifies that what they told you is true. No undisclosed liabilities. No pending litigation. Financial statements accurately reflect the business. You will require indemnification if reps and warranties prove false post-close.
Reps and warranties insurance exists to transfer some of this risk to an insurer. Worth evaluating on deals above $10 million.
Indemnification caps and baskets. Sellers typically push for indemnification capped at 10% to 15% of the purchase price. Buyers push for higher caps. The basket is the minimum threshold before indemnification kicks in, usually 0.5% to 1% of the purchase price.
Working capital peg. Working capital at close needs to be defined. Normal working capital for this business, based on a trailing average, becomes the target. If working capital delivered is below the target at close, the purchase price adjusts down. Sellers fight this. Get your QoE firm to build the peg analysis.
Non-compete. You need a non-compete from the seller. Minimum three to five years in the same geographic market and industry. Without it, the business you bought is competing with you the week after close.
Transition services. Negotiate the seller's commitment to assist with transition. Typical range: 30 to 90 days post-close at no additional cost, with the option to extend as a paid consultant. How long the seller stays depends on how owner-dependent the business is.
What kills deals in this window
Renegotiation. If your QoE finds something real: revenue that does not hold up, an undisclosed liability, a customer who accounts for 40% of revenue with a 30-day cancellation clause. You have a decision. Walk away, or reprice.
Repricing is emotionally difficult. The seller spent 30 years building this business. They expected a number. You are now coming back below that number. Some sellers will walk. Some will negotiate.
What kills deals more often than bad QoE: capital raise timing. Investors who verbally committed during the search but don't exercise their rights when the deal hits. A bank that wanted more SBA seasoning. A 30-day extension on the exclusivity period that unsettled the seller.
Run the capital stack in parallel with everything else. Never let capital be the critical path at the end.
The week before close
Final confirmations of funding commitments. Wire instructions reviewed twice. SBA loan documents signed. Seller's attorney and your attorney on the same closing checklist.
Employment agreements for key managers, if not already in place. Day-one communication to employees from you. Not from the seller. This is the first thing your team hears from their new CEO. Write it in advance.
The Stanford GSB 2024 Search Fund Study tracks 681 search funds through close. The average time from LOI to close among those that closed: approximately 14 to 16 weeks. That is not a slow process. That is a sequence with no discretionary days.
Day One
Close day is not the finish line. It is the start line.
Every relationship the previous owner held is now yours to earn. Every process the business runs is now your process to understand. You have 30 days to run the place before the team forms an opinion of you that will take 12 months to change.
The search fund acquisition thesis you built during the search described what you would do. Day One is when you start doing it.
The closing window tells you whether you can execute a defined sequence under pressure with real consequences for every deviation.
That is exactly the question a PE firm and a bank are asking before they put capital behind you.
Answer it correctly in the first 90 days, and Day One is yours.
