TL;DR: Most searchers build their value creation plan around margin expansion. Yale's 2026 research shows that bet rarely lands. EBITDA margins decline from 25% to 19% post-acquisition on average. The real return driver is multiple expansion. Here's how to build a plan that's honest about both.
A 2026 Yale School of Management study found that the dominant driver of enterprise value in ETA deals is EBITDA multiple expansion at exit, not operational improvements. That finding should restructure how every searcher builds the document their board requires before wires clear: the value creation plan.
It's not optional. It's the operating contract between you and your investors.
The plan answers three questions: What are the specific levers you're pulling to grow enterprise value? What's the timeline? What does the exit look like?
Most searchers answer those questions the same way. Revenue up. Margins up. Multiple stays flat or ticks higher. Exit in five years at a clean number. The data says that plan is wrong in at least one critical way.
The margin expansion problem
The Yale SOM research analyzed returns across ETA deals and found something most investors already suspect but few say out loud: EBITDA margins don't expand after acquisition. They shrink.
Average EBITDA margin at acquisition: 25%. Average at exit: 19%.
Revenue grew. EBITDA dollars grew. But the engine of value creation was not the margin discipline story operators sell in their Confidential Information Memorandums.
The dominant return driver was multiple expansion. You buy at 6x. You exit at 10x. That gap is where the money lives.
This isn't an excuse to ignore operations. It's a call to build the right plan, one that's honest about how ETA returns actually work rather than how they're supposed to work on paper.
What the numbers actually say
The 2024 Stanford Graduate School of Business Search Fund Study puts historical search fund IRR at 35% with a 4.5x return on investment. That's a strong return profile. Understanding where those returns come from changes how you build your operating plan.
Three sources of value in ETA:
Revenue growth. This is real. Revenue does grow through new sales channels, pricing increases, geographic expansion, or better sales execution. Companies that get acquired haven't optimized their go-to-market. An operator who fixes the pipeline adds real dollars.
Multiple expansion. This is where most enterprise value gets created. You buy at a lower multiple in a lightly competitive sale process. Your banker runs a real process at exit. The market has shifted. Your company is larger and cleaner. You exit at a substantially higher multiple. That gap compounds with every dollar of EBITDA you've added. A Yale mathematical analysis of ETA value attribution confirms nearly doubling multiples from entry to exit is now standard, not exceptional.
Add-on acquisitions. This is the most controllable lever. Buy a platform at 5x EBITDA. Acquire a smaller bolt-on at 4x. Sell the combined entity at 7x. The math is obvious. The execution is not.
Margin expansion sits fourth, and the data says don't build your plan around it unless you have a specific, credible argument for why your company will be the exception.
What a credible value creation plan contains
A good value creation plan runs to two pages. Any longer and the board stops reading. Any shorter and you haven't thought it through.
The structure that works:
The acquisition thesis. One paragraph. Why this company, at this price, for this operator. Not a case for the category, but a specific case for this deal. What's the asymmetry? What do you see that a financial buyer doesn't?
Revenue growth initiatives. Named initiatives, not vague commitments. "Expand into Phoenix market by Q3 Year 2" is a plan. "Pursue geographic expansion" is a wish. Put specific numbers next to each initiative. Include the assumptions: average deal size, conversion rate, pipeline needed, headcount required.
Operating improvements. These are real even if margins don't expand. Upgrade financial reporting. Install a weekly KPI dashboard tracking five to seven numbers that actually matter. Reduce customer concentration risk. Improve working capital, specifically faster collections and better payables terms. These don't show up as margin expansion but they reduce risk and improve the quality of the business, which is how exit buyers price it. The capital stack you closed with shapes how fast you can fund these improvements.
Capital structure. How is the debt structured? What is the paydown schedule? How does the relationship between debt and free cash flow change over the hold period? A clean balance sheet going into an exit process removes an entire category of buyer risk. That matters when a buyer's lender is underwriting the deal.
Add-on acquisition pipeline. If you're going to do add-ons, and you should have a view on whether you are, define the criteria now. What size? What geography? What multiple range? This lives in the value creation plan, not in a separate M&A strategy document you write in Year 3 when the board starts asking why growth has slowed.
Exit framing. What does the business look like at exit? What multiple do you believe the market will pay, and why? This is where you engage honestly with the Yale finding. If you're betting on multiple expansion, say so. Name your assumptions. If you think you can grow EBITDA 2x and exit at the entry multiple, show the math and defend why that's a better thesis than the market trend suggests.
The four traits investors actually trust
Your board has seen dozens of value creation plans. They know which ones are optimistic and which ones are executable. The ones they trust share four traits.
They lead with the key risk. Not with the upside. The first substantive page of a credible plan says: here is the one thing that could break this deal. Customer concentration above 30%? Say it. Key person dependency on the seller? Say it. Mature market with structurally low organic growth? Say it. Then show what you're doing about each risk. Investors don't expect a risk-free business. They expect an honest accounting of what could go wrong and a plan to manage it.
They separate one-time improvements from ongoing operations. A pricing increase is a one-time event unless you build a pricing process. Professionalized financial reporting improves the quality of the business but doesn't add EBITDA. Be clear about which category each initiative falls into, because your board is tracking which levers are structural and which are borrowed time.
They show the return math at multiple scenarios. A base case, a downside, and an upside. Walk through what happens if revenue grows 10% per year versus 5%. What happens if the exit multiple compresses by 2 turns? Your board doesn't need you to be right. They need to see you've thought through the range. Investor return expectations in search funds are built around scenario modeling, not single-point estimates.
They update annually. The value creation plan is not a closing document. It's a living document. Good operators revisit it every 12 months, mark what they got right, explain what they got wrong, and update the exit trajectory. The board meeting where you present an updated plan with honest variance analysis is the meeting that builds credibility for the next five years.
The veteran edge in this process
Military officers who transition into search funds tend to build stronger value creation plans than their civilian counterparts, not because they're better analysts, but because they're trained to brief risk before opportunity.
A submarine officer doesn't start a brief with what's going well. He starts with what can kill the mission. That's the posture that makes a value creation plan credible. Identify the threat clearly, then build the plan around it.
The planning habit transfers. A 60-month operator development pipeline, the model Patriot Growth Capital uses, produces operators who think in milestones and phases rather than in vague five-year assumptions. That structure shows up in better value creation plans because the plans are actually plannable, not optimistic extrapolations that collapse under the first year of board scrutiny.
The honest plan is the credible one
The Yale finding is uncomfortable for operators who've been selling margin expansion stories. But it's also liberating. You don't have to pretend you can consistently beat the margin trajectory that most ETA CEOs can't beat.
What you do have to do is buy the right business, operate it well, grow the top line with specific initiatives, keep your capital structure clean, and position the company for a professional exit process at a higher multiple than you paid.
That's not a simple plan. But it's an honest one. And honest plans are the ones that survive contact with your board.
Build the plan your investors will trust. Not the one that reads best in the investment memo.
Frequently Asked Questions
What does research show about EBITDA margin expansion after search fund acquisitions?
A 2026 Yale School of Management study found that average EBITDA margins decline from 25 percent at acquisition to 19 percent at exit. Revenue grew and EBITDA dollars grew in most cases, but margin expansion was not the engine of returns. The dominant driver of enterprise value was EBITDA multiple expansion at exit.
What are the three primary sources of value in ETA deals according to the article?
The three sources are revenue growth through new sales channels, pricing, geography, or better execution. Multiple expansion from buying at a lower multiple and exiting through a professional process at a higher one. And add-on acquisitions that combine a platform bought at one multiple with bolt-ons bought at a lower multiple before a combined exit at a higher one. Margin expansion is fourth, and the data says not to build a plan around it without a specific credible argument.
What should a credible value creation plan address, and how long should it be?
A good value creation plan runs to two pages. It covers the acquisition thesis specific to that deal, named revenue growth initiatives with specific numbers and assumptions, operating improvements with measurable targets, capital structure and paydown schedule, add-on acquisition criteria if applicable, and an honest exit framing that names the multiple assumption and defends it.
How do investors evaluate whether a value creation plan is trustworthy?
Boards trust plans that lead with the key risk rather than the upside, distinguish one-time improvements from structural operational changes, show return math across a base case, a downside, and an upside, and are updated annually with honest variance analysis. A plan that is revised every twelve months with clear accounting of what was right and wrong builds more credibility than a static document that ages poorly.
