HYH Interview: Small Business Acquisition Season

A message from Octus: Sky Road Research Management: Eliminate System Hopping: Introducing the Fully Vertically Integrated  Platform

For years, credit managers have been trapped in an exhausting dance between platforms: checking Octus for intelligence, switching to portfolio systems for compliance, jumping back for financials. Today, that ends. Sky Road Research Management delivers the industry's first fully vertically integrated credit platform, bringing Octus' market-leading intelligence, real-time news, fundamentals data, and FinDox deal documents directly into Sky Road's portfolio management environment.

Whether you're managing CLOs, private credit funds, or broadly syndicated loan portfolios, Sky Road Research Management transforms how you work: Octus intel and company financials feed directly into your compliance monitoring and trade order management, new issue pipelines surface alongside your optimized holdings. Octus intelligence and proprietary analysis at the speed of thought. One login. One workflow. Zero friction from insight to execution.

 See the fully integrated platform here.

Welcome back!

We’ve talked in detail about small business acquisitions over the past couple years and I’ve been growing a “small” business over the past few years myself. I did a write up in 2023 on the rise of finance bros buying SMBs and really dug into the risks around deal sourcing costs, poor deal quality, and how every SMB has significantly more amplified risks than larger businesses. But there’s some clear pros that can offset cons and a silver-haired tsunami sized opportunity for roll-up your sleeves styled operators.

I pinged Kevin Cassidy, an ex-IB and PE guy who set off to acquire and run his own business. I wanted to talk to Kevin because he’s one of the newer “creators” on IG who has a serious pedigree and he talks in a blunt and direct style that I appreciate. I’m thankful he accepted my interview invite because I think a lot of people thinking about their post-Associate exit opps (especially SMB acq.) need to hear Kevin out. He has 20k+ followers on IG here.

Btw, the HYH Interview series is something I want to regularly do in 2026 - I would love to talk to mid-level/senior Credit, PE, and M&A professionals interested in sharing their thoughts to the community.

Let’s get into it.

Give us a quick overview of your background.

I grew up in Dallas and went to UT. I started my career in investment banking in the Energy group at RBC in Houston, then lateraled to the Industrials group at Evercore in New York. After a couple of years at Evercore, I joined New Mountain Capital as a Private Equity Associate. In July, I left NMC to launch Hanging Valley Holdings, where I’m pursuing acquisitions in the lower middle market as an independent sponsor/self-funded searcher.

What led you to want to buy a small business? 

I have always had an entrepreneurial itch and have enjoyed building businesses, going back to middle school, where I sold duct tape wallets. If you were to ask me, as a sophomore in college, why I was recruiting for investment banking summer analyst positions, I would have told you I was going to do two years of IB, two years of PE, then start an oil company. Obviously, my interests have shifted a little bit, but I am still running in that direction and have always wanted to build something as opposed to rising to MD at a firm. Ultimately, I think acquiring businesses is the best path for me, as it combines my passion for building businesses with the skills I developed in IB and PE. 

What's your investment criteria?

I take both a top-down and bottom-up approach, and below are a few things I look for:

• Less than $15M of EBITDA

• High recurring/reoccurring revenue mix

• Diverse customer base

• Asset light with favorable cash flow dynamics

• High employee retention

• Entrepreneurial, problem-solving culture

If the business fits my thesis and deal criteria, then it is something I will get excited about and spend time on. If the deal doesn’t check any of my boxes, then it’s a quick pass for me.

In terms of wanting to go deeper and submit an LOI, it all really comes down to if the business fits my criteria and I think I can safely generate a good return with a reasonable path to a phenomenal return. If the deal is in my "buy box," I will move forward and submit a bid.

What have you learned so far about the process, both good and bad

A lot:

1. There are a lot of people in this space who should not be doing it. A lot of people pursue this path because they are burned out and think they can pay themselves well, avoid answering to anyone, and semi-retire. If that’s your motivation, this is the wrong path for you. There are also people entering with skill gaps that make it hard to succeed. I recall hearing someone ask a lawyer whether they needed financial modeling skills before quitting their job to search full-time, and the lawyer said it wasn’t necessary. While I agree financial modeling is not the most important skill in ETA, I find it hard to believe someone could do this well if they can't calculate returns, debt service, etc.. I think the lack of barriers to entry has encouraged many people who aren't fully prepared to give it a go.

2. The ~$2M EBITDA range has become incredibly competitive/saturated with people searching for businesses. Many MBA programs now teach ETA, making this a mainstream career path. On top of that, more PE firms have started looking for deals of this size, adding to the competitive landscape. The result is that this size range is no longer overlooked. For example, I looked at one deal in which 500+ people received the CIM according to the broker.

3. Many of the thousands of businesses for sale each year are not transactable. A large portion of small businesses are effectively owner-operated income streams. When the owner leaves, the customers leave with them. Others are structurally low-quality, such as businesses whose performance is entirely tied to new construction. Most of these businesses will close up shop when the owner is ready to retire, and larger, well-run companies will take their market share.

4. It feels like valuations have come up recently. Deals are going under LOI quickly and at higher multiples. Some of these will not close, and the business will come back to market, but I think people have become more aggressive on price.

5. The least-informed buyer often wins brokered deals. ETA has become mainstream, resulting in many inexperienced buyers participating in processes not fully understanding the risks associated with each business. They often don’t know the proper questions to ask to uncover these risks, much less assess them, which leads to overly optimistic underwriting and higher bids. 

6. Capital structures can be very creative. If you find a good business, you can really tailor the capital structure to your risk and return profile using seller notes, SBA, SBA w/ pari passu, mezz debt, pref, gainshares, earnouts, etc. Not every deal requires creativity, but there are more tools available than most people realize.

7. Broken processes aren’t always red flags; sometimes they’re opportunities. Many deals go under LOI at unrealistic valuations with light diligence. As buyers move forward with diligence, they discover they’re overpaying and/or that investors won’t support the price, leading to retrades that sellers reject. When these deals come back to market, it can be a great opportunity as the seller is motivated, more realistic on value, and has likely provided much of the information you will need to move through DD, which might make it easier and quicker for you to close.

What are the qualities of a good searcher and a smart search?

The smartest and most impressive searchers I have spoken with often have a thesis (or multiple), stick to their criteria, are proactive, and manage their schedule well. They know what "their deal" is and are quick to move on when something doesn't fit. I think being on your own is much different than working in PE, where bankers send you CIMs to review every day. You now have to actively find deals and convince the brokers/bankers you are a qualified buyer and should be let into the process, which is especially true as an independent sponsor, where bankers question your ability to pay/sources of funds, and want to make sure they're engaging with credible buyers who can close. Also, no one tells you what to do or when something needs to be done by, as they did in IB/PE. You need to manage your schedule and make sure you are making progress. The best searchers I have seen treat it just like their last job and set hours for themselves to make sure they don't waste hours and days goofing off, and will budget time for PTO.

Are there geographic considerations searchers should be making? Are there specific parts of the country to do more deals in or should folks have a willingness to pick up their bags and move across the country? 

Generally, I think the Tri-State area carries a premium given there are more searchers looking for deals in the area. I don’t think there is one geography that is more attractive than another for the sectors I spend time in. I think you can find quality businesses anywhere, and if you plan to operate the business yourself, you need to think about your quality of life. A phenomenal business in a town you can’t see yourself living in will quickly become a regret and a poor life choice post-acquisition.

What are some things other searchers are getting wrong and people should be aware of before they start searching?

In search, I think some people think they are going to be passive owners of the business and only do a few hours of work per week by hiring a GM or CEO to run the day-to-day. I think this could not be farther from the truth. If it were truly a passive hour a week task as the CEO/owner, they likely would not sell. You will need to be very involved. I think about Tommy Mello from A1 Garage Door saying he had employees stealing toilet paper when he started. Clearly, these businesses do not run themselves and have a very different office culture than in IB or PE, which is full of Ivy League grads. I also think you need to be honest with yourself about whether you can actually command the business and if it’s a good fit for you. Lastly, I don’t think many people fully appreciate how different these businesses are from the companies they are used to working with in IB/PE. Many of these businesses rely on the owner's hustle, not systems. If these companies were 10+ years old, growing at a 10% CAGR for 10 years, with proper systems in place, multiple layers of management, etc., then these would not be small and LMM businesses available for purchase; they would be much larger companies. All to say that I think it's not as simple as buying something for 3.0x, winning a new customer, and making tens of millions of dollars working remotely a few hours per week.

What are some of the things that are good and bad that you're seeing during the LOI stage?

Good:

• Transparent data sharing

• Responsive and willing to move quickly

• Reasonable valuation expectations

• Flexible on structure and standing behind the durability of the business

• A motivated, serious seller

• Understanding working capital pegs

Bad:

• Vague answers or refusal to share data

• A seller who seems to be having second thoughts about selling, or is really using the sale process as an exercise to see what their business is worth

• Too many competing buyers circling who are willing to be reckless on price

Side note from Harry - btw I just want to emphasize Kevin’s point here. I do a lot of micro M&A analysis for potential tuck-ins to the HYH portfolio and even for small deals, vague answers and refusal to share data is an immediate deal killer and the sign of an unserious operator who you can’t do business with.

How do you manage expectations with Sellers who are very passionate and emotional about their business?

You need to demonstrate how you will be a good steward of their business and are not an '80s corporate raider looking to "strip the business down and sell it for parts". Be transparent about your intentions, communicate how you’ll preserve what they built, and build upon it. Regarding process and value expectations. Be clear about the information you will need and the timeline to close, and make sure everyone knows what you are all working towards. Recognize that many sellers anchor to unrealistic valuations after hearing about high multiple deals at industry events and associations they are in. You have to educate them on why, although you love their business, the comp they mentioned is not 100% comparable, given their business is much smaller with higher customer concentration, less recurring revenue, lower margins, etc.

What’s your view on deal structures?

For me, finding the right business is paramount. Capital structure will follow. I am not wedded to a capital structure, and each deal is different. I like the idea of a forgivable seller note, but it is not a requirement for me. Ultimately, it all comes down to DSCR and solving for an equity check that can generate an attractive return.

What are some ways you think deals can fall apart at the 5-yard-line?

I have not progressed into confirmatory DD yet, but common reasons deals fall apart that I hear from others are the seller getting cold feet and deciding not to sell anymore, and a change in value/perceived value by the seller. Sometimes the buyer's QoE comes in materially lower, leading to a retrade on value that the seller is unwilling to accept. Also, sometimes sellers don’t fully understand what "normalized level of working capital" in the LOI meant and are surprised to hear WC was included in your purchase price in the LOI, leading to value misalignment.

Anything we missed that's worthwhile for people who want to learn more about the space?

You can follow my journey on Instagram @kevin.p.cassidy and X @kevinpcassidy, where I document the search process and share lessons I learn along the way. I also take on a small number of advisory engagements with businesses seeking growth, financial, and/or management support, as well as professionals navigating career transitions. If you think I can be helpful, feel free to reach out through IG, X, or at hangingvalleyholdings.com. Lastly, for anyone interested in acquiring a small business who doesn’t know where to start, I recommend the HBR Guide to Buying a Small Business by Rick Ruback and Royce Yudkoff, who also have a podcast.

That’s all for this edition!

We will be back with some restructuring case study content soon.

Until next time.

-Harry

Sign up for HYH Premium for 50% Off:

You have one week to act.

• Recruiting for a seat in Credit? Leverage HYH Premium to access our full resources of credit recruiting materials.

• Access to our research reports on stories such as the Brooklyn Mirage and Forever 21 are a part of our paid library.

• You have one week to act before the offer is gone forever.

Access our Private Equity and Investment Banking Wall Street Comp Data Reports for free:

• Access Buyside Compensation Datapoints and Culture Insights: Join Buyside Hub and access the best compensation datapoints on Wall Street

• Sign up for our free job board that hosts hundreds of buyside and banking jobs

• Access our Private Equity Teaser Report

• Access our Investment Banking Teaser Report