No public serial acquirer publishes one required return for every deal, so there is no disclosed standard number. As of October 2026 the published targets are return-on-capital goals for the whole group: Judges Scientific has a medium-term target of 30% return on total invested capital (17.8% in 2025), and Lifco targets above 50% return on capital employed excluding goodwill (132% in 2025). Constellation Software reported ROIC of 21% to 38% a year from 2006 to 2015 and refers to hurdle rates in its letters without stating a figure in the letters I opened. As a rule of thumb, not a disclosed figure, a small acquirer should require an after-tax return on the price paid that clears its cost of capital by a wide margin, and a higher one for riskier deals.
Not as a single number. Constellation Software's president's letters talk about hurdle rates often, but the letters I opened give no figure. The 2015 letter (dated April 2016) says the company is using a lower hurdle rate for larger transactions but has kept its original hurdles for most acquisitions. It also says hurdle rates are "magnetic", meaning a lower rate for marginal deals pulls down the expected return on every deal (Constellation 2015 President's Letter).
The 2016 letter (dated April 2017) describes a deal that "didn't quite meet our hurdle rate" and was lost because the company could not find an extra couple of points of IRR. It also names the main worry: management being tempted to drop hurdle rates as cash balances climb (Constellation 2016 President's Letter).
The 2021 letter says Constellation had kept hurdle rates high for small and mid-sized software deals and would keep investing most of its free cash flow available to shareholders there at its traditional hurdle rates (Constellation 2021 President's Letter). Other writers quote specific percentages for Constellation. I have not relied on them because I could not trace them to a filing.
They publish results and group-level goals. The figures below are from company reports, with the year:
These are outcomes and group targets, not entry requirements. A group can earn 30% overall while individual deals clear a lower or higher bar.
Start from the price. A hurdle is the return you need on the cash you pay, so it is easiest to read as an earnings yield: pre-tax operating profit divided by price. A 5x price is a 20% yield. A 6x price is 16.7%. An 8x price is 12.5%.
Then compare it with what the money costs. Rule of thumb, not a disclosed standard: require the after-tax yield to exceed your cost of capital by enough to absorb integration costs, a lost customer or an owner who leaves. The wider the risk, the wider the gap.
Worked example (all inputs are assumptions). A target earns $1.0M of pre-tax operating profit. Assume a 25% tax rate and debt at 9% interest, or 6.75% after tax.
Against 6.75% after-tax debt, the 8x deal leaves a spread of about 2.6 points before any risk allowance. The 5x deal leaves 8.25 points. A hurdle of 15% after tax would accept only the 5x deal. A hurdle of 12% would accept 5x and 6x. Choose the number before you see the deal, then write it down.
See how to calculate DSCR for an acquisition for the lender's view of the same cash flow.
Constellation's 2015 letter says it uses a lower hurdle rate for larger transactions, and its 2021 letter says Constellation kept hurdle rates high on small and mid-sized deals because the evidence supported doing so. The 2016 letter also reports that larger recent acquisitions earned lower returns, which weighed on ROIC (2016 letter).
My view is that a smaller, owner-dependent business deserves a higher hurdle, not a lower one, because one departure can remove the earnings. A large, managed business can justify a lower rate. Do not lower a hurdle because you have cash to deploy; Constellation names that as the temptation to resist.
Where these numbers come from: Constellation figures are from its president's letters for 2015, 2016 and 2021. Judges Scientific figures are from its FY2025 results announcement. Lifco figures are from its Annual and Sustainability Report 2025. Berkshire's test is from its Owner's Manual. The earnings yields and after-tax figures are the site's arithmetic on stated assumptions.
I found no filing that states 20% as a rule. Some commentators quote it. Treat any single number as a rule of thumb and set your own from your cost of capital and deal risk.
Constellation's letters refer to IRR on deals and to ROIC for the group. Judges and Lifco report group return on capital. They measure different things, covered in the ROIC article.
Constellation's 2017 letter says it will keep its hurdle rates and build cash if capital cannot be deployed attractively. The same letter says free cash flow would be returned to investors when it cannot be reinvested.
Once you have a hurdle, you need to measure whether the portfolio meets it: What ROIC is and why serial acquirers watch it.
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