A Search Fund is specialist vehicle in which investors back a promising individual (entrepreneur) rather than an existing start-up team. Often these entrepreneurs, or searchers, have completed an MBA or similar and are looking for a way to run their own business, but do not have their own ‘big idea’ to start from scratch. With the funding already guaranteed, they will seek out businesses which are already established and look to acquire them, with the view to managing and growing them in the long term; often where owners are looking to retire or take a step back and where there is opportunity for a new owner to come in and build on an already established market position.
The searcher will typically spend anything up to a few years identifying the right investment, and will usually be funded by a group of investors during that search process. Once a target is identified, the investors will fund the due diligence process and then commit to invest in the acquisition, which may be part funded by equity from the investor group and part by external debt. The searcher will normally retain anywhere between 8% and 25% of the target company, following acquisition.
Search Funds have been a popular concept for many years in the US, however until recently they have been relatively unusual in Europe. The model allows for talented and motivated would-be entrepreneurs to skip the start-up phase of running a business and take control of established businesses where they can inject new energy and ideas. The success rate of searchers successfully scaling and exiting a business is significantly greater than that of an entrepreneur starting up a new business and taking it to successful exit.
Search funds allows investors access to a new CEO who can access businesses which otherwise might be seeking traditional private equity investment or a trade sale.
Some business owners may be deterred from selling to private equity groups for fear that they will sacrifice their business in order to generate a quick return on their investment. This concern is lessened with Search Funds who will typically own the business for longer and are interested primarily in revenue growth rather than simply staff-cutting.
When completing an acquisition within a search fund it’s vitally important to know where expert assistance is needed. HW Fisher’s Transaction Services team have years of experience in undertaking financial due diligence on acquisitions and in supporting acquiring companies or management teams in making acquisitions.
All our work is tailored to the specific requirements of our client, bearing in mind the size and strategic objectives of the transaction, the client’s own knowledge of the industry and business to be acquired and level of risk associated with the transaction. By targeting our work based on the risk and objectives we are able to keep costs proportionate to the deal, whilst still providing the key information required. This means that when acting for a search fund we are able to take into account any commercial due diligence already undertaken and any risk areas already identified to ensure that our due diligence is as efficient and cost effective as possible.
Please do get in touch if we can assist with a transaction.