Search funds - a specialized form of private equity, can offer you solutions. Launched in the mid-1980's for the first time, search funds offer investors attractive returns and business owners convenient exit strategy.
They are an alternative investment vehicle that allows entrepreneurs with limited capital to run a company they partly own. Essentially a four-step process, entrepreneurs first pool-in capital to set up the search fund initially. This capital helps them in their search for a company of high growth potential. The funders typically look for firms where there are succession issues and owners looking to exit from day-to-day operations, typically in a highly fragmented industry.
In the second stage, the entrepreneurs zero-in on the target company and make a second capital call to their angel investors for closing the transaction. Stage three is about making operational adjustments and growing the company. Stage four involves exciting the business at a later date. Search funders mostly have individual investors traditionally that are more flexible and can hold on to their investments for longer periods than PE funds.
Challenges
- Identifying the right business fit for acquisition is a big challenge
- Deal sourcing, a three stage process that includes generating deal flow, assessing the seller's interest, and screening potential targets, can be a long-drawn and difficult process
- The search fund structure needs to be efficient, especially for capital intensive companies, in order to sustain the company post-acquisition
- The search fund structure needs to be efficient, especially for capital intensive companies, in order to sustain the company post-acquisition
- The capital raising call may not succeed as investors may reject the target, resulting in a fund shut-down
- Investments are illiquid in nature making exit difficult
Solutions
- Proprietary deal sourcing techniques with an industry wide network
- V4G is an established mid-market business intermediary with an in-house database of businesses for sale
- Helping Acces to a professional network of business associations, consultants and advisors, attorneys and accountants across Europe
- Long term business planning that increases the success of a possible deal
Benefits
- Pooling of investors who have extensive operating and industry knowledge, thus limiting the potential downsides
- V4G has an established industry-wide network that offers solutions to both industry-centric and geography-centric acquisition approaches
Sign up as a Search Fund Executive and learn more about projects that are especially targeted for you.