From the M&A Glossary: Search Fund 

/in , /by Exit Strategies

A search fund is an investment vehicle through which an entrepreneur raises capital from investors to fund the search for and eventually the acquisition of a privately-held company. 

The search fund model allows the entrepreneur to collect a salary while they search for a suitable target company and negotiate a letter of intent and perform due diligence. Once a target company is acquired, the entrepreneur usually takes an active role in managing and growing the business, with the goal of creating value for all stakeholders involved.  Investors provide the necessary capital and often offer guidance and expertise.  Another term for search fund is “independent sponsor”.

Search funds aren’t our favorite type of buyer, but occasionally they are the right type of buyer for one of our seller clients. Search funders are most likely to prevail in a sale process when all of the following are true:

  1. the seller manages the business and doesn’t have an internal successor,
  2. the business is smaller, say less than $2M EBITDA, and
  3. there are no strategic buyers present, or the seller wants to retain some equity and the strategic buyers can’t accommodate that, or the seller doesn’t like what the strategic buyers plan to do with the company (e.g. relocate, rebrand, or dismantle it).

For further information on this subject or to discuss a potential business sale, merger or acquisition need, confidentially, contact Al Statz at 707-781-8580 or alstatz@exitstrategiesgroup.com.