A Search Fund as an investment vehicle into a bigger deal?

searcher profile

August 01, 2023

by a searcher in West Palm Beach, FL, USA

Hi fellow Search Funders,

I was wondering if there was such a thing as a self-funded search fund set up that could be used to in turn make an equity investment into a bigger acquisition. In essence it might look like the backing of an Independent Sponsor to make the acquisition of a larger company.

Let me attempt to explain by way of example: Let's say there is a company that selling for $60m and the self-funded Search Fund wants to raise $6m in order to own a 10% stake in the company. Is that type of structure possible?

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Reply by a searcher
from Purdue University in Kennett Square, PA 19348, USA
If I understand your question correctly, I see no reason why that couldn't be done. Presumably you would act as a syndicator to raise the $6m and, of course, you would need to be compensated for your efforts.

The problem I see is how to get others to buy into the opportunity? Who would buy the other 90% share? And why would I trust them to be able to manage the business so that ultimately I (as part of the syndicate) get a return commensurate with the risk I am taking?

To entice me to join the syndicate, I need to be compensated for both the risk of joining your syndicate plus the risk of the business being purchased. Seems like a tough sell...
commentor profile
Reply by a searcher
in West Palm Beach, FL, USA
Good point Alan. I may not be framing it correctly as to how I see it happening, but the idea is to have the syndicate in essence be the overall independent sponsor of a larger deal with a private equity firm. My main focus is to run the day-to-day operations of the business that is acquired, and grow it further organically as well as making subsequent acquisitions that would be rolled up into the parent company.
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