ACQUISITION CAPITAL - 150% BASIS STEP-UP

I'm struggling a bit to understand how the basis step-up works for those that contribute search fund capital. I've read the Stanford and HBS guides but they don't provide clear enough examples for me.

Can someone help me out with some hypothetical numbers? I've laid out my understanding below, which I'm not sure is correct.

To use round numbers, let's say you raise $500k for the search fund, and spend it all throughout your search; so $0 of search fund cash is rolled into acquisition cash/equity. The search fund investors are entitled to $750k of acquisition equity (150% step-up on $500k).

Let's say you need to raise $2mm in acquisition equity. In practice, are search fund investors actually investing another $500k and receiving $750k in equity (37.5% equity ownership)? And the remaining $1.5mm raised only receives 62.5% ownership, despite contributing 75% of the acquisition capital?

If someone has a model of how this works and is willing to share, I'd really appreciate it!



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