Any searchers that were searching during GCF (2007-2009)?
April 01, 2020
by a searcher from Harvard University - Harvard Business School in MG9V+6H2, Guatemala City, Guatemala
Apologies if this has already been posted, but would love to connect with any successful or unsuccessful searchers that lived through the Great Financial Crisis while on their search.
I would find it very valuable to hear about your experience during those times and draw any valuable insights or get some advice that might be useful during the current crisis.
If you have 20 minutes to spare for a quick phone call in the next couple of days, I would really appreciate it!
Thanks in advance
from Harvard University in Dallas, TX, USA
The sellers pretty much universally had their pre financial "shock" perception of price (as Timothy above mentions), though the conversation doesn't tend to be quite as succinct and revolves more around the dollars they want and that they have never heard of EBITDA and don't care what it is anyway..
The data, (shared in the link ) must be true. Though it didn't really feel like an 'asset class' at the time (Max's point about institutional money is right - Pacific Lake was the first in about 2010, and I think I was maybe the first investment?).
What I remember of the searchers as a whole was you could largely tell who would likely get a deal done (Jay and Jason were the ones you knew would; due to tenacity and optimism). I remember quite a few searchers at the time would actually try and tell you all the reasons no deals could get done, as they'd essentially given up and if you did get a deal, you'd make them look worse (or their rationale for not getting one done was weaker). You can find all kinds of reasons to explain why this is hard and lots of people to agree with you.
But a few points to note
Getting to owners is easier. People want to talk more, and that takes up a lot of time. Many aren't intending to sell but even talking to you makes them feel better, that their business is worth something. I ended up skewing to those who had to sell (my seller was 79 years old). Father time and divorces were the only full proof reasons.
Seems not to matter over the course of the search fund timescale which phase is the one that gets challenged, you're going to get hit at some point. Add up the time to raise the search, search and run the company and you're likely over a decade, so what's happening at the moment is just normal over a long enough period of time.
Financials will be a lot tougher to understand. Don't try and pretend anything else (particularly not to investors). Instead of the seller not being interested in discussing them as there are lots of buyers and the broker telling you to live with it, now you can break the financials down all kinds of ways and figure out a plan of what you'll do with the business when you actually get to run it.
Everything takes longer. So cut your burn rate. Spend your salary on finding a deal . Things will turn up to be helpful, Jet Blue had an all you can get pass in the September. For $500 you could fly them as much as you wanted. I flew 28 flights in a month and met loads of sellers and stayed on classmates sofas.
Interns! I had interns managing interns. 2 joined me full time after acquisition and are running divisions 10 years later. You aren't competing with all the cool summer jobs that pay loads of money anymore.
The reality of your search is that this is your 2 years, therefore this IS your normal.
What Timothy says above is entirely correct. 100% true. BUT you are looking for one deal. Every company gets sold at some point, there will be many companies bought and many sold in the next year. You just need one.
from Harvard University in Dallas, TX, USA
So how certain can you be on anything you're going to do a deal on?
Rather than those specific plans (you mention above), its less about incremental stuff and more, how can you swing for the fences? Assuming the price is lower, but with more risk. You're less constrained about covenants and standardized performance. You might lose some considerable revenue but replace it with different faster growing stuff (as an example if you're a salesman ceo). The original point of the search fund model is an inexperienced CEO with the chance to learn and then outperform. Hence more volatility, more risk but potentially more impact and influence. A bit less of a steward of a business than a change agent.