Bidding Against a Traditional Searchfund?

November 27, 2025

by a searcher from University of Texas at Austin in Austin, TX, USA

I’m a self-funded searcher and currently in the final round of a deal. I’ve toured the facility and done extensive pre-LOI diligence, and am the seller’s preferred buyer. After the LOI deadline, a traditional Searchfund came in an outbid me. I feel that they overbid because the CIM presents a cleaner picture of the business, and the truth is revealed only through an in person tour. I’m trying to understand how much confidence they have with their offer and likelihood it will close at their offer price. Do Searchfunds typically vet a deal with their equity partners before or after submitting the offer? Is it common practice for a traditional Searchfund to submit a high offer in order to win the deal even though they have a low degree of confidence in the price?

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Reply by a searcher
from University of Pennsylvania in Philadelphia, PA, USA

It depends on the traditional searcher’s approach. Some have regular contact with their investors, discuss deals pre-LOI, and are issuing LOIs with more conviction. Others will issue LOIs, do preliminary DD, and approach their investors with a preliminary memo if they determine the opportunity is attractive enough. In terms of how aggressive traditional searchers can be on offer price - generally speaking they have better access to equity and debt capital than a self funded searcher (speaking in broad generalizations here), allowing them to pay more for a business. However, they are still motivated to generate a 35%+ equity IRR so there is a guardrail on valuation. If you are willing to compete on price, I would revisit some of your growth assumptions for the business and reconcile that against your required IRR and valuation range. To position yourself as a quality buyer, I would explain to the seller and broker that you have already completed a lot of DD pre-LOI, and paint a picture in their minds that you are more certain to close. A traditional searcher has less financing risk, so tackle that concern head-on by highlighting your progress getting the deal underwritten with your lenders and any equity commitments you have (or if you plan to fund the equity yourself, emphasize the strength of your personal balance sheet). You might also attempt to make it clear that if they accept the traditional searcher’s LOI and it doesn’t close, the market dynamic could shift against the seller and any bids received then (including yours) may not be as attractive after the traditional searcher’s exclusivity period ends in 90 days. It’s like a house that has been on the market for a couple months who had another buyer back out … what’s wrong with it?

Reply by a searcher
from RWTH Aachen University in Düsseldorf, Germany

Indeed - interesting scenario. I would suggest that this doesn't impact your strategy at all, unless you got emotionally attached to the deal. Here's why: You have toured the facility and have valued the company based on this (deeper info than only the CIM). So, your price (range) should be based on your assessment, and not on competition. You could even try to convince the seller that the SF will find out exactly the same, thus, lower their bid - but only weeks later.

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