Competing with lower MM PE

searcher profile

March 07, 2018

by a searcher from The University of Chicago - Booth School of Business in San Francisco, CA, USA

Hi all -- New to the site here and exploring the search funder world seriously. I'm wondering how searchfunders fare against lower MM PE funds. Due diligence and talent aside, it seems to me that search funds are at a distinct disadvantage for good deals because they must get sign-offs from every LP during an acquisition, whereas a PE fund will have committed capital and can act fast. For this reason, perhaps search funds are not ideal for consolidation plays that require multiple acquisitions -- yet, it appears that some of the most profitable exits have used precisely this strategy. Would love to hear about how you think about this and if I'm missing something big here.

How do you think about search funders vs lower MM PE? Does the structure of a search fund prohibit certain strategies?

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commentor profile
Reply by an investor
from University of Pennsylvania in Washington, DC, USA
Pretty familiar with lower MM PE (received investment, sold to, worked at) and also new to search funds but pretty excited about them (more from an investor side). I think part of search funder value prop is more of personal transition, take care of employees, and smoother off-ramp. For most founders, your company is your baby and it's not just about best $ sign in the sale. It's about maintaining your legacy, your employees, and still being valued. Not sure it fully addresses the ? but that's my take.
commentor profile
Reply by a searcher
from Harvard University in State of São Paulo, Brazil
From my experience in Brazil, the legacy part holds up to 1x in price difference. If more, then sellers just go with more cash or the whole big picture that PE firms can show. and I’ve seen this happening even with sellers who were more inclined towards selling 100%, had succession issues, etc.
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