Investor/Funds that are long hold (aka gimme the dividends)

February 10, 2018

by a searcher from University of New Hampshire in 101 Rocky Pond Rd, Hollis, NH 03049, USA

HI - looking for some insight / ideas / investors who aren't on a 5-7 yr exit plan? A couple of the owners I am talking with are interested in exiting after they (or there family before them) have built a sustainable company that been around###-###-#### years. They don't want to sell it to someone who will just run/grow it and then turn around and sell it in 5-7 years. They even might want to keep a minority ownership in it. How many funds / family offices out there are long hold and will be happy to get an annual earnings distribution?

Reply by a searcher
from Harvard University in Austin, TX, USA

Timothy - I think there's another model where a re-cap between years 3-7 could give your investors cash flow dynamics similar to traditional search funds/PE while giving the seller assurance that you aren't just flipping their baby. Keep in mind that we're unfunded and will retain a controlling position in the company post-acquisition, and we've been very transparent with potential investors about our plans for a re-cap. Some investors have requested puts or other terms to ensure they get an appropriate IRR and cash multiple, but conceptually agree that a re-cap can meet their requirements as well as a sale.

Reply by an investor
from Harvard University in San Francisco, CA, USA

I think most search fund investors are open to longer hold periods. I would explain that search funds tend to hold businesses longer than PE funds (you can even point to the data), but I also wouldn’t make any promises, since you want to have flexibility.

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