Learnings from your unsuccessful search

January 02, 2021

by a searcher from Indian Institute of Management Bangalore in Toronto, ON, Canada

We hear a lot from successful searchers and investors here. Would anyone be willing to share why their search did not succeed (I.e. they were unable to find or close a deal), apart from just luck? It would help us and the community learn from your experience and do better in our searches. Thank you!

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Reply by an investor
from University of California, Berkeley in San Francisco Bay Area, CA, USA

IMO, the primary reason why traditional searches fail are: 1. Unable to identify a target that meets the narrow investment criteria of professional SF investors, 2. SF investor IRR expectations are above those of many LMM PE firms (who also have committed capital), causing searchers to lose in most competitive sales processes for good companies, 3. Proprietary deals are increasingly becoming more difficult to find due to technology advances which allow a larger number of market participants to reach out to potential targets (databases, email marketing, etc.), 4. searcher realizing that running a small company with the SF model is not the right fit, the searcher economics are not attractive enough, or the opportunity cost of searching is too high. From a searcher perspective, some of these risks can be mitigated by going with a self-funded search.

Reply by a searcher
from University of Pennsylvania in Chicago, IL, USA

I think that most searches that fail are likely due to an inability to raise capital. With capital assembled there is no shortage of good businesses to acquire in various industries. There certainly are searchers that raise search capital and then do not acquire a company. I think this is a smaller subset and could have a variety of explanations###-###-#### Inability to get investors to agree on the target###-###-#### CEO/searcher realizes that running a small business is not what they really want to do (3) Nothing located. My opinion here, but (3) is not really a reason, rather (1) or (2) is likely the reason. Reason I say that, is there are tons of businesses out there. Whether they fit someone's investment thesis is another matter altogether - people's definition of what constitutes a "good" business can vary widely.

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