Search Funds not working in Germany?

August 06, 2022

by an investor from University of Commerce Luigi Bocconi in London, UK

Only been involved with Search Funds and entrepreneurial acquisitions for a few months now, interested in Germany in particular. It seems many Search Funds in Germany manage to raise search capital quite quickly, but the rate of non-acquisition is very high it seems.

from what i have heard there were at least 4 or 5 that did not manage to acquire in the last 5-6 years. And rumours are 2-3 further ones are shutting their current searches down soon. On the acquisition side there have only been 4 or 5, so less than 50% of raised funds didn’t acquire.

what are the reasons? It can’t be the economy as its been quite strong. Nor covid. Is it age of searchers (too young) as perceived by sellers? competition in buying too high? „Flawed“ local investor base? Wrong talent/searchers? It is not a lack of availability in bank debt.

very curious to hear what you all think. Subjective views and hypothesis very welcome.

Reply by a searcher
from ESSEC Business School in Düsseldorf, Germany

There are over###-###-#### business for sale in Germany. Most of them are bricks & mortar retail and small service providers (Handwerk). Family business is a sacred thing in Germany and many sellers are very precious about the successor to take their "babies" to the next level. Although beginner as a searcher, A few interactions with potential targets, I have some hypothesis on the fail quote you've heard off:

- The approach with to the owner seems more relevant than in other markets
- Owners must see themselves in you
- Search could've been too narrow

As an extra: I've had someone in my friend circle who preferred to liquidate his fairly successful small freight company as he could not find the right successor and refused to sell it to a larger regional competitor.

Reply by a searcher
from Rice University in Frankfurt am Main, Deutschland

I think we don’t have enough datapoints to draw any meaningful conclusions just yet. Besides, even an about 50% acquisition rate doesn’t necessarily mean that search funds don’t work in Germany. It’s still a good asset class if the share of successful search funds generate enough return.

+3 more replies.

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