Search funds vs private equity positioning
October 15, 2020
by an investor from University of Colorado at Boulder in Horsham, PA, USA
Searchers not only can’t pay as much as PE firms and family offices, but cannot offer the certainty of closing. Even investors in traditional search funds may pass on the deal, creating a gap that needs to be filled. And searchers don’t have as much experience as PE guys in DD.. Both of these issues make PE firms more likely to get the deal done to seller’s liking.
But we have many advantages over PE firms. Searchers are focused on only one business. Our goal is to grow it while keeping the seller’s legacy intact. We take care of his or her employees. We have a longer time horizon and are not in a rush to exit. And never underestimate your personal connection to the seller as the son or daughter who will protect and build on his legacy.
Good luck hunting!
from Northwestern University in Los Gatos, CA, USA
Seems like that group of yet to be identified LPs may ultimately look similar to the LPs in a PE fund. Investors will ultimately want liquidity in their investments and I’m not sure structuring through a search fund changes that. What it does change is the Searcher’s sequence of pitches and promises. When there are no committed investors it’s easy to say “my plan is to hold this forever” without being dishonest. The reality is, plans change, and that plan might be irrelevant if that searcher is not the one ultimately deciding about whether to hold or sell.
from Yale University in Moscow, Russia