Searching in more developing markets - advice on search process
February 11, 2022
by a searcher from London Business School in Johannesburg, South Africa
I am in the early days of launching my Search Fund in South Africa, a market without a history of many other Search Funds yet.
I would like to speak to other searchers who have successfully searched in similar, more emerging markets - especially around:
1) Marketing your country to US investors - what questions did investors ask, what was your legal structure, what barriers did you face?
2) List building in more emerging markets - how did you go about building lists, what services did you find helpful, how much mass outreach were you able to do?
3) Building team of advisors for due diligence - did you successfully negotiate to pay for deal costs on completion of a deal, did you only use local
Would like to hear stories from those with both successful and unsuccessful outcomes.
from INSEAD in Madrid, Spain
I also recommend reaching out to Ambit Partners ^redacted
Here's also a basic list that we consider before investing in a search fund in a new country (we have invested in ~80 funds in ~20 countries since 2016, quite a few of them were pioneers in their markets):- Check how big the pool of target companies is (related, how relevant is the "succession problem" and what's the trend and culture around it)- Understand competition within the segment ($1-3m EBITDA? $1-4m?) from PE funds and/or other buyers (related, get an an idea of possible acquisition multiples)- Test financing conditions / banks' appetite for this kind of deals- Other currency or regulatory issues (stability, legal structures, taxes, etc.)- Group of local investors (3-4 may be enough, ideally 1-2 should know the searchers well or have worked with them previously, also not mandatory but ideally they have experience and can support you in deal making / investment, BoD, operations) -- it's normally a good thing that we get to know each other before the search starts, so we can help them better understand the model, etc. and they can help us understand the local environment.Send me an email if you want to talk. redacted
from INSEAD in Hermanus, 7200, South Africa
Hi ^redacted would be happy to engage. Prior to launching Ambit, we ran a few funds that acquired >25 Search-style SMEs in RSA and we've been staying close to a couple of self-funded searchers and are supporting some local MBAs with research on this topic too. It's a complex answer, and one that we'd be happy to help a local searcher figure out. Outside of the classic SF metrics that will matter to international investors (Ignacio's list above is a good one), there are a number of local regulations (ownership structure limitations, exchange control, searcher vesting and taxes) that you'd want to iron out early. Very happy to talk through these if you'd like to connect. I'm on redacted