Seeking Advice on Equity Structure

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February 16, 2022

by a searcher from University of Texas at Austin in Seattle, WA, USA

I am pursuing a deal and wondering how to structure my equity offering. Can anyone help me understand what equity structures are typically used in search fund acquisitions?

I currently work in private equity real estate and am used to seeing LP/GP splits around ~90/10 with a 8% pref and waterfall promote structure. Many of our funds also include an asset management fee on total equity and I'm wondering if that is typical in search funds? The business I'm pursuing furnishes office equipment and performs related design services.

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Reply by a searcher
from New York University in Nashville, TN, USA
Nick- I come from the same world.The equity structures I’ve seen are best described as one of two ways 1) mezz/preferred equity for all the equity capital you need with maybe a 10-20% equity kicker; or 2) 50% promote after a 8-10% pref hurdle.Yes, this asset class is a lot more lucrative from a few perspective than real estate; however the PGs in SBA loans etc seem to be highly restrictive in scaling unlike real estate.Also, with respect to asset management fees, you can add yourself to the business as a salaried employee, regardless of the equity structures mentioned above.
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Reply by a searcher
from Polytechnic Ibadan in Lagos, Nigeria
This would be dependent if the seller is motivated and if there are no broker involved which would help you negotiate directly with the seller without any interference , but the key word is how motivated is the seller to leave the business?

Bear this in mind that you learn on the job, there are no hard and fast rules and never be afraid to make a mistake, take your lessons and move on. Remember, there are just various kinds of fishes in the ocean, not just one, in any case you can also say *NEXT* business please.
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