Self-funded deal: average IRR for investors

by a searcher from INSEAD

5 years ago

Hi all,

Im currently developing my investor network for a potential acquisition in the manufacturing space in Europe, via a self-funded search. Target company ranges 300k to 700k EBITDA with pretty stable earnings. Acquisition is intended to be leveraged, with roughly ~50% bank debt, ~20% seller financing, ~30% equity.

In talks with investors I have presented an initial Memorandum offering IRRs of 8-10% with preferred return, given the average returns on senior debt and seller notes I was aware of. This IRR range has been too low for many investors (most not savvy in this type of investment) at first impression - I was being asked how this could be so low if, for instance, PE returns with lower risk can range 12-20% IRRs. In general, perception was that the risk was too high for such a return.

Would love to get your experience/ thoughts on the market IRR ranges for this investment type, to update or confirm my pitch to investors.
Thank you.

13 likes
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6 comments

searcher from Babson College

That sounds like a tough sell, typical PE carried interest hurdle is 8% with most PE firms targeting at least double that. For backing a search fund I would imagine investors would want at least high teens expected returns.

5 years ago | like reply | 0 likes

investor from King's College London, University of London

Happy to look through your calculations to see why you’re arriving at such a low figure. I believe 12-15% IRR should be achievable, unless there’s something specific about the nature of the business that’s unapparent in your description.

5 years ago | like reply | 0 likes

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