Self funded searcher equity

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August 28, 2018

by a searcher from University of Melbourne in Melbourne VIC, Australia

Hi, looking for some examples of structures in self funded search deals. How much equity is on the table for the searcher assuming all equity is investor raised on a###-###-#### debt/equity structure? Thanks in advanced for your guidance  

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Reply by a searcher
from The University of North Carolina at Chapel Hill in Austin, TX, USA
Matt, the beauty of being self-funded is that you can structure the deal however makes sense for you, your investors, and obviously the owner. The acquisition capital contribution % does not necessarily have to equal the equity % received. Investors could provide 30% capital and receive 35% or 25% equity.

You just have to balance the equation of capital = equity + pref return for your investors based on what you think the most likely outcome is for that business i.e. if you think the business will grow a lot, give less equity and give more pref return.
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Reply by a searcher
from The University of Chicago in 2122 W Le Moyne St, Chicago, IL 60622, USA
The self-funded deals that I've seen are always a trade-off between the PIK/cash on the preferred vs. the percentage equity. If you have the cash flow, you can structure as a higher % on the preferred with a lower equity %. For example, I have seen a 12% preferred return for investors, with the searcher keeping 70% of the equity shares. I would just make sure the IRR projects to a return that is acceptable to your investors.
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