Search Fund
From Wikipedia, the free encyclopedia
Search Funds are vehicles for entrepreneurs to raise funds from investors interested in making private equity placements, using a proven two-stage model. In the first stage, a small group of investors back high caliber operating manager(s) to search for a target company to acquire. A fund may or may not find a target acquisition company. Investors are able to invest a pro-rata share in the target company, subject to their individual liking. Should the Search Fund sign a Letter of Intent and reach a final agreement, the second stage commences. In the second stage, the General Manager(s) of the Search Fund take operating roles in the acquired company - CEO, President and the like.
Search Funds typically target companies in the $5-15 million price range, requiring $2-10 million of capital, in fragmented industries, with sustainable market positions, histories of stable cash flows, and long term opportunities for improvement and growth. Service and light manufacturing companies outside high tech industries are popular targets. Often these companies are under-managed prior to the acquisition. Most Search Funds are started by young, MBA-educated entrepreneurs with limited operational experience and possibly no direct experience in the target industry. The goal of the investor is to place promising, motivated manager(s) in an environment with a high probability for success given the oversight and experience of the investors themselves.
