The Search Fund model was conceptualized in 1984 in the United States by Stanford University and today is considered part of the alternative investment asset class by business schools, institutional investors, and private investors.
A Search Fund is an investment vehicle through which experienced investors financially and professionally support the efforts of aspiring entrepreneurs (commonly referred to as Searchers) who aim to identify and acquire a single company to develop it.
The lifecycle of a Search Fund is primarily divided into five phases:
An initial phase of raising capital (so called search capital) to finance the search phase for the target company to acquire;
A second and third phase in which the Searcher searches for and acquires the target company, becoming the new CEO thanks to the contribution of capital from investors;
A fourth phase in which the Searcher - CEO develops operational activities to support growth
A fifth exit phase through which the investment is valued.
For most searchers, the fundraising process begins long before formally gathering the capital. Raising and setting up a search fund is a significant decision that radically changes the professional future of the Searcher... It requires conviction, pragmatism...
Once the capital raising and setup phase of the Search Fund is completed, the promoters, known as Searchers, begin the search for target companies, primarily through two channels: proprietary deal flow and that induced by advisors. The transactions managed by the advisor....
Once the acquisition is completed, the Searcher becomes the CEO of the company along with the board of directors appointed for the company, which typically includes substantial representation from the investors. The parties...
The moment when financial returns for investors in the Search Fund actually materialize is the exit, that is, the sale/transfer of the company to third parties or the stock market listing (known as IPO - Initial Public Offering). The average holding period of a company...
The search fund is currently considered an alternative investment within the private equity framework. Unlike the latter, since there is a maximum concentration in a single target, the risk is more concentrated but at the same time, considering the life stage of the company in which the investment is made and the commitment of the manager-searcher and investors in all phases, the returns can be higher.
The target companies are SMEs generally outside the scope of interest of large institutional investors (Private Equity).
The chances of success for a search fund are greater than starting a company from scratch (startup).
Opportunity for the investor to carefully assess the capabilities of the Searcher and the company's performance
The promoter-Searcher is supported in all phases by a group of experienced investors both financially and professionally.
The Search Fund model allows, during the pre-acquisition and due diligence phases, to carefully analyze the characteristics of the business.
The promoter-Searcher receives most of his compensation in the form of company shares, awarded upon the occurrence of certain events or results.
The target company for the Search Fund is the initial platform from which to develop the industrial project with the Searcher. Understanding its growth drivers, strengths, and weaknesses is therefore crucial. Evidence confirms that 75% of the time the Searcher is able to identify a target and acquire it with the Search Fund.
Growing market
Stable relationships with stakeholders and the community
Diversified portfolio of clients and suppliers
Widespread know-how within the company
No dependency on individual internal figures
Fragmented competition
Stability or steady growth of revenues
Positive marginality above 20%
A virtuous cycle of working capital in function of growth
Financial indebtedness absent or less than 2X EBITDA
Real Estate component absent or separated from the company
Non-recurring CAPEX
How can you transform weaknesses, under-sizing, and the mini-structure of the Italian productive ecosystem, into strengths?
The Italian economic fabric is characterized by Micro Enterprises and Small and Medium Enterprises (SMEs). More than 95% of existing companies are represented by these two categories. These entities employ almost 50% of the total Italian workforce.
The actors participating in the development of the Search Fund are numerous and complementary. Understanding the characteristics of each one allows one to fully grasp the innovative potential and growth of the model for each category of stakeholder.
is the promoter of the Search Fund. This role is typically occupied by managers or young professionals with an MBA and some work experience. This figure, around whom the Search Fund model is developed...
refers to generally high-income or high-net-worth investors, typically HNWIs, successful former entrepreneurs, or company executives who wish to invest and bring added value to a...
the Italian entrepreneurial landscape is characterized by family-run SMEs, which often find themselves in a phase of generational change or dealing with situations of...
is the external consultant to the company specialized in extraordinary sale/acquisition operations. The sell-side advisor works alongside the entrepreneur...
