M&A Glossary
Search fund: the buyer few owners have heard of
A search fund is a model in which an entrepreneur raises capital from a group of investors in order to find and buy one company, and then run it. It is not a fund in the usual sense: it does not build a portfolio. It looks for a single business and steps into it personally.
How it works
The model has two phases. In the first, investors fund the search, usually for two years: the searcher’s costs, advisers and analysis. In the second, once a target is found, those same investors have the right of first refusal to fund the acquisition. The searcher becomes chief executive of the company and takes an equity stake that grows with performance.
Which companies fit
A fit when the company
- is profitable and stable, without dramatic growth
- has revenue from a few to a few tens of millions
- operates in a niche that can be understood
- has an owner who wants to step out of management
- is too small for a private equity fund
Not a fit when
- the company needs immediate restructuring
- results depend entirely on the owner personally
- the sector is heavily regulated and capital-intensive
- the owner wants to stay and keep running it
Search funds in Poland
The model is mature in the United States and Spain, and only now appearing in Poland. The practical conclusion for an owner: if the company is too small for a fund, and a trade investor would mean absorption and the end of the brand, a search fund is sometimes a third route nobody mentioned. The buyer is one identified person who arrives to manage the business personally, which changes the whole conversation about the transition period.
Frequently asked
Questions about search funds.
How does a search fund differ from private equity?
A PE fund builds a portfolio and hires managers. A search fund buys one company and the buyer becomes its chief executive. The scale is smaller, the personal commitment far greater.
Will a search fund pay a market price?
Usually yes, though it overpays less often than a trade buyer counting synergies. Its advantage tends to be flexibility on structure and a willingness to look at companies funds will not consider because of size.
How do you reach such a buyer?
Searchers usually work quietly and approach companies directly. In a structured sale process an adviser reaches them the same way as funds and trade investors, by putting them on the list of addressees.
See also
- M&A glossary - 72 terms used in transactions
- How we run a company sale
- How we work and how we charge