The M&A Detective: Unraveling the Mysteries of a Business
March 4, 2025
Altschuler Earns Prestigious Merger & Acquisition Master Intermediary (M&AMI) Certification
March 25, 2025What is a Search Funder?
A Search Funder is an entrepreneur who seeks to acquire and manage an existing business rather than starting one from scratch. This approach is typically done through a Search Fund, which is an investment vehicle that provides funding to an entrepreneur to search for, acquire, and operate a small to medium-sized business. Search Funders are typically MBA graduates, ex-consultants, or professionals with some management experience looking to run their own company.
Most search funders target businesses with annual revenues between $5 million and $30 million and an EBITDA of $1 million to $5 million. Businesses that are relatively straightforward to operate and have growth potential. Popular industries for search funders are services, healthcare, niche manufacturing, or distribution are attractive options.
Pros and Cons of Working with Search Fund Buyers
The negative about working with Search Funders as potential buyers is that the capital required to purchase the business is usually not yet committed. Often when a Search Funder finds a business they like, they will then present it to the search fund management to see if there is interest in pursuing. Many times, the Search Funder has multiple funds in which they have relationships to improve the likelihood capital can be secured if they decide to purchase the business.
Ideal Companies for Search Fund Buyers are typically established businesses: Companies with a solid track record of profitability, stable cash flows, and a proven business model.
Upon the successful acquisition of a target company, the Search Funder typically assumes the company’s management role. They attempt to improve their profitability to increase the company’s overall value. After maximizing value, they may exit the business through a sale at a higher price than purchased initially.
Commitment to the Business’s Legacy
Many business owners are concerned about the legacy of their company and the well-being of their employees after the sale. Search funders often prioritize maintaining the company’s culture and values, as they plan to actively lead and grow the business. This hands-on approach can be appealing to sellers who want to ensure that their business is in good hands and will continue to thrive.
Operational Focus and Value Creation
Since search funders take an active operational role, they are highly motivated to implement growth strategies and improve the business over time. This can be a great fit for companies that have potential for expansion but need fresh leadership to take them to the next level.
Potential for a Phased Exit
Sellers who want to remain involved in the company during a transition period may find working with a search funder appealing. The seller might have the opportunity to stay on as an advisor or in a part-time role, which can be a smoother transition for both the seller and the company. Touchstone Advisors can discuss the pros and cons of your unique situation in selling to a search funder. Contact us today.
Touchstone Advisors can discuss the pros and cons of your unique situation in selling to a search funder. Contact us today.
Steven Pappas, M&A MI
Partner, Managing Director
Touchstone Advisors
860-669-2246
spappas@touchstoneadvisors.com
