Bristol Business Blog: Olly Pullin, director, Harbourside Corporate Finance. Search funds and the owner-managed business

January 18, 2023

A recent trend in the UK mergers and acquisitions (M&A) landscape is the increased prevalence of search funds as acquirers of established trading businesses.

This relatively new phenomenon provides an interesting potential acquirer to owner-managers that are looking to sell their business. 

What is a Search Fund?

In its simplest form a search fund combines either one, or a small number of, entrepreneurs with funding from professional investors.

The entrepreneurs will directly source funding from professional investors to undertake a search for an acquisition opportunity of an established business.

The entrepreneur will become responsible for the management of the business (typically as MD or CEO) and the future growth of the business, which in turn generates the return on the funds provided by the investors.

Search funds offer entrepreneurs an alternative to founding a start-up business and provide an established operation as a launchpad from which to grow. They also provide investors with access to an asset class that may be difficult to reach through other methods.

An increasingly popular alternative

Search funds provide an interesting potential purchaser to the owner-managed business where the existing owners are looking to exit the business.

Historically, professional investors have deployed their funds through the more typical private equity funds. This typically involves the acquired business receiving additional support from the private equity fund and its team in the form of experience and financial firepower,

However, private equity funds will typically not be involved in the day-to-day management of the business and so require an operational management team in place at the point of the acquisition.

This often provides a challenge to the acquisition of owner managed businesses, where the existing owner is deeply involved in the management of the company and their exit after the sale leaves gaps in the management team.  The search fund model provides a ready-made replacement in the entrepreneur that will fill the role of the exiting owner.

This model therefore represents a solution to bridge the issues that typically make professional investors acquisition of owner-managed businesses unachievable.

How Harbourside can help

We can provide due diligence services for search funds looking to make acquisitions assist with any potential acquisitions that are being considered.

For owner-managed businesses, we can help with the sales process right through from inception to completion and can explore whether there are any search funds that may be applicable to your business together with the more traditional acquirer classes that have historically been seen.

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