Transcript Search Funds

Search Funds
An Overview
What is a Search Fund?
 Capital raised to help an entrepreneur to
search for and acquire a business
 The entrepreneur is usually a young MBA
 Most Search Funds have a 3 to 5 year
outlook
 Investors and principals receive a return
after dividends are issued, the company is
acquired by another, or an IPO event
Advantages of Search Funds
 Offer new entrepreneurs a quick path to
capital and owning a small business
 Generate significant returns to principals
 Investors can serve as advisors to the
entrepreneur
The Main Advantage of a Search
Fund Is…
 The experience provided by the investors
 Investors acting as advisors can steer the
business and entrepreneur down the right
path
 Psychic benefit to investors working with
young entrepreneurs
Stages of a Search Fund
 Stage 1: Raising the Fund
 Stage 2: Searching for and Making an
Acquisition
 Stage 3: Operation
 Stage 4: Exit
Raising the Fund
 A business plan is created
 Principals look to a wide variety of
potential investors
 Each investor typically purchases one or
several units at about $20,000 to $35,000
 Entrepreneurs look for investors who can
act as advisors
Searching for an Acquisition
 Search by either location or industry
 Searching geographically can help a principal
logistically, but limits opportunities
 Target 2 to 4 industries, taking less time
 Generally target industries that are not subject
to rapid technological change and are in
fragmented geographic or product markets
 Searching for a company to buy usually
takes from 4-8 months
Making an Acquisition
 Each investor is given the right of first
refusal on any acquisition
 The investment is stepped up in the
acquisition round
 The business will often sell for a multiple
equivalent to 70% to 130% of revenues
 If the initial capital is exhausted principals
may close the fund or find additional
capital
Operation and Exit
 Principals recruit a board of directors
 Initial investors are often included
 Principals create value by improving
revenue growth, operating efficiency, or
expansion, often in conjunction
 Search funds have a 3 to 5 year outlook
 Investors receive a return via an
acquisition, selling investor equity, or
dividends may be issued
Search Fund IRRs to Original
Investors
2001 Study Figures
2003
2005
(100%)
(100%)
(100%)
(100%)
(100%)
(23.7%)
(16.1%)
21.9%
24.8%
84.8%
215.0%
Individual IRRs:
Minimum
25th Percentile
Median
17.6%
75th Percentile
Maximum
98.3%
(100%)
26.5%
(51%) to (99%)
12.2%
(1%) to (50%)
14.3%
0% to 25%
22.4%
26% to 50%
14.3%
50% to 75%
4.1%
76% to 100%
2.0%
>100%
4.1%
Aggregate IRRs with Same
Starting Dates:
Actual Cash Flows with Original
EBITDA Multiples
37.6%
31.7%
37.3%
Actual Cash Flows with
Estimated Current Multiples
Minus 30% Discount
35.7%
33.0%
37.7%
Comparison of Search Fund
Acquisitions
Categories
All Acquisitions
Median Statistics
Top Quartile Performers
Median Statistics
Purchase Price
$5.7 M
$8.5 M
Search Fund Investor Capital Raised
for Company Purchase
$2.2 M
$2.3 M
Company Revenues at Purchase
$7.0 M
$6.5 M
Company EBITDA at Purchase
$1.0 M
$1.4 M
Company EBITDA margin at
Purchase
17.0%
22.0%
Purchase Price / Revenue Multiple
0.9x
0.95x
Purchase Price / EBITDA Multiple
4.6x
5.6x
Company Employees at Purchase
57
65
Search Funds in Alaska
 Working with Native Corporations
 Alaska InvestNet
 Opportunities for growth
 Previous attempts to assist entrepreneurs
 Business plan competition
Working With Native Corporations
 Opportunities for new entrepreneurs
 Structure of native corporations allows for
growth and expansion
New Innovative ANCSA 8(a)
Business Model
Capital Investor
Entrepreneurial
Manager
Business
Opportunity
Technical and
Professional
Services
Identify and
develop
entrepreneurial
opportunities
Provide the
entrepreneurial
manager with
access to
opportunities
YIELD
Facilitate
access to
capital and
management
expertise
ANCSA 8(a), LLC
Potential Investors & Participants
Founding ANCSA Corp.(s)
•Facilitate 8(a) process
•Help identify deal flow
•Minimum capital/bonding req’s
•Sponsor individuals to develop
internal expertise
•Collaborative, non-majoritive LLC
ANC’s with Opportunity
Based Core Competencies
•Capital in-flow coupled with project-based
expertise
Lead Active Capital
•Private investors and AIN
•Provide & facilitate capital
•Identify & capture management
expertise
•Help identify deal flow
Board of Directors
•3 member board
Counsel
•Expertise in 8(a)
procurement process
•Legal & procedural advice
Lead Active Manager
•Primary deal hunter; identify & validate deal
flow
•Identify & capture necessary 3rd party
expertise
•Interface in government procurement
•Multiple sub-ordinate active managers in
various fields
•Performance based compensation
The Projects
•SBA 8(a) contracts
•OMB A-76 contracts
•Focus on profits over revenues
3rd Party Experts
•Technical & professional services
•Project-specific competencies
•Little or no ownership stake