Search Funds: How Smart Founders Secretly Launch Companies
Summary
TLDRThe podcast host Ryan interviews Carl, an M&A expert, about search funds - a method for entrepreneurs to acquire existing companies instead of building from scratch. Carl explains the search fund model, including equity structures aligning incentives between investors and operators. He outlines best practices like extensive research and community outreach to set up a search fund for success. Carl discusses global search fund market trends and maturity levels, noting big opportunities as baby boomer business owners near retirement with no succession plans. He advises ambitious professionals to explore buying a business, knowing their goals and focusing their search.
Takeaways
- 😀 The show covers strategies for raising money, launching businesses, and achieving success
- 👨💼 Carl Lundberg is a CEO specialized in acquisitions, search funds, and management buy-ins
- 💰 Search funds help entrepreneurs buy companies by raising capital during the search period
- ⚖️ Equity incentives align stakeholders, but failing to do searches properly can cause losing deals
- 🔍 Self-funded searchers use personal capital vs. traditional searchers who raise external funds
- 🤝 Win-win deals meet seller succession needs and provide growth potential for searchers
- 🚀 The US search fund ecosystem leads globally but the UK market has strong opportunities
- 📈 Baby boomer business owners nearing retirement spur demand for entrepreneurial buyers
- 🔎 Industry knowledge, strategy and preparation increase likelihood of search fund success
- 🌎 The search community holds conferences and events for broader awareness and support
Q & A
What is a search fund?
-A search fund is where an entrepreneur or group of entrepreneurs raise money to fund the search process to find and acquire a business to run. There are traditional search funds where the money is raised from investors, and self-funded searchers who fund the search themselves.
How much money is typically raised for a traditional search fund?
-Between $300,000 and $600,000 is typically raised to cover costs like the entrepreneur's salary, software, travel, and due diligence during the search period.
What return do search fund investors typically target?
-Search fund investors typically target a 35% IRR. They get a 50% uplift on their search capital when a deal is made, preferred shares with 8-12% dividend in the acquired company, and the majority of the common equity.
What equity does the search fund entrepreneur usually get?
-The searcher usually gets 8-10% of the common equity upfront, another 8-10% that vests over time if they stay in a management role, and another 8-10% that vests based on IRR targets being hit between 20-35%.
How can searchers avoid losing in the early days?
-Getting advice from experienced search fund investors, sticking to objective criteria instead of emotional attachment, and being willing to walk away from bad deals early instead of falling prey to sunk cost fallacy.
How does the search fund market differ geographically?
-The US market is 10-15 years ahead in maturity compared to Europe. Government programs, business schools, and investor understanding make search funds more common in the US. Europe is growing fast though, especially Spain.
Why is there a good opportunity for search funds in the UK?
-There are many profitable small businesses run by baby boomer founders approaching retirement age that could benefit from new operators and succession planning through a search fund acquisition.
What experience helps search fund entrepreneurs be successful?
-Having experience in the industry of the acquired company helps build trust and credibility with selling founders to nurture the business. Operational experience also helps improve the business.
What financial metrics should searchers look for in targets?
-10-30% EBITDA margins, high correlation between revenue and EBITDA showing operational leverage, stable cash flows.
What resources exist for learning more about search funds?
-The Search Investment Group self-funded searcher study, the International Search Fund Centre conferences, and the Entrepreneurship Through Acquisition awards in London.
Outlines
🤝 How to set up equity incentives for search fund investors and entrepreneurs
This paragraph discusses how to structure equity incentives between search fund investors and the entrepreneur/searcher. It goes over typical equity splits, including preference shares for investors (8-12% dividend) and ordinary shares for the entrepreneur (8-10% initially, plus additional shares that vest over time based on continued involvement and IRR targets). This aligns incentives and ensures the entrepreneur has enough equity upside through carried interest.
😊 Why search funds benefit both operators and investors
This paragraph explains why the search fund model is mutually beneficial for both operators (entrepreneurs) and investors. For entrepreneurs, it allows more control, equity upside, and incentives compared to private equity. For investors, it allows them to back a capable, ambitious individual focused on making the single investment work. This also meets succession planning needs for business owners.
🔎 Key factors in winning and not losing during an early-stage search
This paragraph discusses tips for success early in a search fund's lifespan. It stresses the importance of leveraging the search fund community for advice and learning from others' mistakes. It also emphasizes avoiding the sunk cost fallacy of pursuing suboptimal deals too long simply because time has already been invested in them.
📈 Current state and future outlook of the search fund marketplace
This paragraph analyzes the current maturity level of search funds geographically. It notes the concept originated at Stanford in the 80s and has seen much faster adoption in the US vs UK/Europe. However, it identifies an equity funding gap in the UK representing an investment opportunity. It also predicts increasing activity as baby boomer business owners near retirement age.
💡 Top 3 pieces of advice for pursuing search funds successfully
This paragraph shares the top recommendations for search fund entrepreneurs. First, spread awareness, as many don't know the option exists. Next, be clear on strategy and sector focus based on individual strengths. Finally, research thoroughly via published reports and the community before moving forward.
🤝 Why the search fund community tends to be mutually supportive
This concluding paragraph notes that search funds often create collaborative rather than competitive relationships. It highlights some upcoming conferences and an annual entrepreneurial acquisition award event focused on celebrating win-win search fund deals.
Mindmap
Keywords
💡Search fund
💡Acquisition
💡Due diligence
💡EBITDA
💡Succession solution
💡Management buy-in (MBI)
💡Capital structure
💡Equity incentives
💡IRR
💡Baby boomer business owners
Highlights
A search fund is an individual or group raising capital to fund the search for a company to acquire and operate.
The search capital gets a 50% uplift when a deal is identified, as compensation for the speculative risk early on.
The search founder usually gets 8-10% equity upfront, plus additional equity that vests over time based on performance.
Speaking with the search fund community and learning from others' mistakes is key to avoiding losing early on.
In a search fund, the operator is the priority, with more control and upside through equity incentives.
For investors, search funds allow access to highly capable entrepreneurs completely focused on one company.
The US search fund market is 10-15 years ahead of the UK in maturity and investor understanding.
There is a gap currently in UK search fund equity financing that represents an opportunity.
Many profitable small business owners are approaching retirement age, presenting opportunities.
The key is knowing what strategy you want to pursue - stable cash flow or high growth potential.
Focus your search in an industry where you can demonstrate you can make a positive impact.
Those searching in a particular industry tend to complete deals more quickly.
These deals aim to create win-win situations with good outcomes for buyers and sellers.
The global search fund community is expanding quickly.
There are major annual search fund conferences like the one hosted in Barcelona.
Transcripts
[Music]
my name is Ryan Miller and for the past
15 years I've helped hundreds of people
to raise millions of dollars for their
funds and for their startups if you're
serious about raising money launching
your business or taking your life to the
next level this show will give you the
answers so that you too can enjoy your
pursuit of making billions let's get
into it does it not feel like Venture
capitalists are hiding from us easier
ways to start a business join me on this
episode of making billions as I walk
through a secret strategy called
entrepreneurship through acquisition
giving you the tools you need in your
pursuit of making billions here we go
hey welcome to another episode of making
billions I'm your host Ryan Miller and
today I have my dear friend Carl
Lundberg Carl is a CEO at Gerald Edelman
LLP with his expertise in Acquisitions
and search funds due diligence debt
funding for UK Acquisitions and
management buyin he's a game changer
who's revolutionizing the world of m&a
in its industry so what this means is
that Carl understands how to buy
companies for entrepreneurs is about to
teach you how to do the same so Carl
welcome to the show man hi Ryan thanks
so much for having me on I've uh I've
been a longterm follower of the podcast
and um really love what you're doing and
the community and your story as well is
really inspiring to me so I'm been
really looking forward to having this
conversation with you likewise brother
this is so good to have you calling all
the way from the UK it is truly an honor
to have someone with your caliber and
expertise in search funds and how to buy
companies for entrepreneurs we're going
to get into all of that stuff but before
we do let's let's go let's hit them
right between the eyes for the beginners
what is a search fund and then we'll get
into how to win and not lose when you're
starting out on on this path so what is
a search fund of course yeah so a search
fund I mean really when we talk about
search funds often what we we mean is a
kind of categorized into two different
buckets one is the traditional search
fund which is something that was devised
in Stanford University back in the 80s I
believe um and then also grouped in that
now is really any other entrepreneurship
through acquisition route so broadly can
be split between traditional search
funds and self-funded Searchers so both
entrepreneurs um looking to acquire
businesses a traditional search fund
will be an individual or or or a group
of individuals normally one or two who
raise a search fund so a pot of money to
fund the search period while they're
looking for a company to acquire and a
self-funded Searcher will be someone who
still goes through that search phase but
funds that bit themselves so effectively
with the means to live off their own
savings or other income while they're
searching for that business both both of
those when they find a deal will then
generally talk to investors to help them
fund that that transaction and acquire
the business to go in and run it I love
it perfect so when someone's starting
out in the search fund whether you're an
entrepreneur looking to work with the
fund that will find you a company or you
are a search fund either way there's
some rules whether they're spoken or
unspoken and often they result in two
things how to win and how not to lose so
maybe we could warm up people listening
around the world we're in 100 countries
around the world to help us understand
in the world of search funds how do you
win in the early days I think the first
decision to make of course is whether
you need to go down the traditional
route or whether you're going to do it
self-funded and normally it's quite an
easy decision particularly if you're
going down the traditional route because
it means well usually it's because
actually I don't have the means to to to
not work for up to two years and or you
may have the means but you may not have
the risk appetite to do that so there's
a decision to be made and so you make
that decision if you're going to go
traditional then you need to start
looking to raise some search Capital if
you're going self-funded you can kind of
get straight into the search how to get
things moving in the early days really
are to establish really what it is
you're looking for now there's a few
things that um characteristics of of
Target companies that are fairly common
across search funds and ETA type deals
so you need to know that and the best
way to do that is to do a lot of reading
but also to reach out and get in touch
with the community um here in the UK
we've got a small but growing community
of people who who are in this space and
the Ecco system is very supportive so
really you need to talk to as many
people as you can and then really deal
flow is is super important because you
do have to kiss quite a few frogs
unfortunately before you find the right
uh deal perfect and with a traditional
search fund how do you break that out so
an entrepreneur comes to you let's let's
just use an example so we'll say someone
who is a Superior Insurance salesperson
and they're like I'm really good I've
got a good 15 18 years left in my career
of at least what I would prefer to have
I don't know if I want to do this for
someone else but I'm really good at my
job I would love to own my own insurance
company I know how to sell it I don't
know how to build a company and then
they go to to you at your firm and you
say perhaps we can help you with that we
can help you find that so when you work
together with an entrepreneur how do you
break out the equity right because
obviously there's owners there's equity
and we do it for Capital so it's not
search charity right it's search fund
and so there's there's some Equity to be
had and we're on a show called making
billions and so there's ways that people
go about to do this in the private
market so maybe you can walk me through
a little bit of some of the just the
equity stack not the full Capital stack
just the equity stack of who gets pref
if there's any pref shares who gets
common how do you make that allotment to
those guys really really let's unpack
this and and give the entrepreneurs a
sense of what to expect yeah and that
that's that's a really good um question
I think very worthwhile scenario to
Think Through actually because you know
these things come up this is that's a
very realistic situation let's assume
that this individual is you know
probably got a mortgage and children and
you know certain costs that mean
actually they would rather go to
traditional route because it will give
them some level of security and an
income over that period so they would go
and talk to a group of investors and
there there are um there's a small group
really around the world of investors so
it's quite easy to know where to go to
there's a few in the UK and there's a
couple of people with funds that invest
in traditional search and then in Spain
and in the US there's also a pretty good
uh network of potential investors out
there as well so they would figure out
how much money they're going to need to
raise and that normally is going to be
based on how much do they need to earn
so they'll put a salary in their budget
for a couple years normally um there's
going to be some software costs there's
going to be a little bit of travel and
there's going to be DD costs so due
diligence and other things but you know
broadly you're looking at probably
between 300 and 600k as a raise for the
search period that will be issued to the
investors as capital and the terms of
that are such that when a deal is
identified a transaction the search
Capital will roll into the transaction
at a 1.5 multiple so effectively you get
a 50% uplift for investing early in the
search Capital because obviously there's
some speculative risk there that
obviously they might not find a
transaction and the money might run out
and they might go back to having a job
and so um let's say then 18 months down
the line they find a transaction and
they come back the search Capital also
gets you optionality so it gets you a
preemption to invest in the transaction
and say there's a transaction it's a 1
million ebit Dar you know insurance
broker that the indiv idual fines to buy
they're going to pay say4 million pound
for it or dollars for the for the you
know sake of an example and let's say
they're going to put some debt in right
so so there's an equity Gap they're
going to put debt in of 2 million and
there's an equity gap of say 2 million
the money that they raise will be raised
normally through the issue of preference
shares so an equity investor then puts
in2 million pound and for that they
receive preference shares worth2 million
and they will have a preferred dividend
attached to them usually between 8 and
12% and they will Al get the investor
will also get the line share of the the
common Equity the ordinary shares as we
call it in the UK the the Searcher the
entrepreneur in in this example the the
insurance operator who's found the deal
will usually get between eight and 10%
of the ordinary capital and this is by
the way assuming that they haven't
invested any cash they haven't
co-invested um they usually get 8 to 10%
on day one they then get a further 8 to
10% that vests over a certain amount of
time which is you know as long as they
stay in a management position position
in the business post and then they'd get
another 8 to 8 to 10% that would usually
vest on a on a straight line basis in a
range of irr outcomes and and and
normally the irr targets are between it
starts vesting at 20% and you'd vest all
of it by the time you get to 35% IR
which obviously is a pretty pretty
decent irr for the um for the investors
so you're only being diluted down out of
the ordinaries to the tune of about 25
to 30% as a as a an equity investor in
this scenario if you've got 35% IR
already um so that's kind of the the the
Bare Bones of how the structure would
work yeah I love that now you mentioned
earlier so that's how you win right so
you got to get your Equity incentives in
place you got to make sure investors and
Searcher or entrepreneur also have the
right incentives in place and that's
typically that's one thing we don't we
always think Equity is a way to make
money and while that's true it's also a
way to align incentives between
operators and owners and so when we have
that equity share and and allotments and
I mean I know in the news right now Elon
Musk is is pretty pissed he didn't get
his $50 billion Equity bonus or
something like that and he's upset at
the state of Delaware there's all kinds
of stuff that happen when to say through
Equity we can give you incentives the
shareholders will provide the operator
those incentives and so uh not that that
happens here but you can see that this
is a very emotionally and powerful thing
that moves Behavior a lot is equity
incentives now that's how we win but
also in the early days whether you're a
Searcher an investor or anything in
between there's ways that you can kind
of get uh a little lost or or
potentially lose or or to get knocked
down what are some ways I know you
mentioned speaking to the community is a
good thing to do on this show we believe
in reputation and relationships are some
of the greatest assets and so the reason
why I bring that up reputation Community
relationships all of those things start
to tie together can you unpack that a
little bit more on speaking with the
community and just how that ties into
not losing in the early days yeah um
it's incredibly important in um this
this space which is still a you
relatively small sub sector of kind of
m&a uh and and thankfully there is a
growing Community as I mentioned and and
they are they do tend to be very
supportive and and collaborative and
there's not a huge amount of you know
competitive tension and between searches
talking to the community will get you so
far you you you and particularly talking
to those who have done deals and
actually those who have failed to do
deals you'll learn a lot but it also
comes down to whether or not you take
the advice whether or not you do learn
from other people's mistakes and there
is this kind of sunk cost fallacy that
people often tend to be aware of but but
find it very difficult to adhere to
themselves if you're going down the
wrong path if you've identified a
company that you think is the right one
and as you find out more about it you're
starting to to to dilute that thought
and you're thinking actually I'm not I'm
not so convinced but I'll spend so much
time on it that I'm going to keep going
that's how you lose the reality here is
that it's far better overall to not do a
deal than to do the wrong deal and also
there are going to be other
opportunities so there is an opportunity
cost to pursuing the wrong one even if
you come out and you get the chance to
do another one and and and you do end up
doing a deal the opportunity cost is is
is not insignificant so really what you
want to do is one the group of investors
that you've gone to if you can get some
people with m&a experience in there then
that's brilliant because particularly
people who see a lot of deals they're
going to have more of a benchmark to
look at and say this isn't good or I've
looked at this industry these are the
issues that you need to be completely
clear on as red flags day one and you
can get an easy no a quick no so having
having a support not just of the wild
community but actually in your investor
base with some experience who can help
you to quickly say no stop you pursuing
incorrect businesses and and and
ultimately stop you from buying the
wrong company and and really they're the
key ways to avoid losing in this
situation that's right yeah a good
friend won't let you drive it over the
cliff so to speak so it sounds like and
keep me honest here Carl it sounds like
this is very similar to private equity
in the sense that you're buying
businesses but not exactly it's also
this hybrid between V uh VC and PE
Venture Capital private Equity now just
listening to you it sounds like that
private Equity starts with a corporation
that they want to buy and then they will
drop in operators where search funds
start with the operator and figure out
the company that they're going to wrap
around that would you say that's a fair
very overly simplified analysis
absolutely that's um that's really it
and and and the benefit to this this
benefits to both sides that's a win-win
because the benefit to the the operator
is that and and I had a conversation
with someone only this morning about
exactly this point which is you know
very impressive individual great
academic background great business
background and if this individual had
gone to a recruitment consultant and
said can you find me a PE business
that's looking to do buy out a company
and they want to put a new operator in
he's not going to be incentivized enough
he he's he's too good an individual and
and I don't mean that as a slight to
anyone that would do that but he's too
entrepreneurial too driven too ambitious
to go and sit in there with a private
equity business maybe with a little bit
of an equity incentive and a salary
that's unremarkable whereas what you can
do in the search situation is put
something together himself have a group
of investors that are backing you and
supporting you and providing guidance
but actually operationally hands off
don't want to meddle unless they're
asked to give some involvement and they
will which means that one you've got
more control two you've got more of the
equity and therefore more of the upside
and on the investor side what it means
is if you invest in a PE fund and that
PE fund has got a pot of 200 million and
they need to deploy that they will do
that and they'll buy the best companies
they can but ultimately they need to buy
quite a lot of companies because they
got to deploy the money right and so
they're not all going to be the best and
they're not all going to get the best
attention and they're not all going to
get the best management team what you
have in this situation is one there's a
far lower barrier to entry because the
the checks that you need to write as an
investor to get into it aren't a million
plus they're far lower often and two
you've got someone who one is a very
highly capable individual with usually a
very good academic background and good
business experience and this is their
everything they're putting their whole
time and all of their energy into making
sure that this works because this is
their career this is one single
investment for you but for them it's
everything and what could be better when
you're an investor passively just
watching someone really go for it and
and and so the reality here is that for
investors but also for operators it just
makes sense it also provides a brilliant
succession solution for business owners
um knowing that someone's going to come
in and nurture and develop and run the
business that you've built over many
years usually um and someone is there
that cares and is going to give it that
attention I love that and that what
you're talking about and and folks what
Carl and I are talking about is
essentially the Crux of the show and
also private markets is investors need
operators and operators need investors
and so where they all come together in a
very it's a very beautiful way is in
search funds and so it never is more
pure than in a search fund where
investors and operators come together
funders and Founders they come together
and really create something valuable for
everybody so win-win is certainly the
name of the game here now I'd love to
transition just into the market the
state of the market of search funds and
everything that we've talked about let's
let's really punch this up where do you
see the search fund market now where and
where do you see it going it varies um
depending on geographical location um in
the US the the Market's very well ahead
of of other jurisdictions in terms of
maturity this concept as I mentioned at
the beginning of the show came about
from Stanford University back in the 80s
and it's it's gradually grown in the US
and and and certain measures have been
put in place to make it easier in the US
for this for this to happen um obviously
the US is a very different place to to
Regions within Europe particularly the
UK in terms of scale size population um
and even state borders and and and
different laws and other other matters
whereas the UK is probably far more
simple place from many perspectives um
but the US is probably 10 15 years ahead
of the UK in terms of how the
snowballing of of the the ecosystem
develops and and and the appetite of
people develops and also the
understanding of investors and lenders
to fund these things without thinking oh
I don't know that's a it's an MBI what
does this individual know about running
a business I'm not investing in that
which which you know there's still a
little bit of that going on in the UK
now in the US it's it's very well
established and it's it's very normal
the business schools have a massive
impact as well so out out in in the US
Stanford Harvard run ETA courses um and
they teach search funds and
Entrepreneurship acquisition in the NBA
programs I I I often make a joke that
you know you qualify from your NBA at
Harvard and you walk out the front door
and there's just a group of people with
bags of money you know trying to fund
your search um but there's so many that
come out of Harvard and they're all you
know the calber of people that come out
is obviously very high as well um in the
US there's the SBA loan scheme which
helps people to fund you know purchases
of of of businesses and we don't have
something like that in the UK but in
Europe Spain in particular and other
parts of Europe it's really growing um
the the Market's pretty mature in Spain
now um the UK is continuing to grow and
really there's there's a lot of
opportunity still though I think one of
the key things is is the profile of the
business owners and actually it is that
that baby boomer generation who founded
businesses who are now approaching
retirement age and there's so many of
them and you know fragmentation of
business as well m&a hasn't really been
a hugely common thing for smmes in the
UK perhaps like it has been in in the US
for a long time so there's a lot of very
small businesses owned by people who
have done very well for themselves you
know bought bought a house and paid off
their mortgage in the '90s or the 0s and
bought the holiday home in the south of
France or in Spain in in the 0s and you
know and and and have enough and are
still earning you know half a million
pounds a year for example and don't
really need to sweat the asset right so
there's some lwh hanging fruit in in a
lot of these businesses as well where
for example you know we can improve the
business we can improve the marketing
whatever else um so it's growing um I
think in terms of investing knowledge is
spreading in the UK as I say Spain is
far more mature Portugal's got a lot of
deals going on as well but there is a
bit of a gap probably in the UK at the
moment where the lenders have kind of
gotten board the second tier lenders um
High Street Banks tend not to be
particularly interested or or helpful
dare I say um in the UK un fortunately
but um but there is a bit of a gap in
the equity funding in the UK and a lot
of cap tables I see have got us
investors and Spanish investors um
necessarily in order to fund enough to
get the uh the deals through I love that
yeah and that Equity Gap in the UK to me
represents an opportunity so it just
says hey if you've got equity and you
want to fill that Gap there's some
profit to be had so anywhere that you as
an investor or even an entrepreneur that
you can drive the maturity of any
industry up uh typically that act can
result in profit obviously it's not that
linear but that is certainly represents
a very interesting opportunity of doing
this in Europe but anywhere around the
world to be honest I love it so as we
round Third Base I'm wondering if there
were two or three things that you can
let our fans around the world know that
you find the most valuable in this
sector what would you say I think number
one is getting the point to people and
many many know this but really it's
mostly those who have come out of a
business school mid-career professionals
who have perhaps gone back to school to
do an NBA um or who happen to know
someone who has or or or happens to be
somehow involved in Surge I mean I I I
you know my colleagues here will tell
you it's all I talk about and everyone I
talk to I I bore them to death talking
about surge funds um but if you don't
Happ them to bump into me uh or if you
haven't just come out of business school
lots of people don't know about this and
they don't realize that actually you can
go and buy a business you know not
everyone can indeed not everyone should
um and not everyone even should try to
but there's a lot of people out there
who are very capable um and who can go
and buy a business and there's also a
lot of businesses out there that are
suitable for someone to come along and
buy so I think there's a huge
opportunity for young people and I say
young people I mean people with a period
of their career left to go in identify
businesses that need some improvement
need some succession solution and put
together a situation that presents to
investors something that is a incredible
opportunity when you're looking at
things like 35% irr but also gives them
the opportunity to one run their own
business and two make substantial IDE
themselves from their carried interest
effectively that that comes with the
ordinary SL common stock that they'll
they'll hold so I've seen a lot of
people make a reasonably substantial
amount of money from buying a company
perhaps making some boltons but growing
it you know putting in place that
marketing fixing the website and and and
taking those steps that probably the
founder didn't need to maybe a bit of
geographical expansion as well and so
there is just a fantastic opportunity so
I think the first is people need to
understand that they can do it and that
the the opportunity is there really then
the next step is you need to be pretty
clear about what it is you're trying to
achieve I've got some clients in the
space who are very much value investors
you know we we I was joking with one of
them not so long ago we were saying you
know we we're bringing our colleagues
you appetite to pay for things up a
little bit you know we're pushing him up
to 3x now and I think you know up from
Two and a half times evitar he's now
willing to pay three-ish you know and um
so there's some who who who will hold
out and find a deal and think this is a
cracken deal they do some proprietary
Outreach find off Market businesses and
and and strike deals that are just
incredible day one you've made a lot of
money even if it's unrealized um but but
there are others who just want a stable
cash generative business that delever
the debt over time and you know and and
maybe has a little bit of growth maybe
there's some bolt-ons and you can take
some multiple Arbitrage from from
increasing you know your um your ebit
Dar from bolting on new businesses at a
lower multiple than you might sell at
later but just to know what's your
strategy what are you trying to achieve
and then think about sector Focus as as
well you do need to set yourself apart
in some way and there are a lot a lot of
Founders who who who have nurtured the
business over the years and really built
it and and it's their baby really and
they don't want to pass it to someone
who you know has no idea about the
industry okay so so I what I would say
is if you've got some business
experience try to place your strengths
and try to look for something that is in
an industry that you at least have have
some some idea about either you've
consulted in or you've worked in um or
it's something that you can demonstrably
say look I can I can make a difference
here and I'm going to look after your
staff and your business and everything
else so so really that's um that's
number two know know what it is you're
looking for Identify some of these key
markers of you know stable cash flow
ebit data cach ratio which we want to be
as correlated as possible inless you're
looking for an asset heavy business but
usually people do not in these
situations the ebit down margin should
be between 10 and 30% ideally I mean if
it's higher great but you need to then
understand why and then think about all
those other things about marketing and
everything else and point three really
is overall think about how you're going
to achieve it and how quickly make sure
you do your research make sure you speak
to the community and understand from
other people um there's a great research
paper that was released in January of
2023 so over a year ago now but it was
by um an alfit called the search
Investment Group I think they're based
in the US and it was a self-funded
search study uh so it talked about
self-funded Searchers and actually it it
had some interesting points in there
saying that actually those who were
looking in a particular industry and F
using the surge rather than saying you
know what we're going to buy something
in any industry as long as it ticks
certain markers those folks in our
particular industry actually tended to
do a deal more quickly than those who
are being more opportunistic and looking
at everything so there's certain things
like that that actually you can pick up
on learn about and and steer your search
towards to to make it more likely that
you're going to succeed here perfect
well thank you for that so as we wrap
things up is there anything you would
like our fans around the world to know I
think it's worth saying that you know
actually this community is expanding um
obviously I'm I'm I'm very well plugged
into the UK Community here um I'm as you
may tell I'm incredibly passionate about
search and Entrepreneurship through
acquisition I I I probably would in in a
in a in another life have been have been
uh doing it myself but I really enjoy
working with clients and helping them to
do it so I do that in the UK but also my
firm Geral edman um is a sponsor for the
um International search fund Center
which is connected to Esa business
school in Barcelona there is a
conference that happens uh by anually in
Barcelona and I think the year there's
one in Stanford I think the Barcelona
one's actually the largest in the world
so for anyone interested in the space it
it is an International Conference so
people from all around the world who are
interested in search will attend that um
and it's worth looking into that we also
in London for anyone who's in London or
f a trip to London um I founded last
year the entrepreneurship through
acquisition awards that we run here and
so we'll be running that again in in
November this year um I think it's
around the sixth or 7th of November 2024
and and hopefully that will continue to
be um you know an annual event but what
we do it's a it's a great excuse to one
celebrate people who have unlocked value
for people created succession Solutions
and and basically done great ETA deals
but it's more a collaborative assessment
in that you know these these deals the
Great Deals here are create win-win it's
less one-sided than a PE deal might be
if you're if you're a PE firm and you
buy a company really cheap and maybe
slightly underpay for it that's probably
a really good deal for you in in the
search Community normally you've got you
know people staying in on a consultancy
basis or maybe even they're rolling some
Equity over it's far more collaborative
so what you want to do in these deals is
win-win create the SE session solution
that the seller wants find a nice deal
that makes both sides win and so and
that's how we assess these Awards so we
hand out awards that have created
opportunities like that um and uh and so
for anyone that would like to attend
that please you know don't hesitate to
get in touch we have got a website that
is is part of our website as a firm so
it's awards. Jerald edelman.com um where
you'll be able to view the details of
the awards and and obviously all updated
for each annual event as well so really
you know it's just anyone that wants to
to have a chat about ETA generally I'm
always uh willing and and and very happy
to do that and um you know for any
advice or or deal flow or you know
Financial due diligence assistance
valuations whatever else it might be you
know where to find us awesome well I
appreciate that so just to recap
everything Carl and I spoke about don't
build a company buy one with a search
fund number two is know what you're
looking for and finally number three is
look for those research reports you do
these things and you too will be well on
your way in your pursuit of making
[Music]
billions wow what a show I hope you
enjoyed this episode as much as I did
now if you haven't done so already be
sure to leave a comment and review on
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don't you head over to YouTube and see
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back for our next episode where we dive
even deeper into the people the process
and the perspectives of both investors
and Founders until then my friends stay
hungry focus on your goals and keep
grinding towards your dream of making
billions
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