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Searchers press on despite market pressures

Searchers press on despite market pressures
Carl Lundberg

By Carl Lundberg

04 May 2023

One could be forgiven for having assumed that M&A activity would have significantly slowed across the board in recent months, owing in no small part to the cost of living crisis and calamitous government policy causing a rapid spike in interest rates and other pressures on return on capital. Indeed, I read an article in The Times a few weeks ago stating that 2022 was one of the worst years for investment banking M&A deals in recent history.

However, Acquisition Entrepreneurs, be they in the form of self-funded searchers or more traditional search funds, have pressed on and continued to make acquisitions, providing routes to exit and succession for small business owners across the UK. This has, at times, caused me some concern, as I have wondered about the level of return that can be achieved; and, with such a large slice being earned by the debt-holders, whether the equity holders will achieve their mid-term objectives. However, a recent article from an Australian financial media outlet, Financial Standard, reported that there are increasing levels of interest in search funds as an asset class amongst investors in Australia, owing to the significant returns available, which are in excess of traditional Venture Capital and Private Equity investments. The article referenced Stanford Business’ study of 2022 which states that the average internal rate of return (IRR) of a search fund investment is around 35.3%!

How do they manage to achieve such returns when investment professionals struggle? There is no simple answer to this question, but in my experience, the following characteristics are what enables them to make lucrative deals happen, when others are struggling to do so.


The term Acquisition Entrepreneurs is indeed an appropriate one. These are intelligent and highly employable people, who instead of taking a well-paid, secure, employee position somewhere, have opted to seek out and take responsibility for a business, which is usually the seller’s life’s work.

To do that you have to be a certain type of person. You need to be able to handle pressure, have a fairly punchy appetite for risk and be ambitious. These characteristics lend themselves to Acquisition Entrepreneurs carving their way through difficult terrain and getting deals done against the odds.


Traditional search funds tend to be more restricted than self-funded searchers, particularly in terms of the industries that they can target or the profile of the target businesses . However, both, especially self-funded searchers, are still significantly more flexible and nimble than traditional private equity houses.

Search funds also lack the overhead base (including general partner fees) that traditional private equity funds must service. This means that, if a decent asset is identified, there is usually headroom enough to service a slightly higher cost of debt and still make a solid return for the equity holders upon exit.

The Profile of their Targets

Searchers tend to target owner-managed SMEs. One of the key incentives for the vendor to sell to a searcher is that their business, employees, customers; essentially their ‘baby’; will be looked after and taken on by a new custodian, with the same motivations and intentions as their predecessor. When this point is put across to the vendor successfully, and it is genuine, it is usually a factor given significant weight in the vendor’s decision on who the most suitable buyer is.

Off-Market Deals

Traditional search funds in particular (who usually have the resources to hire interns) often have a good proportion of proprietarily-sourced potential targets, many of which are not actively seeking an exit. This means that there is less competitive tension on price and fewer, if any, alternative buyers lurking around, turning the vendor’s head.

These characteristics also make working with Acquisition Entrepreneurs and Search Funds exciting and rewarding. Getting deals done is in our blood and helping entrepreneurial, ambitious people to get them done is what gets us up in the morning.

So, Search Funds and the wider Entrepreneurship Through Acquisition community, we salute you! Keep at it!


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