Emprendiendo a través de un Search Fund: motivaciones, fundraising y captable de inversores (ENG)

What do you believe are the correct motivations that an entrepreneur should have to launch a Search Fund? In your case, what drove you to undertake entrepreneurship through acquisition?

Fernando: The right motivations for launching a Search Fund, in my view, are a trifecta of ambition, curiosity, and a keen interest in operational leadership. Firstly, there’s the ambition to helm a business, not just to start from scratch but to steer an existing entity to new heights, finding fresh opportunities and growth, and  blending entrepreneurial spirit with practical execution.

Secondly, curiosity is key. You’re diving into established businesses, industries, perhaps even markets you’re not initially familiar with. This demands a voracious appetite for learning and an ability to quickly understand and adapt to new business landscapes.

Lastly, a genuine interest in fostering a positive organizational culture and building strong teams is vital. The success of a Search Fund often hinges on the ability to inspire and lead a team effectively, nurturing talent and driving collective success.

My journey towards entrepreneurship through acquisition was driven primarily by the sense of ownership that a Search Fund brings. It offers more than just equity, it’s more about being in charge from start to finish, leading the project, and making key decisions, and I find it very compelling.

Another crucial aspect for me was acknowledging that personal and professional growth has come mostly from pushing myself into new challenging environments. There is a certain excitement in stepping out of my comfort zone and continuing to learn about businesses and teams.

Along these lines, I’ve had the privilege of exploring various facets of companies, each intriguing in their own way, however leading multidisciplinary teams is where I found my true calling. It’s this blend of leadership, learning, and complete ownership that drives my passion for entrepreneurship through acquisition.

How did you approach the fundraising process? What strategy did you follow to raise the search capital?

F: Approaching the fundraising process for a Search Fund requires thorough preparation and a clear strategy. The first step is to gain a deep understanding of the Search Fund model. This means delving into its structure, incentives, and the nuances of what works and what doesn’t. It’s essential to determine if this path aligns with your commitment and career goals, especially considering the real risk of failure and the need for honest self-assessment about the challenges ahead.

Fortunately there are many resources available that helped me solidify my understanding of Search Funds. There are plenty of online resources at your disposal but I would particularly highlight searchfunder.com, and of course going through the Search Fund bible: the Stanford Search Fund primer. There are also a few podcasts that provide valuable insights into the practical aspects of this model, I particularly like Search Funded, and In the Trenches.

Another useful way of becoming comfortable with the model is by speaking with as many searchers as you possibly can, both successful and unsuccessful. I’m very grateful to this community for having helped me during my research, for their candid advice and their warmth along the process. Even now I continue to leverage the searcher network.

Only after this groundwork was completed I began drafting my Private Placement Memorandum (PPM) which is the document you introduce to investors to present your case. The document is fairly standard but there are three sections in particular that require thorough attention: the first one is the About Me section, in which you succinctly explain who you are, what motivates you, and your professional experience. The second, is the areas of focus, in which you should expand on certain verticals or industries that are particularly appealing to you. Finally, it’s important to go through the costs section, to think about how you want to invest the funds during the search process.

Having completed this preparatory work, I was in a strong position to understand my own value proposition, and it enabled clarity to craft an engaging and persuasive pitch to investors. Ideally the pitch should encapsulate who you are, your purpose, areas of interest, your strengths —and weaknesses!, and your search strategy.

What helped you the most in the fundraising phase, and what were the main challenges you encountered?

F: I was fortunate to have the guidance of a couple of mentors throughout this process. Their insights and advice were invaluable and I strongly recommend anyone embarking on this path to seek out mentors. Their experience and perspective were a guiding light in navigating the complexities of the fundraising process.

Following their recommendation, I spoke with as many searchers as possible, local and international, to get their perspective on their journey. Although every search is unique, I was able to find certain patterns that helped me undertake the fundraising process with confidence.

As for challenges, while my journey was relatively smooth, I recognize that this isn’t always the case in such ventures. Common hurdles often include aligning investor expectations with the realities of the search fund model, navigating the competitive landscape for funding, and effectively communicating one’s unique value proposition in a crowded market. I was prepared to face these challenges, thanks to the groundwork laid by my mentors and the insights gained from other searchers. This preparation turned potential challenges into manageable aspects of the process.

You have a balanced cap table between institutional and private investors? What were you looking for in investors? What were the characteristics of your ideal cap table?

F: Every searcher’s journey is unique, and the composition of the cap table that suits one might not suit another. For me, there were three key aspects I focused on while shaping my ideal cap table: geography, background, and personal fit.

In terms of geography, I sought a mix of investors from diverse regions: I wanted to benefit from the knowledge of local investors who are well versed in the Spanish ecosystem and idiosyncrasy, the expertise and tenure of American investors who have seen it all and done it all, and the insights and connections of other international investors across different markets and cultural landscapes. A geographically diverse cap table can offer a wealth of knowledge and networking opportunities crucial for global business expansion.

Regarding background, I looked for investors with a variety of professional experiences and industry expertise. There were two aspects in particular that I aimed for: first, investors with a strong financial background that could complement my operational expertise. Second, having former searchers that have lived through the Search Fund process, and could add value when facing uncertainties.

Finally, personal fit was paramount. It’s essential to have investors who share your vision and values, and with whom you can build a relationship based on trust and mutual respect. The right personal fit means having investors who are not just funding sources but true partners in the journey. They should be individuals who understand the entrepreneurial journey’s ups and downs and are committed to the long-term success of the venture.

Thus, my ideal cap table was not just about the numbers. It was a carefully curated group of individuals and institutions who form the backbone of a robust, supportive, and dynamic investment team. On this note, Arada stands out as a significant investor, closely aligning with my key criteria. Their global perspective with local knowledge, diverse industry background, and strong financial expertise are bringing invaluable insights and perspectives. Beyond their professional acumen, Arada’s alignment with our long-term vision and core values has been remarkable, making them not just investors but valued partners in our journey.

What will be the strategy you will pursue during the search phase, and how will the relationship with your investors be managed?

F: During the search phase, my strategy will be focused on meticulous market analysis and targeted company evaluations. I’ll be prioritizing businesses that not only fit my investment thesis but also have potential for significant value creation. Efficiency in this process is key, so I’ll be leveraging technology and a data-driven approach to streamline the search. At the moment I’m building a team of interns that will be helping during the process, and I plan on mentoring them in one of their first real world workplace experiences.

As for managing relationships with investors, transparency and regular communication will be my pillars. I plan to keep investors informed through regular updates, ensuring they’re aware of the progress and any pivotal decisions. This open line of communication will not only build trust but also allow for valuable input from investors, leveraging their expertise and insights.

SEARCHFUNDED podcast – Conversación con Javier Puig

En este capitulo de SEARCHFUNDED, Javier Puig participa en una interesante conversación con el presentador del podcast, Nicholas Lall. El podcast profundiza en valiosas perspectivas sobre los Search Funds como clase de activos, explora el inicio de Arada Capital Partners y discute su estrategia de inversión.

SEARCHFUNDED es un podcast centrado en entrevistas con emprendedores y inversores de adquisiciones, con el objetivo de destilar las mejores prácticas para adquirir y operar un negocio establecido.

Los Search Funds despiertan el apetito inversor

Estamos encantados de haber podido colaborar con Capital & Corporate en la publicación de este artículo en el último número de su revista. Coincidimos con ellos en que los Fondos de Búsqueda son una clase de activo fascinante, no sólo para los inversores, sino también para los emprendedores de todo el mundo.

Crecimiento y financiación de pymes a través del modelo Search Fund

Queremos expresar nuestro más sincero agradecimiento a Foro Capital Pymes por invitar a Arada Capital Partners SCR a hablar sobre el modelo Search Fund y su impacto en las pequeñas y medianas empresas en España.

Gracias por la oportunidad de contribuir al debate y aprender de otros expertos en la materia como Pleamar Partners SL y Enrique Sales Rodríguez, CEO de una de nuestras primeras empresas participadas.

Fue increíble ver a tanta gente conectando y uniéndose a la conversación sobre el modelo Search Fund. Estamos muy satisfechos con la respuesta positiva y el entusiasmo de todos los que participaron. Es inspirador ver a tanta gente compartiendo sus ideas y perspectivas sobre cómo podemos impulsar el crecimiento y el cambio a través de los Search Funds.

Una vez más, gracias por la invitación y por hacer que el evento fuera un éxito.

Emprender adquiriendo una empresa ya establecida

Un Search Fund es un vehículo de inversión creado por uno o dos emprendedores, con el objetivo de levantar capital de una serie de inversores para financiar la búsqueda de una pyme con el propósito de adquirirla, operarla y hacerla crecer.

En lugar de empezar una empresa de cero, en este caso los emprendedores buscan dar continuidad a los pilares fundamentales del éxito de la compañía adquirida. Los emprendedores construyen sobre el legado del fundador de la empresa con la ayuda y asesoramiento de sus inversores, buscando materializar así una nueva fase de crecimiento para la pyme.

La empresa que tiene como objetivo un Search Fund es una pyme con un EBITDA de entre 1.000.000 € y 3.000.000 €. Buscan empresas solventes y con una buena estructura financiera. Compañías con un historial de rentabilidad y crecimiento que, por problemas de sucesión u otros motivos, sus dueños quieren vender. Son un tipo de empresas que por lo general se encuentran por debajo de los objetivos naturales de los fondos de private equity y por encima de los de venture capital. Los Search Funds suponen por lo tanto una alternativa a muchos empresarios que quieren vender su empresa, y una fantástica alternativa para emprendedores que desean adquirir y gestionar negocios con gran potencial de crecimiento.

Aunque el modelo Search Fund nació en Estados Unidos hace más de 35 años, nos encontramos actualmente ante una gran proliferación de este tipo de emprendimiento en todo el mundo, lo que permite la aparición de inversores institucionales especializados como Arada Capital Partners que centran su estrategia de inversión en, primero financiar la búsqueda a los Search Funds, y posteriormente adquirir con ellos las empresas localizadas.

Una de las claves de este modelo de inversión es la alineación entre inversores y emprendedores, y la naturaleza colaborativa del modelo Search Fund. El emprendedor no solo esta arropado por sus inversores en la búsqueda del negocio, sino también durante la gestión de la empresa una vez adquirida.

En la situación económica en la que nos encontramos, emprender a través de una adquisición de una empresa existente presenta numerosas ventajas. El tipo de empresas que se adquieren suelen mostrar una mayor resiliencia a movimientos económicos bruscos que la que presentan empresas de nueva creación. Además, en un entorno de crecimiento de los tipos de interés, son empresas que por su historial y buena situación por lo general consiguen condiciones de financiación más favorables.

Sin duda alguna, el modelo Search Fund ha llegado para quedarse. Dan solución a un problema de relevo generacional o venta de multitud de empresas, mientras que al mismo tiempo se apoya a emprendedores con amplia experiencia.

Luz verde de la CNMV para Arada, la sociedad de capital riesgo impulsada por Tressis para invertir en pymes europeas

  • Prevé levantar 15 millones entre family offices e inversores privados españoles
  • Comprará 20 pymes europeas a través de fondos de búsqueda (search funds)
  • Los ‘search funds’ logran retornos del 30% para sus inversores y emprendedores

Arada Capital Partners, la sociedad de capital riesgo asesorada por Javier Puig y gestionada por Tressis Gestión, ya tiene luz verde de la CNMV para su lanzamiento e iniciará la captación de capital (fundraising en la jerga financiera) durante este mes de septiembre. La tesis de inversión y el objetivo de Arada Capital Partners es adquirir cerca de 20 pymes a nivel europeo, localizadas y gestionadas a través de diferentes search funds.

Un search fund o fondo de búsqueda es una firma creada por un emprendedor y financiada por un grupo de inversores (entre 10 y 14) cuyo objetivo es identificar una sola empresa -normalmente pymes con un ebitda de entre 1 y 3 millones de euros- con un historial de rentabilidad y crecimiento sostenido, para adquirirla, gestionarla directamente y hacerla crecer.

Arada Capital Partners busca captar 15 millones de euros entre inversores privados y family offices, en su mayoría españoles, con un primer cierre a finales de este año. Su objetivo será invertir en cerca de 30 search funds españoles e internacionales a través de los cuales comprará junto a otros inversores 20 compañías pequeñas y medianas con un gran potencial de crecimiento.

Como explica Javier Puig a elEconomista.es, «como modelo de inversión, el search fund permite a sus inversores diversificar sectorialmente y de forma geográfica, alineando al 100% los intereses del equipo directivo y de los inversores».

Modelo de éxito

La aprobación de la CNMV consolida un proyecto iniciado hace dos años cuando Tressis y Javier Puig se adentraron en el creciente ecosistema search fund. Hasta el momento, la firma ha analizado más de 60 fondos nacionales e internacionales, con conversaciones muy avanzadas en muchos de ellos para formar parte de la cartera inicial de la sociedad de capital riesgo. Varios de estos search funds están buscando una pyme para adquirirla y gestionarla, y otros iniciarán su búsqueda este mes de septiembre.

La tesis de inversión del ‘search fund’ combina el modelo tradicional del private equity con el emprendimiento

Jacobo Blanquer, consejero delegado de Tressis Gestión, explica que «con el lanzamiento de Arada Capital Partners continuamos completando la propuesta de inversión alternativa a través de vehículos innovadores». La figura del search fund «se ha desarrollado mucho en otros países. Ofrece la oportunidad de invertir en empresas con gran potencial de crecimiento gracias al talento del emprendedor que será el nuevo gestor de la empresa en el día a día y a la ayuda y asesoramiento continuado de un grupo inversores experimentados. Con Arada Capital Partners SCR ofrecemos a nuestros clientes la oportunidad de invertir en search funds cuidadosamente seleccionados», añade.

Objetivo: 30 fondos en cartera

Arada Capital Partners SCR invertirá en search funds y vehículos similares a través de los cuales tomará participaciones minoritarias, pero relevantes, en compañías pequeñas y medianas por toda Europa. Javier Puig matiza que «el tamaño del vehículo de inversión nos permite apoyar activamente a los search funds en la búsqueda de sus empresas, en el posterior proceso de compra, en la creación de valor -una vez adquiridas- y en la desinversión final».

Los fondos de búsqueda buscan pymes con un historial de rentabilidad y crecimiento ante problemas de sucesión 

La tesis de inversión del search fund combina el modelo tradicional del private equity con aspectos del emprendimiento. Arada invierte a través de un modelo colaborativo e innovador de «adquisiciones emprendedoras», capaz de generar retornos cercanos al 30% para inversores y emprendedores.

Según los recientes estudios de Stanford (2022) y el IESE (2020), en EEUU, donde este modelo de emprendimiento goza de 35 años de vida, el retorno medio de los últimos 526 search funds ha sido de 35,3% de TIR («tasa interna de retorno») y 5.2x MOIC («múltiplo sobre el capital invertido»). En el resto del mundo (Europa incluida) el ecosistema se está desarrollando rápidamente y los retornos medios ascienden a 28,5% de TIR. 

Javier Puig confirma a este diario que el ecosistema nacional de search funds vive un buen momento con oportunidades de inversión muy elevadas. «España es el país europeo más activo en fondos de búsqueda o search funds y el tercero a nivel global gracias a los múltiples factores que impulsan la proliferación de estos vehículos de inversión. Factores como la mayor inquietud emprendedora en España, el creciente número de pymes que afrontan una situación delicada en el momento de su sucesión y la capacidad de generación de valor y profesionalización en este tipo de empresas».

El objetivo típico de los fondos de búsqueda son pymes con un historial de rentabilidad y crecimiento, que, por problemas de sucesión u otros motivos, sus dueños quieren vender. «Nosotros buscamos dar continuidad a los pilares fundamentales del éxito de la compañía adquirida y construir sobre el legado del fundador una segunda fase de crecimiento. Este tipo de operaciones son vistas con buenos ojos por los bancos al tratarse de negocios probados, solventes y con una buena estructura financiera», añade. 

En definitiva, este modelo de adquisición y emprendimiento ha venido a España para quedarse y para ofrecer al inversor una alternativa que, por tamaño, se sitúa entre el private equity tradicional y el venture capital, pero con un objetivo de retornos asombrosos, ofreciendo una gran diversificación (por sectores y países) a sus inversores.


https://www.eleconomista.es/capital-riesgo/noticias/11931938/09/22/Luz-verde-de-la-CNMV-para-Arada-la-sociedad-de-capital-riesgo-impulsada-por-Tressis-para-invertir-en-pymes-europeas.html

Inversión en crecimiento y aportación de valor: así es el modelo Search Fund

El modelo Search Fund lleva más de 35 años activo en Estados Unidos. Como país pionero, el ecosistema en esta geografía se ha desarrollado enormemente durante los últimos años y ya hay varios fondos especializados de más de 200€M de activos bajo gestión.

En Europa, este modelo es algo más reciente e innovador. Aun así, el ecosistema Search Fund está creciendo enormemente y mostrando unos resultados excepcionales. España es de toda Europa, el país que mayor número de Search Funds tiene y donde mayor número de inversores hay.

Javier Puig – Investor & Advisory Partner of Arada Capital Partners

Search Fund: emprender adquiriendo una empresa sólida y solvente

El modelo Search Fund es un camino empresarial en el que uno o dos emprendedores (también conocidos como searchers) crean un vehículo de inversión llamado Search Fund, con el objetivo de levantar capital de una serie de inversores para financiar la búsqueda de una pyme con el propósito de adquirirla, operarla y hacerla crecer.

En lugar de empezar una empresa de cero, en este caso los emprendedores buscan dar continuidad a los pilares fundamentales del éxito de la compañía adquirida. Los emprendedores construyen sobre el legado del fundador de la empresa con la ayuda y asesoramiento de sus inversores, buscando materializar así una nueva fase de crecimiento para la pyme.

La empresa que tiene como objetivo un Search Fund es una pyme con un Ebitda de entre 1.000.000 y 3.000.000 euros. Buscan empresas solventes y con una buena estructura financiera. Compañías con un historial de rentabilidad y crecimiento que, por problemas de sucesión u otros motivos, sus dueños quieren vender. Son un tipo de empresas que por lo general se encuentran por debajo de los objetivos naturales de los fondos de private equity y por encima de los de venture capital. Los Search Funds suponen por lo tanto una alternativa a muchos empresarios que quieren vender su empresa.

Desde hace años, la universidad de Stanford realiza un estudio bianual del ecosistema y, atendiendo a los cerca de 400 Search Funds analizados, la TIR media histórica de este tipo de vehículos es del 32.5%. El IESE elabora un estudio similar donde incluye todos los Search Funds que no están basados en EEUU, en este caso la rentabilidad media histórica es del 28.5%.

Clave del éxito y altos retornos: sistema colaborativo, inversores involucrados

La clave de altos retornos históricos es el gran nivel de preparación de los emprendedores y la naturaleza colaborativa del modelo, donde el Searcher está arropado por sus inversores durante la búsqueda del negocio a adquirir y durante la gestión de la empresa adquirida.

La adquisición de la empresa se realiza entre 10-12 inversores que analizan la oportunidad de inversión de forma independiente, validando así el potencial de crecimiento y generación de valor de la pyme a adquirir. Del grupo de inversores que deciden participar en la adquisición, se seleccionará a un muy preparado comité de dirección encargado de ayudar al Searcher en la creación de valor y crecimiento durante los próximos años.

Otro aspecto clave de los buenos resultados del modelo Search Fund es la alineación de intereses entre inversores y searchers. Mediante un eficaz sistema de incentivos, los emprendedores pueden llegar a obtener hasta un 25%-30% del equity de la empresa dependiendo de las rentabilidades obtenidas por los inversores en el exit. Los emprendedores, y ahora nuevo management, se convertirían así en los accionistas más relevantes de la empresa, y de esta forma se alinean al 100% los objetivos del Search Fund/ management e inversores.

Searcher: emprendedor con vocación de gestión

Los perfiles de los searchers son muy distintos, algunos con conocimientos más de gestión y operativos, otros con conocimientos más financieros. La gran mayoría tienen más de 10 años de experiencia y un MBA de una prestigiosa escuela de negocios, ya que es donde muchos de estos emprendedores conocen el modelo Search Fund. Stanford en EE.UU. e IESE en Europa son dos universidades que llevan mucho tiempo haciendo una gran labor por el modelo Search Fund.

Además de los factores económicos, la principal razón por la cual jóvenes emprendedores con perfiles tan sobresalientes deciden cambiar su carrera profesional y emprender a través de una adquisición es porque ven la belleza del modelo Search Fund: buscar y adquirir una empresa levantando capital de inversores con una gran experiencia, para posteriormente gestionar esta única empresa en el día a día creando valor y generando crecimiento. Es un proceso tan completo que no es de extrañar que llame mucho la atención de numerosos emprendedores muy cualificados. Como denominador común, todos los searchers tienen una vocación de gestión y dirección, tienen ganas de coger las riendas de una empresa estable y llevarla junto con sus inversores a un siguiente nivel.

Futuro y perspectivas de los Search Funds como vehículos de inversión alternativa

Los altos retornos históricos es una de las razones de la proliferación de este tipo de vehículos de inversión alternativa, pero no la única. Invirtiendo en Search Funds se ayuda e impulsa a emprendedores muy cualificados, y se refuerza el tejido empresarial impulsando a pymes muy diversas en su crecimiento.

Estamos ante una gran proliferación del modelo Search Fund en todo el mundo, lo que permite la aparición de inversores institucionales especializados, como Arada Capital Partners. Tras la generación de los baby-boomers, con un simple razonamiento demográfico se hace obvio que las oportunidades de empresas/pymes a adquirir son muy elevadas.

Arada Capital Partners tiene acceso a un nicho de mercado entre el VC y el PE con muy buenas oportunidades de inversión, lo que le permite diversificar su inversión tanto por sectores como por geografía, invirtiendo en pymes sólidas y rentables, localizadas y gestionadas a través de Search Funds.

Sin duda, y al igual que pasó hace ya unos cuantos años con el Venture Capital, el concepto Search Fund viene de EE.UU. para quedarse.


link artículo:https://es.rankiapro.com/inversion-crecimiento-aportacion-valor-asi-es-modelo-search-fund/

ESG: criterio clave del Search Fund para la inversión a largo plazo (English)

Environmental, social and governance (ESG) factors are set to shape the financial investment industry in the coming years.

Investing with ESG criteria is no longer a tangential and purely regulatory criteria for long-term investment such as Search Funds or Private Equity, ESG must be considered as a key driver to ensure long-term value creation and profitability.

Investment focused on generating positive impact can not only be achieved alongside attractive financial results but can also help investors determine the long-term sustainability of a company and any intangible ESG risks arising from these issues.

Why is ESG important for Search Funds?

Besides the obvious ethical reasons, we can distinguish some key motivators and ways in which ESG criteria can generate value for SMEs and therefore for Search Funds:

  • Improving long-term returns while minimizing risk: It was believed that ethics and finance did not mix well. While people used to think that ESG investing would lead to weaker returns, the data shows that this is not true. In fact, studies in recent years show that ESG investing achieves similar returns while minimising the associated risks.

  • Capacity of reaction of SMEs: small businesses can benefit from faster decision-making, flexibility and closer contact with their customers which helps them better understand their needs and concerns towards ESG factors. In general, the implementation of ESG measures in SMEs can be carried out much more quickly and objectives can be measured or set more easily. The impact of these measures on the culture and performance of SMEs also tends to appear more quickly.

  • Financing considerations: banks and private lenders analyze all the risk associated with SME financing, so ESG criteria will become increasingly important to ensure good financing conditions.

  • Solution to SME succession challenge: Search Funds offers an exit strategy for Europe’s ageing business owners, while revitalising the businesses by bringing in highly skilled young entrepreneurs. This solution to the succession problem, which can be directly related to the social part of ESG, is a very important factor to take into account when assessing the viability of the purchase and the reasons for the sale.

  • ESG can affect employee productivity and retention: companies with good ESG scores attract better talent and have longer retention. Millennials and other younger generations prefer to work for companies with stronger commitments towards society. According to a recent study, around 65% of Millennials consider a company’s social and environmental commitments when deciding where to work.

  • Meet investor expectations in the exit: ESG can improve investment performance by allocating capital to more promising and sustainable opportunities. This fact is pushing private equity firms to focus on companies with a strong ESG culture.

Measuring difficulties: Scoring ESG factors

Arada Capital Partners completes a scorecard when analyzing different investment opportunities in SMEs. One of the criteria’s considered is related to ESG.

Investors can compare a company’s performance with its peers and with companies in other sectors by assigning an ESG score. Each investor is free to use their own formulas and assess the different variables that affect the ESG score in the way they choose. There has been controversy over how an investor should assess or calculate this score and that metric will vary from investor to investor.

In our view, each company should be assessed independently to get a full picture of the ESG impact it may be generating. In addition, the same factor could be assessed differently depending on the sector being analysed, and it is therefore very difficult to create a framework or standard.

Due to the difficulties in creating a framework or standard, investors are increasingly demanding transparency on ESG key performance indicators and measurement. To meet investor demands, it is essential to establish a set of targets, collect data and analyse them, showing investors the progress made. To do this, it is important to start building a history of data and to continuously analyse the progress made by the company.

In the future, investors will be able to make more informed decisions thanks to greater access to data, which will improve real-time analysis of a company ESG score.

ESG and Search Funds work in the same direction

Companies targeted by search funds can certainly benefit enormously from a culture that takes ESG objectives into account.

If the main objective of a Search Fund is to generate value for the acquired company, ESG criteria must be considered, not only for risk mitigation as many might think, but also as a key driver to ensure long-term value creation and profitability.

—-

Javier Puig

Gracias al modelo Search Fund, los objetivos y motivaciones del vendedor se maximizan

At Arada Capital Partners, every week we talk to talented entrepreneurs who are preparing to launch or have already launched their Search Fund. They are following an entrepreneurship through acquisition path.

In all these meetings we are fortunate to learn new things that help us to have a much broader vision and to give an additional added value to new Search Funds. With these conversations we enrich our knowledge of the Search Fund ecosystem.

Below we share with you a meeting Javier Puig had last week with Javier Poveda, Managing Director of Almond Capital. In this excerpt from the conversation, Javier reminds us of the importance of alignment with the seller of the company to be acquired. There are many mechanisms that can be used to align the interests of all parties, but as Javier says, it is important to analyse and understand the circumstances surrounding each target company and its owner.

Javier Puig: What are the seller main motivations for selling? What factors should a Search Fund analyse regarding the sellers objectives or needs?

Javier Poveda: Every businessman who wants to sell his company has a different motivation and a different vision of his future. They are the real protagonists of the story and a key point in any Search Fund acquisition.

In the first stage, as in a Maslow pyramid, the seller has different survival factors: securing long-term wealth and ensuring the well-being of their families through diversification. By selling the family business when there is no natural successor, the businessman can diversify the capital obtained from the sale into different sectors or investments, and even keep part of it in the company he created, built up and now sells.

In a second stage, the seller will seek to ensure that the history of the company continues, that his legacy continues and that the company he founded grows while maintaining the pillars he established. With this goal in mind, the seller will seek to leave the company in the hands of a buyer who care for it as he did. Therefore, it will also be very important to organise a structured transition, where empathy between the founder and successor-searcher has a great importance.

The aspiration of a full retirement is not just about the cash outflow, but also includes higher aspects that searchers must analyse and understand to facilitate the acquisition of the company. Alignment with the seller’s objectives is a critical part of the acquisition.

Javier Puig: In this sense, when we talk about aligning objectives with the seller, what can a Search Fund bring on top of the table that a Private Equity or industry competitor cannot?

Javier Poveda: The first stage I was talking about in the previous question can be given by any potential buyer. Economically speaking, the market is efficient in that sense, although extreme offers always have a trick; buyers use them to dazzle the seller with a multiple X and thus rule out other candidates.

I would argue that the key is in the second part: different types of buyers bring different circumstances. For sellers who value the legacy of their company and its history, a Search Fund can be a fantastic acquisition-partner because the focus is always on the company.

The Search Fund can be very flexible in structuring the deal and the alignment of interests is usually maximised. The Searcher, together with its investors, simply takes over to start a second phase of growth of the acquired company, respecting always the culture and foundations established by the founding businessman or seller. That culture and those foundations have proven to work very well for many years, it makes sense that the next phase of growth builds on them.

In the case of an industrial buyer, the key player is the parent company that takes over the company in question. In the case of private equities, the day-to-day involvement of the latter is limited and is often structured through the management committee. In the case of a Search Fund, the searcher becomes the new CEO, ensuring that he will be on the ground on a day-to-day basis, the value contribution is immensely greater.

Javier Puig: Searchers typically looks for companies in very different sectors, they are considered to have a sector agnostic search. How does a searcher prepare for a serious conversation with a seller and demonstrate the necessary industry and business knowledge?

Javier Poveda: I believe in specialisation. I believe that searchers should have sectors of preference based on their backgrounds; there is no research that can replace in-situ experience. In addition to knowledge, when two professionals from the sector sit down to talk, people in common from the industry that both employer and searcher know come out to the conversation, stories from the industry, etc. All this generates empathy in both directions that is very positive for the future negotiations and alignments of interests.

Javier Puig: How do you gain the trust of the seller to make him believe that you will be capable of managing his company in the future? How will you win over the company’s staff when the time comes?

Javier Poveda: I believe that being both 100% authentic and competent are key factors.

Authenticity is very important because in the end what this type of sellers are looking for, is a successor who shares the same way of seeing the world and who works with the same values.

The Search Fund’s competence and knowledge of the sector generates confidence in the businessman who is selling, as the baton is passed on to someone who knows the business and shares the same passion for the product/service. The same goes for former employees of the company, they will be looking for a competent decision-maker from the very first day.

Javier Puig: How do you know if a seller is really motivated to sell?

Javier Poveda: The enemy of the sellers is the lack of time. Time to visualise their future and time to find the right successor. Often, there are sellers who have started to think about a potential sale of their company but have not yet matured it. In these cases, when there is real excitement and the potential sellers starts seeking for a vision of not only his future, but also the future growth of his company, then I believe that it is a good moment to start a serious conversation with them.

At the other extreme, if the seller is very proactive in selling but all they focus in is a price or valuation of their company, for us it is a clear sign that they have no interest in the future of their company. Without this interest, the alignment and structuring of the management handover will be very difficult.

Javier Puig: When you identify a good target company and a seller who is willing to sell, how do you think is the best way to structure the buying process?

Javier Poveda: I think it is a shared effort: «let’s do it together». It is good to have visibility of all the different steps involved in a typical transaction and to approach it together. In case they are not familiar with it, you must explain to them what phases and milestones are involved in an M&A transaction like this.

It is also very important to talk openly about the concerns of both parties, and to help each other mitigate those risks or concerns as quickly as possible.

Javier Puig: How do you coordinate the opportunity with your search fund investors?

Javier Poveda: Each investor brings a different value to Almond Capital. Having fluid communication and knowing who to call and when to call, is important to optimise each investor’s time.

In my case, since I started the search period, everyone is up to date on how the process is progressing and everyone has their doubts or opinions that help me to reflect on things I hadn’t realised, or that help me to better structure the details of the operation.

Javier Puig: Once a Searcher acquires the company, what role does the former owner have to play in this second phase of the company’s growth? What degree of involvement will the founder or former owner of the company maintain in the future?

Javier Poveda: I believe in structured and carefully planned transitions. Entering a company and trying to start many plans/ actions from day one is a guarantee of failure. I like to see owners taking care of the transition process, accompanying the successor/ Searcher and gradually stepping back. It takes time for the successor to be able to fully replace the founder.

I look for structures where both parties are comfortable, structures where parties also complement each other and walk together through the transition. That is why I believe that empathy between the seller and successor is key. If this does not happen, there will be serious problems.

This model is about people, and therefore not just any Search Fund is the right partner for the company in question, and vice versa.

El ecosistema Search Fund sigue desarrollándose rápidamente en Europa

El ecosistema Search Fund sigue desarrollándose rápidamente en Europa. Cada vez son más los medios de comunicación que se interesan por conocer el modelo y entender mejor las características que lo hacen único: entorno colaborativo, alineación de intereses y esfuerzos entre buscador-gestor-inversor, nicho de mercado con grandes oportunidades de crecimiento…

En Arada Capital Partners estamos muy orgullosos de ayudar en el desarrollo y profesionalización del modelo. La semana pasada Javier Puig tubo la oportunidad de presentar el modelo Search Fund en televisión de la mano de Negocios TV, canal de televisión español enfocado en negocios y economía.