The First 100 Days managing EFFISUS: A Co-CEO Journey

Founded in Vila Nova de Famalicão in 2005 by Pedro and Paulo Carvalho, Effisus has grown to develop and market innovative construction solutions, focusing on energy efficiency, building watertightness, and fire protection. With a 2023 turnover exceeding 10 million euros and a strong international presence in markets like the UK, UAE, Saudi Arabia, and Spain, Effisus is a leader in waterproofing solutions for a variety of architectural challenges. The company’s impressive project portfolio includes global landmarks such as the Apple headquarters in California and the Guggenheim Museum in Abu Dhabi.

The strategic investment from Viriato Capital, led by Miguel Costa Freire and Pablo Alvarez Guerra, aims to further Effisus’ growth, market expansion, and commitment to energy-efficient and sustainable building solutions. Effisus stands out in its niche market, boasting a diversified product range, geographical reach, and a strong brand, poised for continued success and growth.

In this insightful interview, Miguel and Pablo open up about their initial 100 days following the acquisition of Effisus. They will share their firsthand experiences and the early steps they’ve taken in their roles as the new management of the company.

Why did you decide to acquire EFFISUS, and what attracted you the most about the company?

Pablo: What we liked most is that Effisus was a different company from a typical SME in Iberia. In Effisus, we found a company with an impressive culture of collaboration and “can-do” mentality, a high performing team of professionals and, structurally, a company with a clear exposure to international markets which for us was a key point in our investment thesis.

Based on your experience, what advice would you give to searchers about effectively managing the deal process?

Miguel: I think that the most important thing is to remain calmed during moments of stress (and there will be moments of stress) and be able to, while maintaining the high focus on closing the deal, keep an eye on the companies operation, try to meet people there and remember that you are buying a company to manage it, so the day after closing should always be on their minds.

Can you share the challenges you encountered in your first 100 days as CEO and the measures you took to address them?

Pablo: The main thing is above all, the need to do several things in parallel e.g.: Time sensitive company decisions, pushing business plan and at the same time get to know well the team and the business, which is a full-time job in itself. In addition to this, we had several open points and leftovers from the deal and the search operation so my big advice would be to get rid of those as soon as possible and organize things so that new CEOs can focus on the operation.

How have you merged your strategic vision with the existing corporate culture and values of EFFISUS?

Pablo: We were lucky that Effisus existing values were quite aligned with our own in several cases – the company had already implemented a “culture” function that aims at preservation of this values- We took the approach of building on those and just gradually implement new things, rather than trying to reset the company. I believe that it is not realistic to try to change a company that has been operating for some time over the course of a few weeks or months. If change is needed, it should be done with high care and taking the required time in the process.

As co-CEOs, how do you handle decision-making and collaboration? Could you share an example of a significant decision you’ve made together?

Miguel: We have divided our areas of work so that decision making is as clear as possible. For decisions that are more strategic and impact the whole company, we discuss pros and cons and try to reach consensus. Otherwise, we believe in the principle of “disagree and commit”. Consensus is not always possible and sometimes one needs to trust his / her partners when they are very convinced of a decision.

What excites you the most about leading EFFISUS?

Pablo: To me, is the challenge of building up sustainable growth in a company with an international footprint and that can cater to such a big market as construction. Doing this with a great team is a privilege.

Reflecting on your initial period at EFFISUS, what key lessons have you learned, and how will these influence your future strategies?

Miguel: Despite having the purpose of very slow gradual change, we rushed into some decisions that maybe could have been postponed. I think that taking the time for the first two – three months to learn the ropes should be the focus of a new CEO.

Looking forward, what are your primary objectives for EFFISUS, and how do you plan to achieve them?

Pablo: Our primary plan is to achieve our targets of sustainable growth. This is not only for our investor’s sake, but also for the team behind Effisus who replies on us. We also think that Effisus offers products that improve and even save people’s lives so we are also proud to take these into the world, which will be happening to a higher degree as we grow.

If you could offer one essential piece of advice to a searcher stepping into a leadership role in their newly acquired company, what would it be?

Both: Take the time in building relationships with your team, in the end, most companies are all about people and having a team that trusts you and in which you can rely is the best safety net for a CEO

Starting a Search Fund: motivations, fundraising and investor captable

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, 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 – Conversation with Javier Puig

In this episode of SEARCHFUNDED, Javier Puig engages in an interesting conversation with the podcast host, Nicholas Lall. The podcast delves into valuable perspectives on Search Funds as an asset class, explores the inception of Arada Capital Partners, and discusses its investment strategy.

SEARCHFUNDED is a podcast centred on interviews with acquisition entrepreneurs and investors, aiming to distil the best practices for acquiring and operating an established business.

Search funds whet investor appetite

We are delighted to have been able to collaborate with Capital & Corporate on the publication of this article in the latest issue of their magazine. We agree with them that Search Funds are a fascinating asset class, not only for investors, but also for entrepreneurs around the world.

The below article published by Capital & Corporate, a reference for private equity and M&A professionals in Spain, explains to professional investors how Search Funds connects experienced entrepreneurs with investors, and how this model is emerging as the new asset class for investing in SMEs.

Positioned by many somewhere between venture capital and traditional private equity, Search Funds offers average returns of 30% by investing in operational companies with proven business models. With over 40 registered search funds, Spain is positioning itself as one of the leading markets globally, thanks to its strong presence in the low middle market.

In the article, Arada Capital Partners, as an international institutional investor with presence in various geograhies, discusses the advantages of the Search Fund model and why it is a very interesting vehicle for both investors and highly qualified entrepreneurs.

SME growth and financing through the Search Fund model

We would like to express our sincere thanks to Foro Capital Pymes for inviting Arada Capital Partners SCR to speak about the Search Fund model and its impact on small and medium sized companies in Spain.

Thank you for the opportunity to contribute to the debate and learn from other experts in the field such as Pleamar Partners SL and Enrique Sales Rodriguez, CEO of one of our first investments.

It was amazing to see so many people connecting and joining the conversation about the Search Fund model. We are very pleased with the positive response and enthusiasm of everyone who participated. It is inspiring to see so many people sharing their ideas and perspectives on how we can drive growth and change through Search Funds.

Once again, thank you for the invitation and for making the event a success.

Entrepreneurship through the acquisition of an established company

A Search Fund is an investment vehicle created by one or two entrepreneurs, with the objective of raising capital from several investors to finance the search for an SME in order to acquire, manage and grow it.

Instead of creating a company from scratch, in this case entrepreneurs seek to continue the cornerstones of the acquired company’s success. Entrepreneurs build on the legacy of the company’s founder with the help and advice of their investors, seeking to realise a new phase of growth for the SME.

The target company for a Search Fund is an SME with an EBITDA of between EUR 1,000,000 and EUR 3,000,000. They are looking for solvent companies with a good financial structure. Companies with a history of profitability and growth that, for succession or other reasons, their owners want to sell. These are companies that tend to be below the natural targets of private equity funds and above private equity funds. Search Funds are therefore an alternative for many entrepreneurs who want to sell their company, and a fantastic alternative for entrepreneurs who want to acquire and manage companies with high growth potential.

Although the Search Fund model was born in the United States more than 35 years ago, we are currently seeing a proliferation of this type of entrepreneurship around the world, which has led to the emergence of specialised institutional investors such as Arada Capital Partners that focus their investment strategy on first financing the search for Search Funds, and then acquiring localised companies with them.

One of the keys to this investment model is the alignment between investors and entrepreneurs, and the collaborative nature of the Search Fund model. The entrepreneur is not only supported by his investors in the search for the business, but also during the management of the company once it has been acquired.

In the current economic climate, there are a number of advantages to acquiring an existing company. The type of companies that are acquired tend to be more resistant to sudden economic movements than newly created ones. Moreover, in an environment of rising interest rates, they are companies that, because of their track record and good position, tend to obtain more favourable financing conditions.

There is no doubt that the search fund model is here to stay. They provide a solution to a problem of generational handover or the sale of a multitude of companies, while supporting experienced entrepreneurs.

Spanish regulators (CNMV) give the green light to Arada Capital Partners, the private equity firm promoted by Tressis to invest in European SMEs.

Interview with Javier Puig, Investor & Advisory Partner of Arada Capital Partners, where he shares his vision of the search fund investment model and confirms the approval of the regulators (CNMV) for the launch of the private equity vehicle – [press article in spanish]

  • 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, «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.

Investing in growth and adding value: the Search Fund model

The Search Fund model has been active in the US for over 35 years. As a pioneer country, the ecosystem in this geography has developed enormously over the last few years and there are already several specialised funds of more than €200M AUM.

In Europe, this model is more recent and innovative, yet the Search Fund ecosystem is growing enormously and showing exceptional results. Spain is the country in Europe with the largest number of Search Funds and investors.

Javier Puig – Investor & Advisory Partner of Arada Capital Partners

ESG: Search Fund’s key criteria for long-term investment

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 this 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

Thanks to the Search Fund model, the seller objectives and motivations are truly maximised

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.