We invest in Search Funds

Combining the traditional Private Equity model with some aspects of the world of entrepreneurship, an innovative collaborative model of “entrepreneurial acquisitions” has been created, capable of generating superior returns for investors and entrepreneurs

Search Fund, the most efficient and profitable alternative vehicle

A Search Fund is an investment vehicle in which a group of investors financially support an entrepreneur, or a group of
entrepreneurs, for the search, identification and acquisition of a single company with a history of profitability and potential for expansion

General characteristics

Objective

The objective of a Search Fund is to create returns to its managers and investors through the search, identification, acquisition and sale of a solid company with growth potential

The investment model consists of co-financing among a group of investors (10 – 16 investors), the search and subsequent acquisition of a single company by MBAs from the best business schools, with the aim of directing it and making it grow

The target companies of the Search Funds are companies of a size that are generally below the typical target of a Private Equity and therefore where there are a large number of investment opportunities with limited competition (companies with income between 5 and 20 million euros and EBITDA between 800,000 and 3 million euros)

Additionally, the targets are established businesses with a history of profitability and sustained growth, proving much greater viability than that of other types of alternative investment vehicles

Alignment between investors and Search Fund

Due to the involvement in the management and the equity incentive model that the Search Fund manager has, the Search Fund model maximizes the alignment between the manager and the investor.

The Search Fund, due to its commitment and good management, can reach between 25% and 30% of the acquired company (“Search Equity”) based on the following criteria:

1/3 of Search Equity when the purchase of the company materializes

1/3 of the Search Equity for the management during the following 4 – 7 years after the acquisition

1/3 if it meets a series of objectives in the exit / returns

Tested and validated model

The Search Fund model, studied and endorsed by the main business schools in the world, although it is new in Europe and other geographies, it has about 35 years of history (mainly in the US)

An exhaustive historical analysis of the model carried out by the Stanford and IESE schools shows that the returns are on average higher than 30% IRR – in this study more than 400 Search Funds have been taken into account

Different alternative to traditional divestment solutions

The Search Funds seek to give continuity to the fundamental pillars of the success of the acquired company, building on the founder’s legacy with the help and advice of its investors to materialize the next phase of growth

The Search Fund model aligns 100% the interests of Arada Capital with those of the Search Fund and in turn with those of the seller of the acquired company

The Search Funds search is limited and specialized by geographies, allowing Arada Capital to have access to an international deal-flow

The Search Fund Model: 4 Stages

1 Financing and Search
3-24 months

To cover the costs of the search, the Search Fund will raise an initial or 'search' capital from a number of investors, including Arada Capital(The "Search Unit")

  • Each Search Unit gives the right but not the obligation to participate in the acquisition of the company once it has been identified

During the investment opportunity search period, each Search Fund analyzes an average of 3,000 companies in different sectors and industries

  • Arada Capital will maintain a very close and fluid relationship with the Search Fund during this stage, valuing the different opportunities presented by the Searcher and helping in everything that is necessary

2 Acquisition of a company 3-6 months

Once the company to be acquired has been identified, the Search Fund presents the investment opportunity to its investors

  • Arada Capital will have a preferential right of purchase against investors who did not financially support the search phase
  • Arada Capital will give advise to the Search Fund during the purchase process

This acquisition model aligns investors' interests 100% with that of the Search Fund

  • The Search Fund will spend the next 4-7 years operating the acquired company; both the investors and the Search Fund interest in acquiring a company with great growth potential and high returns is evident

3 Operation and growth
4-7 years

Solid company that requires the drive of an exceptional entrepreneur to exploit growth and create value

  • Smart, prepared, humble and ambitious entrepreneur
  • Solid and experienced board of directors formed by investors and sector experts
  • Arada Capital, through its investors ( mainly family Offices) and its Advisory Committee will strongly help the Search Fund during the phase by giving any advise and support needed
  • Monitoring and advice on the management of the acquired company

Professionalization of companies and the sector always focused on sustainability and creating a positive impact on society for

  • Investing with responsible criteria is no longer just a fad, it is necessary to ensure long-term success

Organic and inorganic growth

Improvement of margins and efficiency

4 Returns and exits
3-24 worths

Alignment between managers and investors

Search Fund returns are superior to other alternative investments:

  • Nearly 50% of the exits return> 3x MOIC
  • Historical returns> 30% IRR

Arada Capital maintains a fluid relationship both with many Private Equities and Family Offices, providing very interesting exit opportunities for its investees

Arada Capital will advice and support the Search Fund in the structuring and in everything related to the selling process