Search Funds - The One Acquisition Private Equity Fund

Background on Search Funds

Search Funds, like Xestu Capital, have existed since 1984 and are proven investment vehicles through which investors support a Principal’s efforts to locate, acquire and manage an existing private company. As per the 2022 study conducted by Stanford Business School, 526 Search Funds generated a pre-tax internal rate of return of 35.3% and a return on invested capital of 5.2x. That is almost 3 times the 10-11% annual return garnered by S&P 500 since its inception and more than 2 times the 15% yearly return from US buyouts since 2009.

Search Fund Key Steps

Raise Search Capital (2 to 4 months)	Private Placement Memorandum (PPM) is created by the Search Fund Principal Search Fund is marketed to potential Search Fund Investors using the PPM Adequate initial capital is raised to support the 2-year target acquisition search
Search for Acquisition (3 to 24 months)	Focus industries are identified, deeper analysis is done & target companies are listed Deal flow is generated, targets are screened for owner interest, and other key business parameters Target acquisition is identified & LoI is issued with the proposed purchase price & other terms
Acquisition Capital (3 to 6 months)	Due diligence is conducted and deal terms are re-negotiated Deal is taken to initial investors & first right of refusal to invest is offered Required capital is raised & Purchase Agreement is signed
Value Creation (48 to 84 months)	100 days plan & long-term strategy is defined post-acquisition Strategy is implemented & earnings are improved Principal's equity is increased over time by crossing IRR hurdles
Exit (3 to 6 months)	Preparation for exit is done as operations improve & debt obligations reduce Business is sold at a higher multiple & value is delivered to investors

Benefits of a Search Fund for the business owner

A search fund is a type of investment vehicle that is used by investors to purchase and grow a privately held business. For small business owners, a search fund can offer several benefits, including:

Liquidity: Search funds provide a way for small business owners to exit their businesses and realize the value of their hard work and investments without having to sell to a strategic buyer or slow down due lack of any suitable business succession alternatives.
Expertise: Search fund investors have often experienced business owners or executives with a track record of success. They can bring valuable skills and expertise to the table that can help grow the business.
Capital: Search funds typically have access to significant amounts of capital that can be used to invest in the business and drive growth. This can be especially valuable for small business owners who may not have the resources to make the necessary investments on their own.
Flexibility: Search funds often have more flexible investment structures than traditional private equity or venture capital firms, which can be more appealing to small business owners who may not want to give up control of their businesses.
Continued involvement: Some small business owners may be interested in remaining involved in the business after selling their stake. Search funds can provide opportunities for the seller to stay involved as a consultant or advisor, allowing them to maintain a connection to the business they built.

It's important to note that while a search fund can be a good option for some small business owners, it's not the right choice for everyone. As with any investment opportunity, it's important to carefully consider the terms and conditions of the arrangement, as well as the risk and reward potential, before making a decision.

Benefits of Search Fund for investors

Search Funds form an alternative investment class - often it is referred to as One Acquisition Private Equity Fund. However, there are various differences between private equity and search fund investments.

For investors, search funds can offer several key benefits, including:

High potential returns: Search funds aim to acquire and grow a privately held business, with the goal of ultimately exiting the investment for a significant return. This can provide investors with the potential for high returns, especially compared to more traditional investment opportunities.
Active involvement: Unlike many other investment opportunities, search funds allow investors to be actively involved in the growth and management of the business they are investing in. This can provide a level of control and hands-on involvement that may not be possible with other investment vehicles.
Diversification: Search funds provide an opportunity to diversify an investment portfolio since they typically invest in a wide range of industries and businesses. This can help spread risk and provide a more stable investment experience.
Access to exclusive investment opportunities: Search funds often have access to investment opportunities that may not be available to the general public, such as private businesses that are not publicly traded. This can provide investors with a competitive advantage in terms of accessing high-quality investment opportunities.
Expertise: Search fund investors have typically experienced business owners or executives with a track record of success. They can bring valuable skills and expertise to the table, which can help drive growth and improve the overall performance of the business.
Long-term focus: Search funds are typically focused on the long-term growth and success of the business, rather than short-term gains. This can align the interests of investors and management, and help create a more stable and sustainable investment experience.

It's important to note that search fund investments are not suitable for all investors and carry certain risks, including the risk of loss of capital and the risk of the business not performing as expected. As with any investment, it's important to carefully consider the terms and conditions of the investment and the potential risks and rewards before making a decision.

Want to know whether Search Fund could be right for you?

If you are interested in learning more about Xestu Capital or how you could benefit from the Search Fund investment as an investor or business owner, please reach out to us using the contact form given below.