Innesto enables motivated entrepreneurs to search, buy and operate a private, profitable, small business
SEARCH FUNDS
The search fund model enables a motivated entrepreneur to search, buy, and operate one private profitable small business while solving succession issues for its owner. Such an entrepreneur is referred to as a “searcher” and the vehicle used as a “search fund”.
The search fund model is proven, with >525 search funds in North America. The asset class is growing globally and catching up with the US. Search funds have generated an average gross return of over 35% to investors.
While keeping an active role in North America, Innesto Partners is among the first funds focused on actively finding and investing in European search fund opportunities.
TYPICALLY, OUR SEARCHERS REALIZE RETURNS IN A 4-STEP PROCESS
Step 1
RAISING
The searcher raises an average of around 450k euros from a group of investors to cover their living expenses and deal expenses for the entire search period.
In exchange for investing in search capital, the investor receives:
1. The right, but not the obligation, to invest in the acquisition; and
2. The conversion of the search capital into securities issued as the acquisition capital.
Step 2
SEARCHING
To mitigate investment and operating risk, the searcher will search for target industries that are:
Not subject to rapid technological change
Fairly accessible for them to understand
In fragmented geographical or product markets
Within the preferred industries, companies are targeted based on their sustainable market position, their history of positive, stable cash flows, and the opportunities for improvement and growth.
When a target is identified, the searcher will be responsible for negotiating the deal, performing due diligence, arranging financing, finalizing performance targets, and planning the transition.
Step 3
OPERATING
In the first 6 to 18 months after the acquisition, searchers gain familiarity with the existing business and typically make no significant changes.
After becoming comfortable operating the business, searchers can create value through a combination of revenue growth, improvements in operating efficiency, appropriate use of leverage, organic expansion, add-on acquisitions, and/or multiple expansions.
The typical search fund entrepreneur(s) will vest into 25 to 30 percent of the common equity of the acquired company.
Step 4
EXITING
Most search funds are established with a long-term outlook, generally greater than a five-year time horizon, often longer.
The model is proven by multiple successful US and worldwide exits.
For more in-depth information about the search fund model, we have curated a resource page that illustrates a series of highly regarded papers and articles.