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Today’s Rundown

• Search fund approaches

• Why search funds generate outsized returns

• 5 takeaways of surveying 114 searchers

• 2 deal / launch announcements

• 9 new career opportunities

Weekly Highlights

• Road to Carry published a search fund webinar on how to start your search (with Shore Capital VP Pedro Russell):

  • ETA is an excellent, risk-adjusted way to explore entrepreneurship, offering great returns for both investors as well as entrepreneurs:

    • Searcher equity with traditional search funds:

      • +2m = 33%

      • +6m = 15%

      • +10m = 7%

    • Searcher equity with self-funded search funds:

      • +2m = 36%

      • +6m = 22%

      • +10m =10%

  • If you are interested in search, there is no substitute for primary research

  • Traditional search approach:

    • Revenue/Growth: Focus on businesses with a track record of growth and a large runway for that to continue

    • Profit: Margins of at least 15%

    • Price: Focus less on getting the best deal possible and more on securing a fair valuation and structure

    • Industry: Growing, fragmented, defensible

  • Self-funded search approach:

    • Revenue/Growth: Focus on businesses with diversified and stable revenue, and predictable growth

    • Profit: Focus on high-margin businesses that produce high cash flow

    • Price: Focus on businesses that trade at sub 5x EBITDA multiples

    • Industry: Focus on industries less impacted by economic cycles or other externalities

• Newton M. Campos, founding partner of search fund investor Newton Equity Partners, shared an interview on why search funds generate outsized returns:

  • Search funds generate outsized returns because SME acquisitions often present valuation inefficiencies: disciplined use of discounted cash flow models reveals opportunities where market multiples fail to capture true enterprise value

  • Leverage, particularly when combined with seller financing, lowers the weighted average cost of capital (WACC) and enhances IRR, though only the most disciplined 20% of entrepreneurs manage risk well enough to avoid distress

  • Quantitatively, SME WACC is structurally higher than large-cap benchmarks, but skilled operators reduce risk post-acquisition, effectively arbitraging the spread between perceived and realized capital costs

  • Performance is best evaluated jointly through IRR (capital efficiency) and MOIC (absolute wealth creation), with the top-quintile deals disproportionately driving aggregate returns - a direct application of Pareto’s law

  • Finally, metrics like the Power Ratio (revenue CAGR ÷ entry EBITDA multiple) offer shorthand diagnostics, where values above 3 indicate fertile ground for exceptional returns, but again only a minority of transactions achieve this balance

• Grant Hensel surveyed 114 searchers and identified 5 key takeaways:

  • ~95% of searchers are looking for targets with 500k to 2m EBITDA

  • There is a wide variation of deal review pace:

    • 2 deals/month = 30%

    • >2 & <16 deals/month = 50%

    • 16 deals/month = 20%

  • Not seeing businesses matching target criteria is the #1 perceived obstacle

  • Savings + SBA loan + investor equity + seller financing is by far the most common capital stack

  • Online marketplaces & brokers are popular sources of deal flow, but there are many other options

Deal / Launch Announcements

• 🇩🇪 Pierre Haarfeld launched Feldwerk Nachfolge, a sector-agnostic search fund (link)

• 🇸🇪 Black Fox Invest, a search fund managed by Kristoffer Ekelund, acquired Tollco, a manufacturer of water damage prevention products (link)

Career Opportunities

• [ETA - Job of the Week] Investment Associate | Tembo Search Partners | Frankfurt / Hamburg (apply)

• [PE] Investment Professional | PER | Munich (apply)*

• [PE] Investment Associate | PER | Munich (apply)*

• [PE] Investment Analyst | Afinum | Zurich (apply)

• [PE] Investment Intern | Astorg | London (apply)

• [PE] Investment Intern | Partners Group | Baar (apply)

• [PE] Investment Intern | Bravo Invest | Milan (apply)

• [PE] Investment Intern | Blackstone | London (apply)

• [PE Asset] CPTO | Rainmaker Society | Dortmund/Frankfurt | €120-130k + €20-30k bonus + equity (apply)*

_*Headhunter

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