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Today’s Rundown

• An updated search fund primer

• The search fund playbook

• Vision for the search fund model

• Project Apex in an overlooked niche

• 2 deal / launch announcements

Weekly Highlights

• Spectra Investment and Cerralvo, both search fund investors, published a joint search fund primer:

  • Latin America has become one of the most active global search fund markets with 169 funds raised since 2008, including 24 new funds in 2024 alone, leading to 59 acquisitions and 14 exits despite higher interest rates and weak IPO markets

  • Search fund outcomes remain strong with a 69% acquisition rate, a 3.1x average ROI and a 28% IRR, and even after removing top outliers the asset class still delivers roughly 2.5x ROI and low-20s IRRs

  • The searcher profile is shifting materially as solo searchers now represent 78% of recent cohorts, non-MBA backgrounds account for 51%, and operators and ex-founders increasingly replace traditional finance and PE profiles

  • Acquired companies show improving fundamentals with median EBITDA margins of 34%, EBITDA growth of 25% at acquisition, stable valuation multiples, and disciplined deal structures using roughly 37% debt and 8% earn-outs

  • Partnership-led search funds demonstrate superior downside protection with zero total losses versus 26% loss rates for solo funds, reinforcing that team-based execution meaningfully improves risk-adjusted returns

• The SMB Investor published a new podcast episode on inside the search fund playbook:

  • The traditional search fund model emerged in the late 1980s from Stanford and Harvard as a form of micro-cap private equity with a repeatable playbook, historically targeting businesses around $2–5M EBITDA and delivering long-term net returns cited at roughly 35% annually over four decades

  • A fund-of-funds strategy provides exposure to hundreds of underlying small businesses by investing in 7–9 high-quality search fund managers, each typically completing 20–25 acquisitions, creating diversification that materially reduces single-deal risk while preserving attractive aggregate returns

  • Current small business acquisition multiples have compressed to roughly 3.3x EBITDA based on recent broker-reported data, reinforcing the opportunity for multiple arbitrage when businesses are later sold to private equity at materially higher multiples

  • Value creation in search-driven acquisitions is driven by a combination of modest leverage, operational improvements, and multiple expansion rather than binary outcomes, contrasting sharply with venture-style risk profiles and improving downside protection

  • Advances in software and AI are expected to significantly improve diligence quality, operational efficiency, and margin predictability, enabling small businesses to compete more effectively with larger firms and further strengthening the long-term attractiveness of the asset class

• The three co-founders of search fund Convexo3 shared their vision for the search fund model:

  • A trio-led search fund structure can materially reduce key-person risk and improve sourcing speed and execution depth, especially when partners have nearly a decade of shared operating history, which investors tend to view as a strength rather than a novelty

  • Starting the search before completing fundraising created a tangible advantage by allowing analysis of 400 plus companies, building a pipeline where roughly 85 percent of opportunities were proprietary, and entering fundraising discussions with real traction instead of theory

  • Colombia currently offers an attractive entry point for search funds due to depressed valuations driven by political pessimism, while institutional stability, succession-driven supply of family businesses, and a potential pro-business shift in 2026 create asymmetric upside 

  • High-quality recurring revenue is structurally harder to find than in the US, but mission-critical B2B services such as managed IT, cybersecurity, healthcare services, diagnostics, and specialized distribution can still deliver resilient cash flows through technical and regulatory moats 

  • A disciplined post-acquisition model built on low leverage, clear role separation across CEO, COO, and commercial leadership, and a three-pillar focus on robustness, growth, and optionality increases margin of safety while preserving upside through adjacent, capital-efficient growth

• Agame Search Fund, a search fund investor, published the "Project Apex" thesis - how Agame spots value in overlooked niches:

  • Project Apex is a niche industrial business with approximately $4.3M in revenue and ~$516k EBITDA that benefits from a “mini-monopoly” structure driven by four patents, municipal specification lock-in, and limited competitive replication

  • Roughly 60% of revenue comes from equipment sales while about 25% is recurring, high-margin aftermarket parts, creating a razor-razorblade model that stabilizes cash flow and increases customer lifetime value

  • The timing advantage is significant due to a $1.2 trillion U.S. Infrastructure Investment and Jobs Act, including over $1B annually through 2026 for road safety, combined with a 2023 federal mandate requiring higher-spec road markings that directly increases demand for the company’s equipment

  • The value creation plan targets a 36-month transformation through financial professionalization, expansion from inbound to outbound sales across adjacent states, and a roll-up of regional distributors to scale from a regional to a national platform

  • The investment thesis emphasizes asymmetric risk with a 3.9x entry multiple, patent protection, legally mandated demand, and government-funded end customers, positioning returns to rely more on structure and execution than on macro growth assumptions

Deal / Launch Announcements

• 🇩🇪 Reinhard Dorow and Oskar Machow launched Avena Capital, a search fund focused on industrial businesses (link)

• 🇧🇪 WAD Capital, a search fund accelerator managed by Alain R.H. Brossé, Steven Coppens and Christopher Tournis Gamble, acquired three in the HVAC, building, and safety sector (link)

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