Search Funds – An Underappreciated and Growing Asset Class for M&A

As a software CEO, you have likely been courted by private equity (PE) firms or strategics; in some select cases you might find yourself being courted by a Search fund (“Fundless Sponsor”). If the term Fundless Sponsor is new to you, the article from Allied Advisers will demystify this for you. Allied Advisers' Search Fund Primer provides insights into a Search Fund investment model, the types of businesses they seek to acquire, and the pros and cons of exiting to a Search Fund. Search Funds (“Fundless Sponsors”) are a relatively new asset class in the M&A market that have gained strong momentum in recent years. According to a 2022 Stanford University Graduate School of Business, Search Funds attracted $2.3B of investor capital from 1986 to 2021, providing 35% IRR and 5.2x Return on Invested Capital (ROIC). Focused on middle-market acquisitions, Search Funds provide an exit strategy to businesses as another alternative to strategic buyers and private equity funds for select businesses with a certain profile hence creating optionality and value in exit processes.

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