Advice on long-term hold search fund?

September 06, 2023

by a searcher in Boston, MA, USA

Hey everybody, I am debating the merits raising a search fund with the objective to buy a business for an indefinite long-term hold, eventually returning investor capital through dividends, a partial sale, or a dividend recap as opposed to a sale 3-5 years after acquisition.

Two questions:

Has anybody raised a search fund with this end objective? Would you be willing to share your experience with me?

Do folks have any advice on how to identify the subset of traditional search fund investors or single sponsors who would be interested in this strategy?

Reply by a searcher
from University of Texas at Austin in Dallas, TX, USA

Talk with the potential investors about whether they are open to a LT hold. There are some that are open to it (Kamylon, GT, maybe Miramar) and some that aren't due to their own fund life documents. If they aren't open to it, have a good idea of how you might get them liquidity (recap it with a PE fund, buy them out yourself, secondary with other investors, or share buybacks).

Reply by an investor
in Atlanta, GA, USA

Just put that in your PPM and build trust with investors in your conversations. My understanding is many traditional search investors are fine with this but be selective about who you are raising capital from and their percentage of ownership and control to make capital allocation decisions.

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