Financial Models for search method economics
April 21, 2021
by a searcher from INSEAD in Washington, DC, USA
Hi everyone! I'm a very recent joiner to this community in the earliest days of searching. In my discussions thus far, I've been directed to focus on the self-funded/traditional routes as my first decision point. I also realize that this decision impacts your acquisition opportunities and performance metrics to finding a strong acquisition target.
Does anyone have any tools (models?) or insights they would be willing to share that helps with this comparison?
As a searcher, I want to know my expected equity outcomes from either path based on factors such as purchase, price, growth, and ratio of debt/equity financing at purchase.
Perhaps I'm over-complicating the approach... but wanted to ask!
Thanks!
from Northwestern University in Minneapolis, MN, USA
1) Search for ^redacted’s webinar on here about self-funded search tips. It has the best data I’ve found on what terms on self-funded deal terms look like.
2) Build two different models yourself so you understand the trade-offs and key assumptions intimately. Do some Monte Carlo simulation if you want to get fancy.
3) Realize outcomes for either path are going to vary greatly by your ability to find a great deal/close it/operate the company well, the exit timeline, the market climate at exit, and the type of acquirer at exit. There are many things that are impossible to predict with high accuracy, so confidence in the model should not be too high.
4) There are many paths and it’s best to find the one that fits what you’re at in your career and skill set. Talk to people who’ve done different paths and ask about their experience.
5) Lastly, I’m biased by the path I chose, so take this with a grain of salt: if you can afford to go the self-funded route, seriously explore it. You should be able to own more than 50% of the equity at close, and that will give you a lot more optionality down the road.
from The University of Chicago in 1251 US-31 N, Greenwood, IN 46142, USA