Impact of an economic downturn on the search fund model.

searcher profile

October 17, 2018

by a searcher from IESE Business School in Madrid, Spain

Question for the community: Specially for those of us in Europe, we see the economic and political KPIs deteriorating with a possible recession in the next 1-3 years depending of the country. 

What are in your opinion the pros & cons of this conjuncture of the search funds, specially.for those funds in funds raising, search and acquiring phases. 

I see some pros such as decreasing of the current high multiples or that investors could find the search fund model more attractive than public companies with stocks crashing. On the other hand, debt raising could become very difficult when banks delinquency rates start raising.

What is your pov?

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commentor profile
Reply by a professional
from University of Southern California in North Palm Beach, FL, USA
It's a complete waste of time to stay up all night worrying about these topics. Good deals are made no matter what the external or internal circumstances, or you name it. Learn how successful and profitable dealmakers source and do deals; don't waste time listening to people trying to find deals who don't complete worthwhile deals. Business school thinking needs to be left at business school.
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Reply by an investor
from Harvard University in 1113 Spruce St, Boulder, CO 80302, USA
We have never paid more than 6X EBITDA for a healthcare deal or 8X for a tech search acquisition. This is the downside protection. The other important consideration is the stickiness of the application— both churn rate and the ARR-which is why we love SaaS companies. Finally a coming recession makes CCA/LVC so important.
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