Is There a Need for Buy-Side Advising in Search Fund Space?

intermediary profile

December 29, 2021

by an intermediary from University of Colorado at Boulder in Charlotte, NC, USA

I work for a boutique M&A transaction advisor called The Enginuity Group. While we offer sell-side advising services, a large portion of our work is buy-side transaction advising. We have typically worked for PE groups or large individual investors, where the searcher and investor are the same people. I am wondering if there is a model where our buy-side advising service could add value and help those in the search fund space. Our buy-side service has traditionally included the following:

1. We help the searcher identify and narrow criteria for a potential target (size, industry, geographic location etc.), identify and initiate contact with multiple targets that meet the criteria (most of which are not currently for sale), help negotiate the deal, and work with the searcher through closing and transition as needed. This process usually takes us 5-8 months and rarely goes over 12 months.
2. We charge a reverse Lehman success fee for a full buy-side advising service engagement. We reduce the fee if only part of our full service engagement is needed.
3. We charge a mobilization and monthly retainer during the search, which are credited toward the success fee at closing. These fees are fully refundable if we have not identified and had client engagement with a viable target within six months.

I would love to get the group's thoughts on whether this service could be helpful in the search fund space and, if so, what sort of arrangement might work best.

Thanks!
Greg

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commentor profile
Reply by a searcher
from The University of Michigan in Cincinnati, OH, USA
^redacted‌, I'm a self-funded searcher still working full-time. I think I'm more your target audience rather than someone already being paid to search full-time. I don't have as much time to devote to a search, but being employed I may be able to afford your retainer. To that end, I'm actually curious what your fees look like. Can you share any info? Also feel free to DM.
commentor profile
Reply by a searcher
from Harvard University in San Francisco, CA, USA
There’s a huge need for buy-side advisory. As Joseph mentioned, the problem is - searchers can’t afford to pay, so the key is to figure out how to get the seller to pick up the tab. The seller is the party with all the cash once the transaction closes, after all. I’ve wondered why the commission structure on a business acquisition couldn’t look more like a real estate transaction where the seller pays both the sell-side and buy-side agent. That structure would increase liquidity as there would be an “expert” on both sides of the transaction whereas currently, the buy-side often is someone who is navigating the process for the first time. Lots of deals die because the buyer doesn’t know what they’re doing. The “search” skill set is totally different from the CEO skill set, so I’ve always thought that the “search” function could/should be outsourced to a degree to a trusted advisor.
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