roll-up/consolidation strategy in search fund model

March 29, 2021

by a searcher from ESCP Europe in Warszawa, Polska

Hi everyone,
I am exploring what is possible to do in search fund model. I have a investment thesis regarding roll-up/consolidation play of niche market in healthcare industry. What I am curious about is whether its something possible to do for a searcher from perspective of investors.

It would be great to connect with anyone having experience with that strategy within search fund model.
I will appreciate any help/thoughts on this.
best, Waldek

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Reply by an intermediary
from Indiana University at Bloomington in Carmel, IN, USA

Thanks for the tag Luke. I work on the buy side for individuals and growth through acquisition businesses. Of my clients who haven’t been involved in an acquisition before ( they get the value of an intermediary) all try searching on their own for 6-8 months before they get frustrated with the same issue that you described. And most of these are “A” list buyers, well funded and experienced.

Why? A few reasons, the average listing gets 54 inquiries of which 40 are not qualified. If a broker has 5-10 listings, that’s a lot of inquiries to deal with. And when they get a few qualified bites, there may not be a lot of incentive to get more. Most brokers also have a handful of local potential buyers they have worked with prior and give them preferential access.

It is one of the reasons I got into the buy side business representation business 15 years ago after owning my business for almost 20 years. I was an Inc mag 500 fastest growing company and E&Y Regional Entrepreneur with plenty of cash and felt the same pain.

There are lots of 40+ year old buyers wanting to jump out of Corp America with lots of experience and cash and ex- business owners recently sold their business; how are you differentiating yourself from them and the 1000’s of less qualified individuals (most Searchfunder and biz wantabes. . You are not alone.

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

First. M&A can be very accretive and a strong strategy if you have the right platform but I'd offer the following caution: Don't underestimate the difficulties of integrating companies, even if the value creation comes just from bolting them on... M&A can be a huge distraction on top of learning how to continue driving value from a business that may be alien to you. It's like adding all the moving parts of a search (sourcing, outreach, diligence, negotiations, etc.) while operating a company.

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