Search Fund Catch-up

May 24, 2022

by a searcher from Harvard University - Harvard Business School in Boston, MA, USA

What are standard terms in traditional search for a searcher catch-up provision? I'd appreciate if anyone could describe the structure in detail e.g. does the catch up occur after the investor(s) have been paid back their initial investment + preferred return? Thank you.

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Reply by a professional
from Dartmouth College in Los Angeles, CA, USA

Yes typically this is the case because the investor has a capital interest and the searcher typically has a profits interest in the partnership and so for various reasons it needs to be structured this way. You can structure it so that any current distributions are made without factoring in the investment amount plus return (50/50 etc.), but on any sale of assets or liquidation event typically investor gets paid back first plus any return. Then if there is a catch up it occurs after that distribution. Within that general structure there are lots of ways to set it up to achieve whatever the agreed economics are.

Reply by a searcher
from IE Business School in Madrid, España

Thanks for the answer Brian. Can you be a bit more precise on the typical terms for traditional searchfunds? e.g. hurdle rate, catchup percentage, catchup period, total profit sharing cap and preferred return

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