Search sponsor hybrid?
August 09, 2024
by a searcher from Clarkson University - School of Business in Philadelphia, PA, USA
Hello everyone I am wondering if anyone has any details on doing an independent sponsor / search fund hybrid. I am a private equity professional with entrepreneurial operating experience. I am thinking of doing more private equity style deal to my search fund where I continue to do m&a within the target to grow EBITDA. Has anyone ever had success in more hybrid style terms? Thanks!
from Bowling Green State University in Surrey, BC, Canada
On the initial question, I think a roll-up strategy will likely resonate more strongly with PE than with Search backers imho. From what I can tell, the cap. table with search tends to be an inch deep and a mile wide - tough to generate a strong current in those waters.
On the PE front, and I've seen this a couple times, your plan reminds me of an EIR or CEO-in-residence wherein you're backed by the firm to lead the roll-up. I would agree with other posters that this would likely entail a hands-on approach. As much as your current gig isn't immersed in ops, I would expect you to be (or become) the expert on the sector in order to back the enterprise. You'll need help, so networking to a strong COO is key.
Thinking about my own background, I appreciate your perspective - I've been in financial services 'arm-chair quarterbacking' commercial banking clients and prospects for close to 15 years. Recently, I've been trying to get back in touch with a former self of mine who worked for almost ten years in industry accounting roles (mostly but not exclusively tech). Living and breathing the weekly, monthly, quarterly, annual universe of a single business - haha, that's actually what led me away from industry into financial services back in the day. But might be time to go back. My advice, no half measures.
from Indian Institute of Technology, Delhi in Atlanta, GA, USA
I would like to offer my 2 cents here. I am not sure about your background but a solid IS is someone who has years of experience as a Principal at a PE firm and now decided to go on their own. They can very well build a case for not being an operator.
If someone does not fit this narrative then they should be prepared to run the business as a CEO even in the IS model. They can eventually pull themselves up to a board position but that would be after 2 years of successful operations as a CEO.
I gathered this by talking to quite a few seasoned players (sponsors, investors, lawyers, and deal makers) in the IS space.
This isn't targeted at you but being an operator is super hard and positioning direct at a board position without much track history won't sit well with investors in my opinion and might also be setting up the IS for failure.
For context, I have 15 years of experience in my field generating more than $100M in revenue, setting up a large practice in Deloitte, and leading teams of 100+ across continents. I could easily build a case for a board seat and not get involved in the day-to-day but this would not benefit me in the long run. We all must get our hands dirty, run a business so we can guide the next CEO and hold them accountable, IMHO!
There my 2 very long cents :)