transition from self-funded search fund to HoldCo - seeking advice

by a searcher from University of Pennsylvania - The Wharton School

7 months ago

After buying my first company with no outside funds, I am looking for follow-on acquisitions in the travel (tech) space. Can anyone offer advice on the transaction economics to transition from a single, wholly owned operating company to a HoldCo with multiple companies and external investors?
Some concrete questions:
-	how to value the contribution of the existing company to the HoldCo?
-	should the HoldCo charge investment management fees to OpCo’s or to investors going forward? And what levels? (ie 2% on contributed capital)
-	What carried interest should apply?  (ie 20%)
-	should the search for additional targets be financed through the HoldCo?
Assuming that most of the search and acquisition financing is done via equity investors, it seems like a transition to HoldCo would make typical micro-PE economics apply.
Any thoughts? Thanks in advance!

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searcher from University of Pennsylvania - The Wharton School

Hi Joey, thank you. Good options to explore. I will reach out via email to further our conversation.

7 months ago | like reply | 0 likes

searcher from Harvard University

^Searchfunder member‌ I'm working through this right now myself.
From the convos I've had, there are a couple different options.

Option 1: Platform-and-add-on play where you can use your original portco as the platform to acquire others. You might not need other LPs and share economics with them, if you go this way, depending on how much you want to acquire.
It may be worth your time to question your assumption that search & financing acquisitions always requires equity investors

Option 2: Master HoldCo with Series of LLC's underneath. There are diff flavors of this where you have a separate fund from which you can house your LPs and you run it as GP. The complication here is that you may want to keep most of your economics from your 1st acq. I'd imagine that LPs would want that asset to be a part of Master HoldCo as an enticing reason to join the fund. It's very similar to an angel investor willing to house their best investment in a new VC fund that they want to raise.

Each of these options has their own answers to your questions.
I'm finding there are diff variations on each option.

If you want to learn with me as I'm also figuring this out, would love to connect. I'm looking to find others who can teach me as well. Ping me at --@----.com

7 months ago | like reply | 0 likes

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