Why a search fund for you - Operations, Equity, or other?
August 26, 2021
by a searcher from Texas Christian University - Neeley School of Business in Mansfield, TX, USA
All,
I thought I read a comment on here wherein the searcher turned down a PE firm because he did not want to lose equity control (though he got operational control). I cannot seem to find the post or comment, so maybe I dreamed it. In any event, I have no intent on putting the commenter on blast, but wanted to ask a genuine question - why would you not take a deal that eliminates potential personal exposures but still gives you operational control?
With that in mind, I wanted to post this genuine question to the community. What is your main driver for becoming a Searcher and ultimately buying a business? Do you desire Operational control, equity control (i.e. 51% or more), both, or other? I am genuinely interested.
Since it's my question, I will somewhat answer. As this is my first deal, and I plan on doing many more in my lifetime, especially of increased size, if a PE firm offered to write the full check, give me operational control, and give me some type of equity/carried interest, I would struggle to say no. I get the aspect of entrepreneurship that you have to be comfortable taking risks. However, if someone willing took personal guarantee risk off the table, gave me equity, and provided a possible outlet for more details, to me, I do not see the downside. I am fully confident in my skills and expertise, but to me, that sounds like an enticing deal.
Ps, if you are a PE firm reading this, give me a shout!
^redacted, if you could do your thing and blast this out. I would love to see the responses!
from Xavier University of Louisiana in Houston, TX, USA
For me, I'm mid-career and don't have a lot of investable assets to put towards equity and transactional deal costs. Thus my "BATNA", at this stage in my career, is a VP level job at a large company. So as long as I am able to get more for similar risks as climbing another step on the corporate ladder then I'm good.
That translates into looking at larger deals (>$1.5M in EBIT) for PE firms to be interested and risks mitigation, negotiating around salary and bonus with monied partners (similar to what I would do with corporate), getting in the CEO seat (to start compounding the experience and learning) and get in game (financially own a larger portion of stock in a company than I would as corporate employee). Then, roll that exit into the next deal in which I'll have more financial control & more experience!
But for someone who is later career or has money and/or experience, then they have leverage to negotiate for both financial and operational control or completely go at it with no equity backing.
from University of Pennsylvania in Portland, OR, USA