Kindle Notes & Highlights
by
Jan Simon
And if a funded-searcher does not end up acquiring, she has built up a formidable network of mentors and others interested in her success, many of whom can offer assistance in finding a job.
We believe it is more meaningful to make a distinction between the ‘Cost of Capital’ model and the ‘Growth’ model. Any search can then be described on the spectrum between both.
The Sponsored Search For entrepreneurial spirits who want to embark on a searched acquisition but prefer a more traditional organizational structure, a Sponsored Search Fund (SSF) might be the right fit. In an SSF, the searcher establishes a partnership with a private equity firm or family office to seek out specific acquisition targets.
Accelerators address the inefficiencies of TSF and SFF by streamlining the capture of best practices, data, and knowledge.
However, the decision to develop a ‘greenfield’ is taken during the search and crystalizes either when the searcher is unsuccessful in buying a company of interest, the searcher and investors believe building a company is a better option than anything they can buy, or the type of companies desired turn out not to exist.
greenfield opportunities are never the intended strategy but an emergent and sometimes realized strategy.
If you find appealing the notion of leading people, creating value for stakeholders, and solving problems—in an uncertain environment, continuously—then there might not be another career path that gives as much satisfaction and, when well executed, rewards.
good grasp of each other’s skills (complementary), norms and values (similar), behaviors and attitudes under pressure (acceptable), and ambitions (similar).
Patricia Riopel and Enrico Magnani (Magnum Capital) in Canada.
Fundraising is a key phase in the traditional search fund process; one that permeates through the different stages: a well-executed raise will create lasting positive effects.
searchers should also do their due diligence on investors and understand the profile of each. As one of the earliest investors in search funds told us, money has faces.
Ideally, your syndicate map gives you a good idea of what your A-team could look like. In business as in sports, you need a team that can play together. It is imperative that you and the members of the syndicate are aligned on the model and the type of companies to target. You want to avoid a situation where half of the syndicate
nudges you towards a small ‘cost of capital’ acquisition, while the other half only backs larger ‘growth’ acquisitions.
The questions the investor wants to see answered are:
It is therefore important and justified for the searcher to ask the investor what he needs to make a final decision, as well as the time horizon on which that decision may be expected.
“Tell me about a business that you have come across that you really liked and that you would love to own and operate; what is it about it that you like and why
do you think it would be a good fit for you? The answer
A well-executed search has three main characteristics.
Astute observers may find a correlation between the accessibility of such data and PE interest in these types of companies.
really seemed to be converting, and, perhaps even more importantly, many of the conversations we were having with CEOs felt inauthentic. Most of our calls felt inauthentic because William and I were always playing catch up: on the company itself, and on the industry. We felt reactive instead of proactive. Quite simply, looking back on those conversations, we didn’t have a lot of credibility.
1) diffusion of focus and 2) our conversations didn’t feel authentic or credible.
Ultimately, we decided to focus on healthcare and education, and, more precisely, on organizations with “double bottom lines” that satisfied the search fund criteria.
Our litmus test for sending any outreach at all was whether we would be genuinely excited to see an email or receive a call from the person (or team!) we sent the outreach to.
The point is that when a searcher decides to focus on a specific industry, she probably wants to stay away from industries that are currently being disrupted, or have a high potential to become disrupted momentarily.
We tell all our managers we want the moat widened every year. That does not necessarily mean that profit will be more this year than last year because it won’t sometimes. However, if the moat is widened every year, the business will do very well.
Moats in the form of competitive advantage are imperative. Of equal importance is the idea of sustainable competitive advantage.
When putting your syndicate of investors together, pay special attention to having an investor group who is, as Gus Levy57 put it: long-term greedy. The search model is not served by taking the short view.
Thus the previous experience of the searcher truly matters. When you search, ask yourself: ‘What is my competitive advantage?’ It will not only help you in connecting with a potential seller, it may also allow you to acquire a business that others can’t.’
In scheduling and preparing for a first meeting, the following two aspects are essential: the setting and the objectives.
informal-yet-not-too-noisy restaurant does the job.
1) figure out if the seller is ready to sell, 2) gauge valuation expectations, and c) leave the seller wanting more. It is not a bad idea to a) have a mental list of more specific objectives for each owner, and b) run these past your advisory board, an investor-mentor, or someone experienced in these types of meetings.
by the end of the first meeting, you want the owner thinking about you as his successor. A second meeting is in the cards.
When used with people who don’t speak it, it alienates.
you do not want to stop filling your pipeline when discussing a deal).
We all get deal fever; it is very hard to be objective especially when you spend a lot of time on a deal and you develop a close relationship with the seller. Use your investors, who will be more cool-headed, to give you opinions on the deal. Don’t spend money on advisers before you get your investor feedback.’
As a proof of cash analysis provides a higher degree of detail than bank reconciliation, it can uncover mistakes and fraud where the latter can’t.
There would be no need for a quality of earnings report if accounting principles such as US GAAP or IFRS would be applied uniformly, not leave any room for judgment, nor allow for different conventions. But they do. This means that identical businesses could produce very different financial statements. To the extent that a business reports financial statements that need little to no adjustments to show a true financial reflection, we say that its ‘Q of E’ is high.
also helpful to have regular informal meetings between buyer and seller without counsel.
PPM is the business card of the searcher when raising money for the search fund. In the same spirit, a similar document exists when fundraising for acquisition capital:
is prepared by the searcher herself.
searchers called for capital to be wired within 48 hours, not realizing that some institutional investors need to call their own LPs for capital and that the fund’s LPA140 will give the LPs a certain time to wire the funds.
how to prepare for your first day, how to craft a communication plan and how to avoid mishaps.
year. Preparing For Day One; The Communication Plan
Plan who you will talk to, what information you will share (and what information you would like from them), how that information will be provided, as well as when you will communicate it. Order is important, as is having the buy-in of relevant stakeholders (e.g. seller, investors). We shall take up each part of the plan here.
Before crafting the message, think about each stakeholder’s interests and make sure to address them.
questions about their terms and conditions of employment, such as health benefits and holiday allowance. Customers will also care about possible changes to contract conditions, like prices and payment terms, product quality, and maintenance.
Subdivide groups of stakeholders and tailor the message to specific job functions as needed.
It became obvious that the rest of the company’s employees supported these decisions. And since Fernando and Daniel had made no promises in absolute terms, they were not seen as breaking a promise.
group meeting.
that the new CEO is being introduced to the employees. Because of its strategic relevance we strongly suggest that 1) You role-play it with a trusted, experienced investor, and 2) you make a plan with the seller around who will say what. Do not wing it!
