Search Funds are an investment model that allows entrepreneurs to acquire and manage an established company. Originating in the United States in the 1980s, this investment vehicle is characterised by the active search for a profitable company that can be acquired and then managed by the entrepreneur, known as a ‘searcher’. Unlike traditional venture capital funds, Search Funds focus on the acquisition of a single company, allowing the searcher to concentrate all his efforts on growing and optimising that company.
In terms of implementation, Search Funds follow a well-defined process that includes several stages: initial fundraising to cover search costs, identification and evaluation of target companies, negotiation and acquisition of the selected company, and finally, management and growth of the acquired company. This process can take several years and requires a combination of business, financial and management skills.
In Spain, the implementation of the Search Fund model has gained popularity in recent years. The Spanish business environment, characterised by a large number of small and medium-sized family businesses, offers fertile ground for the application of this model. Many of these companies face succession challenges and can benefit from the injection of new talent and capital provided by Search Funds. Spanish entrepreneurs who opt for this model often have previous experience in consulting, investment banking or business management, providing them with a solid foundation for identifying and managing companies with growth potential.
How do Search Funds work? Advantages and objectives
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The Search Fund process allows an entrepreneur to acquire and manage an established business through a structured process. It starts with fundraising from a group of investors, who provide seed capital to finance the costs associated with the search for a target company. This capital covers expenses such as travel, market research and due diligence. The searcher, usually an individual with business experience, spends between one and three years searching for a profitable company with growth potential.
Once a suitable company has been identified, the searcher presents the opportunity to his investors to obtain the necessary financing for the acquisition. This phase includes a thorough evaluation of the company, negotiations for the acquisition and structuring the financing. After the acquisition, the searcher assumes the role of CEO, focusing on the operational and strategic management of the company with the objective of increasing its value.
The Search Funds system offers numerous advantages for both entrepreneurs and investors. For searchers, it provides the opportunity to run and grow an established company without the need to start from scratch, thus reducing risk and uncertainty. In addition, they receive ongoing support from their investors, who often have experience in business management and can offer valuable mentoring and strategic advice.
For investors, Search Funds represent an opportunity for high potential returns. Search Funds have historically generated attractive returns due to the ability of searchers to identify and capitalise on companies with high upside potential. They also offer an avenue for portfolio diversification.
Legal advice throughout the entire process
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At Navas & Cusí Abogados, we are committed to providing significant added value to entrepreneurs and investors interested in the search fund system and the corporate acquisition sector. We understand that this process presents complex legal and financial challenges that require specialised and strategic advice. Our experience and comprehensive approach allows us to accompany our clients at every stage of the process, ensuring that their interests are protected and that their objectives are achieved efficiently and effectively.
One of the key benefits we offer is our in-depth understanding of the regulatory and legal environment in which search funds operate. From the creation of the fund to the acquisition and management of the target company, each stage requires meticulous attention to legal detail. We advise on the initial structuring of the fund, ensuring that all legal requirements are met and that investor agreements are clearly defined and protected.
- Company search and evaluation phase: We provide a thorough and diligent analysis to help identify and mitigate potential legal risks. Our due diligence expertise enables us to review contracts, assess regulatory compliance, analyse intellectual property and examine other critical issues that could affect the viability of the acquisition.
- Acquisition phase: Our advice focuses on the negotiation and drafting of purchase agreements, financing and associated contracts. We understand that each transaction is unique and tailor our services to reflect the specifics of each transaction. Our goal is to ensure that all contractual documents are clear, fair and enforceable, protecting our clients’ interests and facilitating a smooth transition into the new management phase.
- Ongoing management support: Once the acquisition is completed, we continue to support the operational and strategic management of the acquired company. We advise on day-to-day legal issues, from drafting commercial contracts to dispute resolution and compliance with local and international regulations. This ongoing support is essential to keep the business on a growth trajectory and minimise any legal risks that may arise.
- Training and development: to searchers and their teams, keeping them up to date with legal best practice and emerging trends in the sector. Our goal is to empower our clients with the knowledge and tools they need to make informed and strategic decisions.
If you are looking for specialised advice to carry out merger or acquisition processes, Navas&Cusí is your best option. Our team of experts can guide you through every stage, guaranteeing security and efficiency. Trust in a lawyer specialised in mergers and acquisitions to obtain the best possible result. At Navas&Cusí, we are committed to offering a quality legal service that is tailored to your specific needs.
