Posted on: October 10th, 2017

Search equity funds are a growing force in middle market M&A. Search funds, as the name implies, are usually seeking a single company to acquire. The search is based around a big idea or core competency of the team, that they will bring to the acquired entity post-closing.

These funds, are in some respects, like fund less sponsors, but they usually have stronger skill sets and operating expertise to bring to the table. The success of a search fund is based on their ability to find the right company and have the right investor base to back them.

Many search entrepreneurs are younger and in many cases, newly minted MBA’s. What they may lack in sheer age, they make for in energy, networking and focus.

Search funds should articulate a well-crafted investment thesis and deliver a strong presentation to even land a meeting with a prospective investor. Concurrent with this, search funds must create a deal origination platform which involves an enormous amount of effort.

Searchers usually have a finite period of initial funding which forces them to move quickly and find the right deal. Once its signed up, they need to find a lender to supplement the equity investment to be able to close.

While super talented at creating great deal opportunities, most searchers have little experience in debt structuring, and are not connected into the debt capital world. Rather than navigate the fragmented debt market on their own, debt advisors help search funds by bringing expertise and lender access to the search fund.

The right debt advisor can turbocharge your financing process, and reach far deeper into the lender market than you can on your own. They will provide thoughtful and creative loan structures that will provide not only capital to close but capital to grow.

With the right debt advisor, a search fund will improve their debt sourcing options and improve their terms with the lenders. Given the need to move and close quickly, debt advisors give search funds a valuable edge in the competitive world of search fund M&A.

In the acquisition financing arena, capital availability is destiny as companies require reliable access to capital to grow over the long term. Unforeseen capital needs usually arise when acquirers least expect it. This can cause some concern for the acquisition financing provider, especially when covenants tighten up and that working capital availability is utilized faster than expected.

Mezzanine debt borrowing is usually a straightforward activity that many companies use for funding of transitional growth. Mezzanine debt lenders are highly transparent about their due diligence approach and their post-closing loan management making it easy for companies to engage with.

Elections have consequences and positive ones at that for the acquisition financing middle market. While much media attention is paid to the direction of the yield curve and the Fed’s likely rate cuts, scant attention is paid to the more important drivers of the acquisition financing market – business psychology and regulatory climate.

Why Search Funds need a Debt Advisor