Search Fund Study - 2001: Selected Observations and Investor Return Analysis
Christopher Flanagan, H. Grousbeck. (2002)
Stanford GSB Case E-120, 7 pp
Earliest edition available in the Stanford catalogue; the PDF is headed "VERSION: (A) JULY 24, 2001". Sample: "during the period from 1984 through 2000, at least 46 search funds were raised and at least 31 companies were acquired" (p3); 62 potential funds were screened down to 31 "qualified" first-time funds, and "return results were obtained for 28 of the 32 first-time search funds" (p1; the body on p4 to p6 says 31 qualified, 28 analysed). Excluded: funds that could not be reached or never raised a fund ("some of these did conduct self-funded searches, rather than investor-funded searches"), one fund that declined, four non-first-time funds, two industry roll-ups, five that became start-ups, three still searching, and acquisitions held under one year (p5 to p6). Headline: "the blended pre-tax IRR for individuals investing an equal amount in each of those funds was found to be 35.9% or 36.8%, depending on the method used to calculate terminal value" (p1); Table 1 (p7) gives median purchase price $6.5 M, median purchase price / EBITDA 5.2x, median purchase price / revenue 0.9x, and individual company IRR min (100)%, median 17.6%, max 98.3%. Method and limits: equal investment size and a common start date imposed on every fund; operating companies valued at purchase multiple or at an industry multiple less a 30% discount; company financials "in many cases ... not been audited"; "no individual data on companies is provided in this report" for confidentiality.