Search Funds 2007: Selected Observations
H. Grousbeck, Sean Harrington. (2008)
Stanford GSB Case E-282, 16 pp
Dated 01/15/2008; data "As of December 2007". Sample: "95 first-time search funds that agreed to participate"; 22 searching, 23 operating, 50 terminal; "Of the 50 terminal search funds, 34 percent concluded without an acquisition" (p4); returns on 61 funds (p5). Headline: "the blended IRR for a person investing an equal amount in each of the 61 search funds at the same start date to be 52 percent"; "When the three best performing search funds are removed from the calculations, the blended IRR is 37 percent, and when the top five firms are removed, the return drops to 16 percent" (p7 to p8); "18 percent of all the search funds we studied failed to make an acquisition" (p3); median purchase price $7.9 M all acquisitions and $9.4 M since 2005, median purchase price / EBITDA 4.9x (p6, p12 to p13). Limits stated: operating companies valued at the purchase multiple; later-round investors excluded; footnote 8: "We suspect that poorer performing search funds are more likely to opt out of the study."