2016 Search Fund Study: Selected Observations
Peter Kelly, David Dodson, H. Irving Grousbeck, Susan Pohlmeyer, Sara Rosenthal. (2016)
Stanford GSB Case E-605, 31 pp
Dated 06/26/16; data as of December 31, 2015 (first edition named for publication year rather than data year). Sample: "258 first-time search funds formed since 1983" (p5); 75 searching, 47 concluded without acquisition, 8 deviated or unknown, 128 acquired (75 operating, 34 exited for a gain, 19 exited with a loss) (p7); "Of the 175 funds eligible ... 142 were included in the calculations of returns", being 47 unsuccessful searches and 95 acquisitions (p11 to p12). Headline: "the aggregate pre-tax internal rate of return ... through year-end 2015 is 36.7 percent, and the aggregate pre-tax return on invested capital is 8.4x" (p1); note p12 also says ROI "declined from 10.0x in 2013 to 8.3x in 2015". "historically 27 percent of all search funds (which does not include those that have deviated from the model) fold without making an acquisition"; acquisitions since 2013 "had a median purchase price of $12 million" (p10). Method changes: an original investor is now one who funded both search and acquisition, and "the performance calculation for this year's study excluded any follow-on financing events where possible" (p1, p11).