When to Give Up on Your Search Fund Dream
Matt Littell, David Rosner, A. J. Wasserstein. (2023)
Yale Case, no number printed, March 10, 2023
Sample. "we worked with a prominent search fund investor who has a portfolio of 67 search fund operating company investments." (p18); 47 had three or more years of data; 23 were classed, jointly with the investor, as early weak performers; 9 exited early and 14 held. Unrealized positions use the investor's marks at December 31, 2022. The other roughly 17 pages are framework and practitioner vignettes (one fictionalised composite). Headline numbers. "In aggregate, the early exit subset achieved a respectable 19% simple average internal rate of return." versus "the simple average internal rate of return for the companies that did not exit early and held on was negative 9%." (p20). "Seven of the 14 turned the business around into an acceptable performing company." (p20). Limits. Authors: "we do not possess hard data or evidence that four to five years is a magical threshold"; "We certainly wish we had more observations in our data set". Reader's notes: the comparison is 9 companies against 14; 11 of the 14 held are unrealized and valued at marks the investor calls possibly too conservative, which biases against holding; the 19% rests on 4 "lucky" exits of 9; labels were assigned in hindsight. The opening statistics (34% do not acquire, 27% of acquirers destroy wealth) are Stanford 2022 figures, not Yale's.