Search funds in Australia: the buyer who cannot paper over owner dependency

There is a category of buyer who spends a year or two looking for one business to buy, then runs it themselves for the next decade. They are called searchers, and the vehicle they raise money through is a search fund. Almost everything written about them is written for them, and almost all of it is American.

Here is the part that matters from your chair. A searcher is not buying an asset to add to a portfolio. They are buying a job they intend to do personally, which means they need the business to work under someone who is not you. A trade buyer who finds the business too dependent on the owner can install one of their own managers. A searcher cannot. They are the only manager available.

So of every buyer who might look at your business, this one screens hardest for the thing we spend our time on.

What does a search fund do?

It funds one person, or occasionally two, to spend a defined period hunting for a single business to acquire and operate.

The model runs in two stages. First the searcher raises a modest amount to cover the search itself, from a group of investors who get the right to fund the eventual purchase. Then, when they find a business, they go back to the same investors for the acquisition money and take over as chief executive.

What is a search fund vs private equity?

The money looks similar. What happens after settlement does not.

A private equity buyer acquires a business, appoints management, and holds it alongside other investments. A searcher acquires one business, moves into the chair, and runs it, earning their shareholding over years of operating rather than receiving it at settlement.

Two consequences for a seller. A searcher will be far more interested in how the business runs day to day, because they are about to live in it, and they move slower, because they only get one attempt.

Search funds in Australia: where the model actually sits

This matters more than any other section here, because it is where most writing on the subject will mislead you.

The model was built in the United States, where it has been running since the 1980s and where effectively all of the published research and performance data comes from. It has since taken root across Europe and the United Kingdom. Australia is early. There are active searchers here and the number is growing, but the volume of completed acquisitions is a fraction of what those older markets have seen.

Which leads to the practical warning. There is no Australian dataset. If anyone quotes you returns, deal multiples or success rates for search funds, those figures almost certainly describe the American market, with four decades of history, a different lending environment and a far deeper pool of both searchers and investors. They are useful for understanding whether the model works. They are not a guide to what will happen to your business in Adelaide or Newcastle.

The Australians building this here deserve some credit for how hard it is. Assembling an investor group for an unfamiliar structure, in a market with fewer comparable deals to point at, is genuinely difficult work, and the people doing it are effectively creating the category locally. Owners looking to step back benefit from that, because it adds a class of buyer who wants exactly the kind of business that Australia has a great many of.

How much money do you need for a search fund?

From the searcher's side, two raises: a modest amount to fund a search lasting a year or two, then a much larger amount from the same investors once a target is found.

From your side the translation matters more, and it is not a dollar figure. A searcher needs a business that produces enough genuine operating profit to pay them a proper wage, service whatever borrowing funds the purchase, and still return something to the investors who backed them. If your profit only exists because you work in the business for far less than market rate, that sum does not close.

How successful are search funds?

In the American market where the data exists, the model has performed well in aggregate over decades, which is why investors keep backing searchers. Alongside that, outcomes are widely dispersed and a substantial share of searchers never complete a purchase at all.

Two things in that record travel, because they describe buyer behaviour rather than returns. Most failed deals die in due diligence rather than on price, because something gets found. And letters of intent get signed and then abandoned, so interest is not completion.

Do search funds pay?

They pay, and they frequently ask you to stay financially involved while they do.

Seller notes, earn-outs and rolled equity are ordinary tools here, used to bridge a gap in price and to keep the departing owner's knowledge available during the handover. Most buyer types use them, whenever a buyer is less than certain the business runs without the owner. our guide to earn-outs covers what that structure is telling you, and our guide to management buyouts covers the same trade when the buyer is your own team.

What a searcher screens for in your business

Their criteria are unusually specific, and several of them are really the same question asked different ways.

• Revenue not concentrated in one or two customers. A dominant customer is a relationship, and relationships tend to sit with the owner.
• A business that has traded from the same base for several years, which reads as stability.
• Located within reach of where the searcher intends to live, because the operator has to be there.
• Earnings that recur rather than being rebuilt from scratch each year.
• Profit that survives paying a proper wage to whoever runs the place.

Read those together and the picture is clear enough. This buyer wants a business whose revenue does not depend on one relationship, whose operations do not depend on one person, and which will still function while a stranger learns the job.

They will test it, too. Their money and their next decade are in the same decision.

How to get your business ready for a searcher

Work backwards from their list. Each criterion points at a piece of work, and none of it is fast.

• Find out what your largest customer is worth as a share of revenue. If it is a big number, the work is making that account belong to the business rather than to you: a second person on the relationship, the terms in writing, the history somewhere other than your head.
• Write down every decision that currently needs your approval. Then take the smallest one and give it to someone else, with a stated limit. That is the whole method, repeated for a year or two.
• Work out what it would cost to hire someone to do your job at a proper wage, and subtract it from your profit. Whatever is left is closer to what a buyer is looking at.
• Get three years of financials into a state a stranger can read without you sitting next to them, and get the contracts, leases and licences into writing.

Then run the only test that counts. Go away for two weeks and do not take the calls. What breaks is your list, in priority order, and it is more honest than any assessment anyone could sell you.

None of this is a quarter's work. Moving decisions out of one person's head takes a year or two, which is the real reason to start before you have a buyer rather than after one appears.

Should you wait for one?

No, and it would be dishonest to leave that out of a post like this.

The Australian searcher community is real and growing, but it is early, and building a plan around one of them finding you is not a plan. The number of owners looking to step back this decade is far larger than the number of searchers operating here.

The work above is worth doing anyway. Everything a searcher screens for is what every buyer wants, and it holds whether you sell to a searcher, a competitor, your own management team, or nobody at all. our guide to how a sale works sets out the sequence. A searcher is simply the buyer least able to paper over the gap, which makes their criteria a useful checklist even if you never meet one.

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