Search Funds Gain Momentum in Germany and Europe for SME Acquisitions

Search Funds, a model developed in the 1980s by H. Irving Grousbeck, are increasingly being adopted in Europe, with Germany becoming a significant hub. This investment approach provides financial backing to individuals—known as searchers—who seek to acquire small and medium-sized enterprises (SMEs), particularly those with retiring owners. As of the end of 2023, 320 Search Funds have been created outside North America, with Spain hosting 67 funds, followed by the UK and Germany in third place.

The traditional Search Fund model boasts a strong success rate, with 79% of searchers completing acquisitions successfully. Antonius von Salis of Pina Capital, a new Search Fund with ambitions to reach a €30 million fund size, has already facilitated three acquisitions in Europe. The focus remains on acquiring stable companies, especially in defensive sectors that offer substantial value creation potential.

However, the model faces criticism, particularly regarding the practice of providing salaries to searchers during the acquisition search phase, which some argue may dampen entrepreneurial drive. In response, alternative strategies such as those advocated by Aven Capital encourage searchers to acquire multiple companies to diversify risk, deviating from the traditional reliance on a singular acquisition.

Search Funds mark a growing trend in Germany’s SME acquisition landscape, offering new pathways for business succession and investment, though debates around their entrepreneurial impact continue.