Search Funds & Private Equity: What Sellers Need to Know

alarm business team with tablet pc , laptop computer and papers on table meeting at office to consider sale to a search fund

Search funds have become a popular way for entrepreneurs to build businesses. But for alarm business owners looking to sell, search funds and private equity can present a tempting yet hazardous sale opportunity. 

Thinking about putting your alarm or security business on the market? Here’s what you need to know when it comes to search funds.

What is a Search Fund?

A search fund is essentially a way for entrepreneurs to collect funds from individuals looking to make private equity investments, enabling them to purchase a business. 

How do they work? Backed by a small number of investors, the entrepreneurs who are spearheading the search fund first determine a target business they’d like to procure. Once they have secured the business through funds assembled by their investors, they move forward with purchasing the business, often taking on leadership roles within it.   

The Hazards of Selling to a Search Fund

While selling to enthusiastic entrepreneurs backed by private equity from a number of investors may seem appealing at first glance, there are actually some very real challenges and risks that come along with entertaining a search fund as a potential buyer. 

What are some of the challenges you might face as the seller of an alarm company that a search fund is interested in purchasing?

You’ll Have to Hand Over a Lot of Information

When a search fund is considering your company, they’ll need to collect a lot of details in order to fully understand their investment and determine whether or not your business is a good fit. As such, you’ll have to provide a lot of information – some of it confidential – as the interested entrepreneurs are exploring your business. This can end up being frustrating, and especially detrimental if the sale ultimately falls through.

You’ll Incur Fees

In the process of working with the search fund to coordinate the sale, you will likely incur legal fees, consulting fees, and accounting fees working with lawyers, accountants, and others who can provide the information that the potential buyers are looking for. While you may incur expenses working with other potential buyers as well, there’s a chance that a search fund will drag you through the long process (and all the fees that go with it) only to realize that your company isn’t actually a good fit. 

You’ll Risk Your Reputation

Your company’s reputation may be at stake no matter who you are considering selling to – but selling to a search fund can be a bit more of a risk. There are entrepreneurs out there who are buying up companies but might not know about the security industry at all. If you haven’t fully vetted the buyer, you could end up selling to an inexperienced buyer who won’t be able to sustain your company’s established success and reputation.  

The Whole Deal Might Fall Through

When you work with vetted buyers in the alarm industry, you can approach a potential sale confidently, but with search funds that’s not always the case. Again, there are buyers out there who know very little about the industry but may still be interested in purchasing your company with the capital they’ve collected from investors. This makes some potential sales a little more precarious and risky.

How Can Working With an Alarm Company Broker Protect You?

Working with an experienced alarm business broker can protect you from some of the risks associated with search fund sales for security business sellers.

Partnering with a broker can ensure that any potential buyers you’re considering for your company are thoroughly vetted. This means you’ll only be connected with individuals who are familiar with the alarm industry and have the knowledge required to reasonably take over your business. This can save you a tremendous amount of time and money, and may ultimately preserve the reputation of your business if you decide to sell.

A broker can also serve as a liaison with potential buyers, keeping the details of your sale confidential while providing interested parties with the information they need to consider the opportunity. This can protect your business at a particularly vulnerable time.

Brokers can also help to ensure that your business sells for top dollar, and will make sure that you have maximized the profitability of the sale. When you’re putting a company you’ve spent a lifetime building on the market, this can provide you with the confidence and peace of mind you need to hand over the reins with no regrets. 

Sellers Beware

Don’t waste your time, energy, and finances on a sale that could drain your resources and ultimately fall through. If you’re approached by an entrepreneur who has used a search fund to raise money from investors and is interested in potentially purchasing your company, you may want to think twice before moving forward. At the very least, you should partner with an alarm company broker to ensure that the buyer has been properly vetted. 

When you’re in the market to sell, search funds and private equity can be tempting. In the end, though, working with a broker to find a well-qualified buyer is usually your better bet – especially if you want to sell for top dollar and rest assured that your company’s reputation will remain intact after you hand over the reins.

Looking For a Security Business Broker to Help You Sell Your Company?

Rory Russell of AFS is the ally you need if you’re hoping to sell your business for top dollar to a well-qualified buyer. With decades of experience and approximately $350 million in mergers, acquisitions, and financing of fire, burglar, and integration companies handled, Rory knows the market, and can connect you with qualified buyers and help you negotiate a profitable sale.

Don’t risk it when it comes to search funds and private equity. Contact Acquisition & Funding Services today for assistance with selling your security business and put your mind at ease. 

Give Rory a call at 800-354-3863 or contact him online to get the conversation started. 

Not quite ready to take that next step? Learn more about the benefits of selling with AFS

Interested in learning about how to sell for the right price at the right time? Be sure to download Rory’s free eBook for valuable insight that can help you sell for top dollar!