Faced with these opportunities, new profiles of buyers are emerging. Recent business school graduates, corporate executives, or seasoned consultants: all aspire to prove their worth through entrepreneurship. But how can one succeed without specialized technical knowledge or a particularly genius idea?
Acquisition of a company
Acquiring an existing business appears to be a logical path for these aspiring entrepreneurs, who already possess solid experience and an extensive professional network. Indeed, it provides direct access to a structured and profitable business. With risks easier to define, the acquisition can be financed through bank leverage. Above all, the buyer saves precious time by immediately taking the helm of an already operational team. This approach was conceptualized in 1984 at Harvard Business School under the name ETA, or Entrepreneurship Through Acquisition. In French, the term "repreneuriat" was born.
A challenge to overcome
However, searching for the "right targets" can prove more complicated than expected. It can take a considerable amount of time, and the road is fraught with obstacles. A lack of experience is another handicap. Finally, the required initial investment can also become a stumbling block.
Professional support
To overcome these obstacles, some buyers choose to partner with "Search Funds" (research funds or buyout funds). These funds provide a structured framework and the necessary resources to analyze a large volume of opportunities using a dedicated methodology. Equity investment is made jointly, with a planned exit strategy after a few years. The fund can then reinvest the capital gains into a new project, leaving the entrepreneur as the sole owner after having benefited from the fund's support during the initial—and often most delicate—years.
It is therefore a partnership between "searchers" and investors or mentors who contribute both equity and experience. Together, they commit to finding, acquiring, and managing an SME for a defined period. Transactions typically range between €2 million and €25 million.
While the virtuous combination of labor and capital has always existed, the novelty lies in a more professional approach to the acquisition process. This formula appeals mainly to young professionals in their early thirties who have completed an MBA program, as it is within these programs that the concept is generally introduced. The model's appeal is also driven by its remarkable internal rate of return (IRR): an average of 33% in North America and 19% across the rest of the world [2].
Towards an accelerated model
Initially predominantly North American, this model has expanded into Europe in recent years and has already firmly established itself in the United Kingdom and Spain. IESE Business School dedicated a study to this subject in 2021. Several European funds already have searchers operating in the Benelux region.
The growth of ETA and Search Funds represents a significant evolution in the world of entrepreneurship and M&A. These models offer new opportunities both for new entrepreneurs and for business owners looking to hand over the reins. We can expect to see these models gain popularity and influence, reshaping the M&A landscape for years to come.
(1) Wallonie Entreprendre Cession & Acquisition (2023). Reporting 2022 sur la transmission d’entreprises en Wallonie.
Article originally published in La Libre Économique by Tanguy della Faille, Partner at Fondaris, on 31/01/2024. Published/updated version on the Fondaris website with the author's permission.
