Becoming a CEO after Business School

The Dilemma
Alison Roberts was at the end of the first year of her MBA at London Business School and
considering which path to take after graduating. She was from the UK and her background was with
the UK division of a large engineering company, Linde Group. Alison graduated as a mechanical
engineer and had six years’ experience with Linde and worked in a number of different roles
including technical engineering and project management. During her six years she also completed a
three-year secondment to their head office in Munich, Germany where she met her now husband,
Klaus.

Whilst Alison enjoyed her job as an engineer, she had an entrepreneurial itch and knew that one day
she wanted to run her own business. She assumed that the most obvious way to get to run your
own business was to climb the ladder within an organisation and thought that taking a year out to
consider her options and an MBA would help her to decide.

During the first few months of her MBA she had attended a presentation about Entpreneurship
Through Acquisition (ETA). This sounded like something that would allow her to achieve her goal of
running her own business much quicker than the traditional path. She wanted to know more about
the various ETA models before deciding if this was the right career path for her.

At this stage she still had time left in her MBA to consider her options. She was considering:

• Returning to Linde in either the UK or Germany or joining another large corporate where she
can work her way up to senior management;
• Apply for jobs similar to her peers in consulting to learn more pracital hands-on skills that
will help her achieve her goal of running her own business and/or earning a salary to rapidly
pay down her MBA loan before doing something entrepreneurial;
• Get experience in a start-up so she can create her own business from scratch; or
• Pursue an ETA path immediately after her MBA

Entrepreneurship Through Acquisition

The ETA presentation she attended earlier in her MBA gave her a few useful insights. She made the
following notes which helped her think of what the next steps should be:

• ETA is made up of three main models;

o Traditional search funds;
o Self-funded search; and
o Sponsored search.
• All three models involve a process of searching for a business and then, with the help of
investors, acquiring the business and becoming CEO.
• The ETA models are designed for people to make a step change and gain a huge amount of
responsibility early in their careers.
• ETA can typically be done solo (on your own) or in a partnership.
• The principals (people doing the searching etc) are typically rewarded with equity in the
acquired business.

© Simon Webster, August 2020

After reviewing her notes, Alison decided that she needed to know more before making a decision!
She thought the best thing to do was find people in all three areas of ETA and ask them about their
experiences…

Traditional Search Fund

Alison first decided to understand more about the traditional search fund model. In summary the
principal raises a fund (search fund) from a group of investors. This pays for a salary and expenses
while the principal searches for a company to buy. Once the target is identified the principal
negotiates the deal and raises the necessary equity finance from the original investors. She knew from
the Stanford and IESE reports (see Appendix A) that this model is comprised of five stages:

• Fundraising – where the principal(s) put together a Private Placement Memorandum (PPM)
summarising themselves, the search fund model and what type of industries they will expect
to start searching in
• Searching – A period where the principal(s) search for a business to acquire which matches
the criteria set out in the PPM
• Completing an acquisition – Likely to take between three and six months and includes
completing diligence, arranging the legal documents and communicating with investors to
ensure the principal(s) can raise the funds for the transaction
• Operating the business – The principal(s) become the CEO of the business and attempt to
increase value through organic and potentially inorganic growth
• Exiting the business – The exit process is typically where most value will be realised and can
take many months to complete the transaction

Saquib Ansari

She first spoke to Saquib Ansari who raised a traditional search fund in 2016, the year he graduated
from his MBA, and subsequently acquired a manufacturing business near Nottingham, UK. Saquib
went to Southampton University and studied aerospace engineering. He worked as an engineer for
seven years in the oil and gas sector. Initially he worked for Shell in Aberdeen and then he started a
business in well engineering services.

Saquib decided to go down the traditional search fund route because he wanted to own and run his
own business and felt that a start-up, which he had done previously, was a much higher risk strategy.
He was also contemplating going into the private equity firm which he worked for during his MBA (and
who had offered him a job) but, despite being an attractive offer, he didn’t think it would have helped
him achieve his goal of owning and running his own business.

Saquib initially met Jack Webb in his first year of the MBA at a presentation about ETA. Jack had
undertaken a successful first search fund in the UK and Saquib wanted to learn from his experience.
Saquib ended up meeting Jack a number of times and spoke to other searchers. He decided to go
ahead with his own search fund and put together his PPM in March 2016 (he would graduate in July
2016). He started reaching out to investors and had completed his fundraising 6 months later and was
ready to start searching in September 2016.

The search period started on 1st September 2016 and he spent approximately 40% of his time working
on proprietary search methods and 60% of his time on brokers. He estimated that his deal flow was

© Simon Webster, August 2020

10% through proprietary sources and 90% through brokers. He used his MBA contacts to generate a
team of 6 interns to help him search and analyse deals and worked form an office in London when not
meeting business owners.

After nine months of searching he found a manufacturing business near Nottingham, UK. The business
ticked a lot of the typical search fund criteria and was in the search fund size range. There were 45
employees in the business. The deal was structured to acquire 100% of the equity and the
consideration included: 50% senior debt, 15% vendor loan notes and 35% investor equity.

On day 1 post acquisition the two founders of the business (who Saquib had acquired the business
from) made an announcement to all staff about the transaction. Saquib, along with the founders,
spent the whole of the first day and the rest of the first week going around meeting all the staff and
explaining what had happened. Saquib emphasised that there would be no changes as a result of the
transaction and he tried to give people insights into his personal life so the employees could connect
with him.

The biggest challenges of operating included a steep technical learning curve in the industry and
dealing with the ups and downs of a cyclical industry. Saquib has also found that recruitment has been
a big challenge. The worst moments come when customers have problems with their machines and
it has got to the stage where they have been threatening legal action. There have, however, been a
number of highlights and Saquib is learning much about operating a business as he grows the
company.

Tobias Raeber

The second person Alison spoke to was Tobias Raeber who did a traditional search fund based in
Germany in partnership with his colleague Till Bossert. Tobias and Till had worked on various projects
together when they were both working for the management consulting firm Oliver Wyman. They
shared a mutual interest in owning and running a business and decided to form a search fund.

Tobias holds an MSc from Bocconi University and a BSc from Ecole hôtelière de Lausanne. Unlike many
other traditional search fund principals, neither Tobias nor Till have an MBA. Prior to the search fund
Tobias worked in Oliver Wyman specializing in real-estate as well as in hospitality. Tobias was always
interested in entrepreneurship as everyone in his family is or has been entrepreneurially active. He
was also interested in sales, marketing and internationalization – so it was a good fit for him to put
those skills to work through ETA.

Growing and developing his own business is something that Tobias had aspired to do since he was in
high school. Compared to the alternatives (i.e. starting a start-up, joining an established company and
step-by-step taking over shares, self-funded search), the traditional search fund seemed to be the
most comprehensive and structured way to go. Early into his research about search funds, Tobias met
numerous actors in the search fund space. They impressed him with their openness, enthusiasm for
the approach and advice. This gave him more clarity on the process and the key success factors, in
turn building his confidence in going ahead with a traditional search fund.

For their fundraising, Tobias and his partner Till started focusing exclusively on Switzerland and
Germany. Given that there were a large number of private investors in that geography they thought
that they would make good contacts and raise investment at the same time. To their disappointment,
they did not collect more than a handful of commitments in two months, despite having countless
discussions with numerous investors. These investors had the funds but the search funds were new

© Simon Webster, August 2020

to them so they were cautious about investing. In consequence, they widened the scope
geographically and went to meet search fund investors in both the UK and the US and successfully
completed their fundraising

During the search they heavily focused on proprietary, industry-agnostic deal sourcing. Based out of
Zurich, they had a team of five interns on a part-time basis. Being two searchers in the search fund
allowed them to work in parallel on many things and thus maintain a steady deal flow. They did
progress with a deal in the language training space after 11 months of searching, which eventually fell
apart at the legal contract drafting stage.

The company they eventually acquired was the result of a letter they had written to a business owner
about 13 months into the search. Negotiations and structuring etc. were quite efficient, resulting in
their first day as operationally active CEOs in the acquired company about 18 months after the first
day of the search.

The business they acquired was founded in 1924, had one site with just over 20 employees and 3
owners: two of which were active as co-CEO, and one of which had just transitioned out of the
business to retire. The business was in the construction industry, active in producing and selling /
hiring temporary industrial buildings and semi-permanent warehouses to customers mainly across
Germany and selectively across Europe. EBITDA was just over EUR 3 million, and revenues around EUR
12 million. Recent historical growth was strong. The sellers had purchased the business 7 years earlier
and under their owndership they had grown sales from EUR 3 million to EUR 12m. The acquisition
took place in early 2015 and was structured to have almost 75% bank debt and a further operating
credit line available. The remainder was investor equity.

Tobias and Till relied on what they had learned during the due dilligence process and the support of
the sellers to achieve a short and successful transition over 3 months when the sellers left the business
completely.

Since taking over the operational responsibility they slowly shifted the business from a more reactive
style to a more pro-active style. They gained confidence in leading the business and developed a more
in-depth knowledge of the business and started to understand the key levers that “make the business
tick” and they improved business performance as a result.

There was a steep learning curve and the high pressure they put on themselves definitely had an
impact. Tobias felt that the learning never stops when operating a business, especially one with high
growth ambitions. Many topics are so multi-faceted and unpredictable that it never got boring for
them. However, keeping a healthy work-life balance had been very challenging and Tobias definitely
thought this was an area which could have been improved.

Self-Funded Search
Similar to the traditional search although a self-funded search fund does not raise money until a deal
has been found.

Martin Scott

Alison first met Martin to learn more about the self-funded search option. Martin graduated in law
degree 20 years ago and then worked for a London based law firm covering construction and
infrastructure law where he spent 10 years.

© Simon Webster, August 2020

Martin left practice and joined the UK Atomic Energy Authority (UKAEA) as general council for
privatisation. He spent 5 years with UKAEA and during this time they sponsored Martin to complete
an Executive MBA in London.

It was at this time that Martin was introduced to search funds through meeting Simon Webster, Ritz
Steytler and others in the UK search fund community. The idea of acquiring and running a business
appealed to Martin but, as he was sponsored by UKAEA, he decided to return to his employer after
his EMBA.

Martin continued to work for UKAEA for a year after his MBA before becoming a self employed legal
consultant taking on project work for various clients. After doing this for a few years he decided to
revisit his interest in search funds, especially as one of his other class mates had recently launched
his own traditional search fund.

After speaking to a number of people Martin decided to do a self-funded search. He had three main
reasons for this decision:

• He liked being able to consider businesses which didn’t have a strong (or any) growth
projections but which could be a great business to own and operate. Unlike the traditional
search fund where there is a high target growth rate expected by the investors, the self-
funded search allows the principal to set their own criteria;
• Targeting smaller business in the UK had a specific appeal to Martin as he was aware of the
increasing competition from private equity when the target business generates more
EBITDA. Martin was comfortable looking at businesses below £1m EBITDA which is typicaly
the minimum EBITDA threshold for traditional search fund. He did acknowledge that at this
lower size of business you have to be careful you are not buying a business focused around
one person who is about the leave. It is also likely that there will be no / a weak second tier
of management which places more emphasis on the new CEOs role in the business; and
• Having talked to all the main characters in the search fund community Martin concluded
that there were a lot of different opinions on the different search fund models so there was
not one right answer to which path he should follow.

Martin initially started searching full time but changed his approach after 6 months to split his time
between searching and taking on some legal project work to pay the bills. His focus is on light
manufacturing or service businesses. Apart from lower size criteria and growth requirements the
target business was the same as a traditional search fund.
To ensure his search continued with momentum after re-starting his legal project work, he engaged
a buy-side advisor who listened to Martins target criteria and then searched for deals on his behalf.
In return Martin paid a small retainer and agreed a success fee for this firm based on finding a deal
that he subsequently completed. Whilst Martin found this firm very helpful he has since stopped
using them as they were only useful if you were targeting a niche industry where they had
connections. Martin also used a broker aggregator which compiled all the brokers deals which fit
Martins criteria and sent them over to him for his review.

Martin did complement his opportunistic search with some proprietary deal sourcing. Whilst he has
sourced some opportunities from this route (reaching out directly to business owners etc) the vast
majority of his deals have come through brokers and intermediaries. He mentioned that in the UK
especially, given it is such a highly intermediated economy that proprietary dealflow is harder to
generate successfully.

© Simon Webster, August 2020

Martin found an attractive businesses making oxygen regulators for medical use. He submitted an
offer for the business for 5x EBITDA. After some negotiation the business owner eventually took
another, higher, offer. Martin is continuing to search for a business to acquire.

Jo Schneider

The second person Alison talked to was Jo who was part of a self-funded search fund in Germany. Jo
was from Germany originally and had experience in a boutique consulting firm in Munich. Her
partner, Markus, who was English by background, worked in an investment firm focused on public
market investing in London and Frankfurt. They met at university in Germany and have been close
friends ever since. Jo left her consulting work to pursue an MBA in Spain and it was there that she
learnt about the different ETA models.

Jo and Markus both felt that ETA closely aligned with that they wanted to achieve in their careers
and looked into both traditional and self-funded search fund models. They chose the self-funded
model as it gives them more control over the whole process, including having more flexible search
criteria (they wanted to search only in areas close to Munich and Frankfurt rather than all of
Germany) and over the types of businesses they searched for (they often looked at businesses which
were smaller than the traditional self-funded size criteria would allow).
She also mentioned that for a traditional search fund the group of investors you have on board at
the search stage can provide you with industry contacts, deal leads, support when reviewing
industries and help with raising finance and completing acquisitions. Depending on your personal
background and experience this can be substituted by having a network of people who are able and
willing to provide this support. Given that this network can already exist for some people, the
process of raising the search capital, which isn’t easy, can be spent more productively starting the
search earlier.

In terms of their search, given they have a constrained geographic focus they used all means
possible to find an attractive business. This included using brokers, attending industry conferences,
proprietary searching based on industry and financial criteria and meeting as many people as
possible. They focused on business services and manufacturing but did look at any deal to see if it
could work for them. There was a benefit of having a constrained geographic area which was that
their travel costs were much lower than a traditional search fund as they didn’t need to take flights
or travel too far to meet business owners.
Jo and Marcus were successful in finding a company which was generating €2m of EBITDA and they
negotiated a deal to acquire it at 4x EBITDA. The business has c80 employees and was in the
business services industry. The deal was structured as 50% senior debt, 25% vendor loan note and
25% investment from external investors. The cash provided by the external investors was structured
as a loan note with the equity then shared 60% to Jo and Marcus and 40% to the external investors.

They are now well into the operating of the business and Jo thinks the biggest learning has been to
go from assignments with a clear outcome from her time as a consultant to being a more gradual
improvement with no end date. This makes celebrating wins more difficult and progress is
incremental.

They were fortunate that the business was located near Munich which was where they based their
search and didn’t have to relocate. Despite their backgrounds being in consulting and investing
there were a lot of transferrable skills when they took over the business. Much of the day to day
operations were taken care of through a strong middle management layer and the owner had largely

© Simon Webster, August 2020

removed himself from the business before the sale. The skills which Jo and Marcus were able to
deploy effectively were around improving the business and IT systems, starting to take decisions
with an analytical and data-driven focus and think strategically about the future.

Sponsored Search
Alison had heard of two variations of the sponsored search:

• Search Fund Accelerator, and,

• The Sponsored (Family office / PE) searcher

Search Fund Accelerator (SFA)

Kiran Petersen

Kiran had a varied background with some success on his own start up and also working for a large
tech company in the six years between university and starting his MBA in the US. He had worked in
a number of different places including London, San Francisco and Boston and didn’t have a strong
preference for where he would be based after his MBA.

He was very entrepreneurial and despite his time at the big tech company was very rewarding it
didn’t allow him to pursue his true goal of having his own businesses. He had a number of friends
who had been to other US business school in previous years and had mentioned the concept of
search funds to him. Kiran thought this was something to research further.

Once he got to business school he read all the search fund information he could find and quickly
learnt that there was something called the Search Fund Accelerator (“SFA”) in Boston. This was an
alternative to raising a traditional search fund or completing a self-funded search. The SFA take on a
cohort of searchers every year and provide them with a salary and search capital and support to help
them on the way to becoming an effective searcher.

Kiran spent much of his first year speaking to as many searchers and investors as possible to learn
about the SFA as well as the traditional search fund model. He reached out to the SFA to learn about
the process as a searcher and how they select each year’s cohort. They were very helpful and
provided him with enough confidence that both the SFA and traditional search funds would be
suited to his experience. Kiran was aware that the SFA is based in Boston which meant if he went
down this route he would be committing to staying in the US. Fortunately for Kiren this wasn’t an
issue as he wanted to stay in the US and had family in Boston.

For Kiran, the decision came down to two key components when deciding between a traditional
search fund and the SFA:

• Autonomy and independence vs mentorship and oversight

• Investors: single vs many

Having already spoken to a number of searchers and investors, Kiran was able to go back to some of
these people to ask about these two specific questions.

Kiran has now started the search with his other four SFA cohort which started with an intense three-
week SFA Bootcamp. The search is progressing well and he has already acquired a business after 11

© Simon Webster, August 2020

months of the search – much quicker than expected in the traditional search fund model although
the other cohort were all still searching for an acquisition opportunity.

The Sponsored Searcher

Patrick Sutton

Patrick is from the UK and worked for nearly 12 years in the operations and service departments of a
number of manufacturing companies. In his roles he had a wide range of responsibility from
graduate trainee through to supply chain manager and technical support for new business
development. He had teams of up to 40 people working for him and responsibility for capex budgets
and profit and loss accounts.

Whilst he found his work enjoyable, he didn’t feel like the environment of large organisations were
sufficiently flexible for his entrepreneurial ambitions. He found things such as extensive approval
processes for making big decisions and navigating the political dynamics within the firms more
difficult the further up he went. This was in contrast to his uncle who had started his own publishing
business in the 80’s which had now grown to 25 staff and £5m revenue. He liked that his uncle
doesn’t have to worry about the all the difficulties of a large organisations and gets the benefits of
owning and running his own business.

With all this going around his head, at the age of 34 he decided to take some time out to pursue an
MBA in Oxford. Before he arrived for the course he spoke to other soon-to-be classmates and learnt
of the possibilities within ETA to own and run your own business. This was immediately attractive to
Patrick as it minimises the risk of a new start up and is a much more direct route to becoming a CEO
of a business than working your way up.

As he went through his MBA he spoke to as many searchers and investors as possible to learn more
about the different models including traditional and self-funded. Patrick also completed an
internship with a search fund that was in the search phase. This was really valuable to him as it
allowed him to see ‘under the hood’ including the investor relationships in a traditional search fund.
Here he discovered that the investor will typically back a large number of searchers and then have
the option, not the obligation, to invest in the transaction. For the searcher a successful outcome is
critical as they will devote a major part of their career to the project whereas for an investor, any
single investment is likely to be part of a wider investment portfolio and will therefore be less
critical. Patrick thought this was a friction point in the existing traditional search fund model so
continued to learn more about alternatives.

Nobody had really mentioned any alternatives until he spoke to Richard Huxton, one of the investors
in another UK search fund that had recently started their search. Richard was from a family office
and learnt about the search fund model a few years ago. He had started to invest in UK and
European searchers but was open to more creative investment opportunities given the flexibility
afforded to him through the family office. When Patrick spoke to Richard it appeared that there may
be an opportunity to have a single sponsor backed searcher where success would have a big impact
for both the searcher and the investor. Patrick and Richard met a number of times over the
following months and openly discussed industry ideas and eventually agreed to proceed on a single
sponsor backed search. In this arrangement, Patrick would receive a salary and office space from
the family office in exchange for searching for a small company to acquire. Once Patrick found a
deal then Richard’s family office would fund the deal with no external investors taking part.

© Simon Webster, August 2020

Patrick preferred this approach compared to the traditional search fund as it allowed him to search
in industries which are typically excluded. Patrick had most of his professional experience in
engineering firms and this is an industry typically not favoured by the traditional search fund
investors.

Compared to the self-funded search fund, where the industry choice is more flexible, Patrick
favoured the fact that he was paid for the time he was searching as he had borrowed to fund his
MBA and didn’t think he would like another year or two not being paid! The support that Patrick
would receive from Richard who was also motivated for Patrick to succeed helped during the search
as Patrick was able to discuss potential deals and preliminary offers openly and learn through the
process.

Patrick did acknowledge that there were downsides to the single sponsor route as he only had one
investor and didn’t have the option of widening the investor base if the deal he liked wasn’t liked by
Richard. There was also a concentrated relationship between Patrick and Richard which so far has
worked well but is definitely something that needs to be carefully considered over many interactions
before deciding to go down this path.

Patrick found a transaction after 24 months of searching. During the search he found the support of
Richard extremely valuable and the deal flow had been high. This has allowed Patrick to show
Richard a number of deals and together they are able to learn what types of deals look good and
which should be passed on. Patrick and Richard currently meet for a few hours every week to
discuss progress, set targets and review potential deals. Overall Patrick is optimistic of how this
partnership will work out in the future.

Outcome of these conversations

After all these conversations Alison had several tough questions facing her:

1. Was Alison ready to pursue the ETA path or did she need more / different experience?
2. Was ETA the best fit for Alison or was something else like a start up a better entrepreneurial
path or become a consultant with McBain & pay off her MBA loan?
3. If ETA was the right route for her, compare the alternatives to decide the best fit for her
4. If she wants to go down the ETA path, should she do it alone or with a partner?

She decided to consult her MBA year group for advice……

© Simon Webster, August 2020

Appendices
Appendix 1 – Key sources of information on search funds

• Tuck School of Business – Note on Search funds

https://www.tuck.dartmouth.edu/uploads/centers/files/search.pdf
• Stanford Graduate School of Business – 2018 Search Study: Selected Observations
https://www.gsb.stanford.edu/faculty-research/case-studies/2018-search-fund-study-
selected-observations
• IESE Business School – 2018 International Search Funds – 2018: Selected Observations
http://awaytolearn.iese.edu/wp-content/uploads/2018/09/2018-Intl-Search-Fund-Study.pdf

© Simon Webster, August 2020