Key Takeaways

• Discover how Marc Bartomeus, the man behind Spain’s first search fund, defied all odds in transforming his native country’s business landscape.

• With Baby Boomers retiring and trillions in assets up for grabs, savvy investors are cashing in on the search fund opportunity.

• Why should search funds pique your interest?  Experts suggest they generate an average annual return of 30% with moderate risk.

• Marc draws from his illustrious investing journey to explain to new investors that there are no shortcuts to creating value for a company. 

  
  

After being awarded an MBA from MIT Sloan, Marc Bartomeus did not bag a fancy consultant role or join a large Silicon Valley firm. Instead, he chose to return to his homeland in Spain and decided to raise the country’s first search fund. In 2014, after three long years of searching, he acquired Repli, a plastic packaging company. Marc admitted it wasn’t the most attractive company. He barely knew a thing about packaging. Only upon taking a deep dive into the financials did he realize the company’s true potential. 

Marc had just discovered a firm with €17 million in annual revenues. The founder had run the packaging company since 1988 and wanted to retire. Marc grabbed the opportunity to run and develop this business. After six years, he successfully exited in 2020, offering impressive returns for its shareholders. 

This was the story of one of Europe’s most successful search funds. They have only been booming in recent years.  According to IESE’s International Search Funds 2020 report, between 2013 and 2019, search funds became one of the fastest-growing niches in the alternative investment sphere. Fast forward to 2022, at least 50 of these investment vehicles actively seek targets in Spain alone. The country’s business fabric comprises 91% SMEs that fit well into most search funds criteria. 

In this conversation with Horizon Search, Bartomeus recapitulates the challenges of searching in the 2014 market and the time he spent foraging for investors. He sheds light on gaining a competitive advantage in the market and advises private equity investors to hold their horses till finding a “fantastic” company. 

Search Funds: Why They're Booming

A search fund is an entrepreneurial path undertaken by one or two individuals (searchers) who form an investment vehicle with a small group of aligned investors, some of whom become mentors, to search for, acquire, and lead a privately held company for the medium to long term (typically six to ten years). 

Search funds are surging as a result of a combination of factors. Firstly, Baby Boomers are retiring. These generations will pass along, sell, or transfer somewhere between an estimated $30 trillion and $70 trillion worth of business assets. This ‘silver tsunami’ will lead to enhanced M&A activity in the small-to-medium business (SMB) world due to the popularity of search funds. 

Secondly, investors have noted that these investments consistently yield favorable returns on capital. According to some experts, no other asset generates an average annual return of 30% with moderate risk. Top business schools have left no stone unturned in teaching students the basics of searching through courses. As a consequence, we’re seeing more aspiring entrepreneurs than ever before.

Search Funds: One Too Many? 

Marc Bartomeus offers valuable learnings to private equity investors drawn from his investing journey. Marc is vocal about gathering local support in the initial stages. The more search funds, the more intense the competition. Quality search funds are integral but must never come at the cost of inhibited deal flow. 

“It makes sense to invest in Europe, where I’m based. There’s a lot of deal flow,” he says. “Each investor finds their strategy which has its competitive advantage,” Marc says while speaking about the evolving nature of the search fund business. Bartomeus Marc is mainly focusing on the markets of Spain and Europe for making investment decisions. 

“Our decisions to invest in Europe and the US are based on proximity,” he reveals.  

On Finding Spain’s First Search Fund: Challenges, Opportunities 

Bartomeus launched a search fund when there were no signs of one. He has gained recognition for it but his path was filled with novel challenges. For starters, the market a decade ago did not have as many companies up for sale. Business within the family was strictly kept in the family. 

Searching is more about persistent hard work and dedication than dumb luck argues Marc. “For every 100 investors that rejected me, I chased 500 others,” he said. Marc was in desperate need of local investors. He needed the credibility of local companies to chase big fish in the US. Serial investors abroad would lend no support as they didn’t know how operations run in Spain. “It was a chicken and egg situation,” says Bartomeus trying to describe his challenge. Local investors wanted a global imprint; global ones wanted a local stake.

After persevering for a long time, there was finally a breakthrough. He convinced a former searcher in Puerto Rico to invest half a unit (ranging between $20,000-$25,000). This generous offer was helpful for Bartomeus to kickstart his journey. Despite working hard, there are external factors beyond the searcher’s control. Marc is reminiscent of the coronavirus outbreak and its devastating impact on businesses. But he happened to be at the right place at the right time. In the epicenter of the pandemic, he had bought Bergamo-based Pentapackaging. Penta was a blessing in disguise. “We were working for a Pharma company so our business was not impacted at all,” he says gratefully. 

Learnings from a Stellar Investment Journey

As of now, Marc is invested in close to forty companies. By extension, he has insights into different operating models. “The reason we invest is because we enjoy working with entrepreneurs. We can add value to their experience,” he says. Despite his stellar investment journey, Marc says he continues to make mistakes but never forgets to learn from them. 

"I had never worked in packaging before and I was the youngest one in the company. So you want to buy a company that can sustain the mistakes that you will make." —Marc Bartomeus

What is the most challenging aspect of the job? Locating sincere searchers. He’s interacted with experienced and novice searchers, some who don’t have an MBA too. “What’s important for us is the commitment of the searcher in the search fund journey,” explains Marc. 

Marc predicts the growing relevance of search funds in the future. There will be different kinds of formats apart from accelerators. We can witness more long-term holds than before. Apart from the UK and Spain, other countries like Germany also have huge potential for search funds. 

Treading the search-fund path for two decades, Marc has realized the importance of sticking to traditional search fund criteria. “The perfect company does not exist,” he asserts. “You want to buy a company that can sustain the mistakes you make,” he says earnestly.