Search fund vs MBI: what is the difference?
More and more entrepreneurs come during a business sale come into contact with terms such as search fund and management buy-in (MBI). Both models revolve around an external entrepreneur who a company takes over and subsequently lead it himself. However, the structure, financing, and approach of both tracks differ significantly.
For entrepreneurs within the Dutch SME sector, this is an important distinction. Particularly when no successor is available, the question arises as to which form of transfer best aligns with the business, the desired continuity, and the entrepreneur's vision for the future.
In this article, we explain exactly what a search fund and an MBI are, what the key differences are, and when each solution might be suitable for you as an entrepreneur.
What is a search fund?
A search fund is an investment model in which an entrepreneur raises capital to find, acquire, and subsequently lead one existing SME.
The entrepreneur, also known as the searcher, initially raises capital from investors to finance the search process. Once a suitable company is found, additional acquisition financing is secured for the takeover. After closing, the searcher joins the company as a director and shareholder.
The search fund model originated in the United States and has been gaining significant popularity in the Netherlands in recent years. The model is primarily used by entrepreneurs who wish to make the transition to entrepreneurship via an existing company.
What is a management buy-in (MBI)?
A management buy-in (MBI) is a business acquisition in which an external entrepreneur or manager buys into an existing company and takes over day-to-day management.
In an MBI, the company is often already known to the buyer or within their network. The entrepreneur usually carries out the process independently and frequently combines this with an existing job or business.
What is the difference between an acquisition via an MBI and a search fund?
The main difference between a search fund and an MBI lies in the way the entrepreneur is supported and how the acquisition is conducted. financed. With a search fund, the entrepreneur first raises capital to search full-time for a suitable business within a specific sector. In an MBI, the company is often already known to the buyer, and the entrepreneur usually operates more independently.
The differences below show how both models differ from each other in practice.
Search process
: With a search fund, the entrepreneur first raises capital to actively search for a suitable company. At this stage, the searcher often does not yet have a concrete company in mind. With an MBI, the company is usually already known to the buyer.
Investor support
: Search funds are supported by investors who not only contribute capital but often also offer guidance, market knowledge, and a relevant network during the process.
Financability
: Thanks to investor involvement, search funds are often better able to realize larger transactions than individual MBI candidates. This increases credibility with sellers and financiers.
Structure and continuity
: Search funds often offer more structure and continuity during the acquisition process, whereas an MBI is more dependent on the individual entrepreneur and their personal financing capabilities.
Guidance from investors
: With search funds, investors are often actively involved in strategic choices and supporting the entrepreneur. In an MBI, this formal guidance is usually lacking.
When is a search fund or MBI a better fit for your company?
The choice between a search fund and a management buy-in depends heavily on the entrepreneur's wishes, the nature of the business, and the desired form of succession. Although both models revolve around an external entrepreneur who acquires and leads the company, there are important differences regarding support, financing, and continuity.
Personal successor
: Both a search fund and an MBI are interesting for entrepreneurs who want to transfer their company to a committed entrepreneur who will take an active role at the helm. In both cases, entrepreneurship is central, in contrast to a sale to a larger entity. strategic party or investor.
Financial security
: A search fund often offers more financial leeway than a traditional MBI. Whereas an MBI candidate is usually dependent on personal resources, bank financing, and their personal network, a searcher is supported by investors who provide capital for the acquisition.
Post-acquisition support
: Entrepreneurs who value continuity may find a search fund attractive. Behind the searcher is often a group of experienced investors who actively contributes ideas regarding strategy, growth, and further professionalization of the company.
Direct collaboration
: An MBI may be a better fit specifically when the entrepreneur wants to deal directly with a single buyer and values a personal handover without an extensive investor structure.
Size of the transaction
: Search funds are often better able to realize larger transactions due to their access to investor capital. For companies with a higher enterprise value, this can expand the circle of potential buyers significantly increase.
Ultimately, the best solution varies by company and situation. Therefore, it is important not only to look at the selling price, but also at the desired continuity, the role of the successor, and the financing of the transaction.
Why is guidance important when choosing between a search fund and an MBI?
The choice between a search fund and an MBI goes beyond just financing the acquisition. For many entrepreneurs, questions regarding continuity, corporate culture, the role of employees, and the future of the company also play an important role.
Therefore, it is wise to clarify in advance what you want to achieve with the business transfer. For instance, one entrepreneur may be primarily looking for a committed successor who will continue the business independently, while another attaches more value to financial security or support from experienced investors.
An experienced M&A advisor helps determine these objectives and translates them into a suitable sales strategy. This involves considering not only the selling price, but also the desired succession structure, the financing of the transaction, and the type of buyer that best aligns with your company.
By mapping out various scenarios early on, a clear picture of the possibilities emerges, and it can be determined whether an MBI, a search fund, or another form of business transfer best suits your situation.
Why choose Match Plan?
Match Plan guides entrepreneurs through business sales and acquisitions. As independent advisors, we support entrepreneurs from the initial orientation to the final transfer of the company. What we can do for you:
- We guide the entire sales process, from strategic preparation to closing.
- With over 30 years of experience, we possess in-depth knowledge of business acquisitions and succession processes within the Dutch SME sector.
- Our advisors help think about valuation, financing, negotiation strategy and the right succession structure.
- Thanks to our extensive network, we have access to MBI candidates, searchers, investors, and strategic buyers.
- We work independently and transparently, always prioritizing your interests and the continuity of your business.
Would you like to know which form of business succession best suits your company? Feel free to contact us for a no-obligation consultation.
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