The Impact of Searcher Strategy on Acquisition Success
The 2020 Search Fund Study by Stanford Graduate School of Business sheds light on the diverse strategies employed by search fund entrepreneurs and how these approaches impact acquisition success. This article delves into the two primary search strategies—high-volume and deep-dive—examining their effectiveness and the implications for search fund entrepreneurs.
High-Volume vs. Deep-Dive Strategies
Search fund entrepreneurs typically adopt one of two main strategies to identify potential acquisition targets: high-volume or deep-dive.
High-Volume Strategy
This approach involves canvassing a wide range of industries, generating a large number of potential acquisition targets. High-volume searchers prioritize quantity, aiming to uncover as many opportunities as possible to increase the likelihood of finding a suitable acquisition.
Deep-Dive Strategy
In contrast, deep-dive searchers focus on specific industries or market segments. This strategy entails conducting thorough research and developing a deep understanding of targeted sectors. The goal is to identify and pursue high-quality opportunities with a greater chance of success.
Effectiveness of Search Strategies
The 2020 study reveals that both strategies have their merits, but their effectiveness can vary based on several factors, including market conditions, the searcher's background, and available resources.
High-Volume Strategy Outcomes
High-volume searchers tend to identify a larger number of potential targets. According to the study, these searchers identified a median of 500 companies in the 2018-2019 period. This broad approach can be advantageous in industries with numerous small to mid-sized companies, providing a wider pool of potential acquisitions.
However, the sheer volume of opportunities can also be overwhelming, requiring efficient screening and evaluation processes to identify viable targets. High-volume searchers may need robust support systems and resources to manage and assess the large number of potential deals.
Deep-Dive Strategy Outcomes
Deep-dive searchers, on the other hand, identified a median of 140 companies during the same period. This focused approach allows searchers to develop expertise in specific industries, leading to more informed decision-making and potentially higher-quality acquisitions.
The study found that 52% of recent searchers employed a deep-dive strategy, up from 41% in 2016-2017. This increase suggests a growing recognition of the benefits of specialization and industry knowledge. Deep-dive searchers may also benefit from stronger relationships with industry experts, investors, and advisors, enhancing their ability to execute successful acquisitions.
Implications for Search Fund Entrepreneurs
Choosing the right search strategy is crucial for search fund entrepreneurs. The decision should be based on individual strengths, market conditions, and available resources. Here are some key considerations:
Background and Expertise
Searchers with a strong background in a particular industry may find the deep-dive approach more effective, leveraging their knowledge and connections to identify high-potential targets.
Resources and Support
High-volume searches require significant resources to manage and evaluate numerous opportunities. Entrepreneurs with access to robust support networks and analytical tools may excel in this strategy.
Market Conditions
In fragmented markets with many small to mid-sized companies, a high-volume approach can uncover a wider range of opportunities. Conversely, in niche markets, a deep-dive strategy may be more effective.
Flexibility and Adaptation
Successful searchers often adapt their strategies based on evolving market conditions and feedback from their networks. Flexibility and the ability to pivot between strategies can enhance acquisition success.
Conclusion
The choice between high-volume and deep-dive search strategies significantly impacts acquisition success in the search fund model. Both approaches have their advantages, and the right strategy depends on the searcher's background, resources, and market conditions. By understanding and leveraging the strengths of each strategy, search fund entrepreneurs can increase their chances of executing successful acquisitions and achieving their entrepreneurial goals.
