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After starting your career in auditing at PwC and consulting at Altair, you founded Lomba Capital in 2015 at a very young age, becoming the 4th SF in Spain. What attracted you to EtA, and what was your journey like?
Acquiring a company and becoming a CEO with an equity stake earlier in my career was what attracted me the most. I learned about the search fund model at the early days of my MBA at IESE. I remember attending a lecture for alumni about something called search funds around October 2013, where Rob Johnson, Marc Bartomeus and Sandro Mina explained the model. Listening to them changed my life. I remember spending the following weeks reading everything available on internet about search funds. Then, I started contacting searchers from Europe and the US and I found a collaborative community where everyone was willing to help. I had the opportunity to intern for Marc Bartomeus and help build the Search Fund Center at IESE under the lead of Lenka Kolarova. During my second year at IESE, I had the opportunity to assist in Peter Kelly’s class about search funds and Rob Johnson’s about Entrepreneurial Finance. Right after Peter Kelly’s class I launched the fundraising for Lomba Capital where I got the support of Spanish and International investors.
Without a doubt, my experience differs from what a searcher in Spain might face today. While at the time few people were familiar with the model and it required considerable explanation, I benefited from the previous work done by Marc Bartomeus, Jose Maria Vara and Nuño Arroyo. Additionally, there was a strong group of American investors keen on bringing the model to Europe. That said, we were stepping into the unknown, and not everyone understood why we chose this path after completing an MBA, especially when the salary at the time was significantly lower than the average MBA graduate. There were doubts about our ability to acquire a company, and even more about managing it.
Unfortunately, you did not end up acquiring a company. What were some of the biggest challenges you faced during the search phase? What went wrong, and what advice would you give to aspiring searchers?
Looking back now, with some perspective after these years, I believe the search process was very positive. I had around 500 initial meetings with entrepreneurs, worked in-depth on 8 transactions, and one of them advanced to a very late stage of negotiation. You could say the deal fell through just days before we were scheduled to sign at the notary.
If you had asked me at the time of losing the deal, I would have said the other party did not act in good faith. Today, I see things very differently. We faced external challenges, such as the political instability in Catalonia in 2017, which was difficult to explain to foreign investors. On the other hand, we also had internal challenges: a significant gap and a relatively large transaction compared to previous deals in Europe, where the investor market within the ecosystem was not yet fully developed. Additionally, both the seller and I enjoyed discussing the business and its future, but I believe we lost focus on closing the deal, and the timeline stretched out far too long. Today, I can say the deal fell through due to deal fatigue. We simply took too long to close.
To new searchers, I would recommend studying and thoroughly understanding the M&A process. It’s not rocket science, and I don’t believe that previous M&A experience is required. With a mix of self-learning, common sense, and seeking support from investors, you can gain a solid understanding of the processes involved.
After spending five years at Norgestion, one of the largest M&A boutiques in Spain, you decided in 2023 to join Aurica, a private equity firm, to lead a new international fund focused on SFs. What motivated you to return to the industry, and could you share a bit about your investment philosophy and criteria? Is it an advantage to be backed by a PE firm?
Norgestion is undoubtedly one of the best M&A firms in Spain, and I had the opportunity to work with some of the top professionals in the field, where I gained valuable experiences, learned a great deal, and built lasting friendships. However, I don’t think I ever fully left the search fund community, as I have always been passionate about getting to know and helping entrepreneurs. So, when Aurica proposed that we work together and launch the first search fund within an asset management firm like Aurica, I knew it was an opportunity I had to seize.
Aurica has one of the best track records in Spain, with over 20 years of investing in private companies. Their philosophy of partnering with entrepreneurs to create long-term value aligns perfectly with the traditional search fund model. Our goal at Aurica Search Fund is to leverage Aurica’s experience and expertise to support searchers in their projects, improve the companies we invest in, and deliver solid returns for our investors. Being part of Aurica is undoubtedly a unique advantage.
Regarding our investment criteria, we firmly believe in the classic principles of the search fund model. To be more specific, we tend to favor sectors with tailwinds, that are less cyclical, and have clear competitive advantages.
After a year of activity, how would you assess your performance so far? From your perspective, what are the key skills and attributes that make a successful SF entrepreneur?
We are very pleased with the fund’s progress to date. We have built a portfolio of over 25 searchers of the highest quality in the main economies of Europe, the UK, Mexico, and Brazil. Regarding portfolio companies, we have CSP, which is performing very well thanks to the leadership of Ola Lawal, and we are likely to add another portfolio company in 2024.
When it comes to entrepreneurs, we look for a deep understanding of the model, and I’m not just referring to the criteria, which are certainly important, but also to the awareness of the challenges that this entrepreneurial journey entails. There is a lot of talk about how the search fund model has lower risk than starting from scratch, but that doesn’t mean it isn’t a tough path for the entrepreneur, from the day he or she decides to go for it to the very last day. They need to understand what this path requires. Additionally, we seek future CEOs with whom we feel comfortable working side by side, helping them build strong companies. To achieve this, we must trust the entrepreneur, see their determination, their openness to receiving help, and their ability to communicate effectively.
In Spain, you have backed 7 searchers in the past 12 months. Is the market starting to become saturated, or are you confident in its potential? And how do you see the current landscape evolving in Europe?
I’ve been hearing that the market in Spain has been saturated since 2015, when there were just three of us entrepreneurs searching at the same time. While it’s true that the growth in Spain can seem a bit daunting, our Spanish searchers are continuing to generate high-quality opportunities. Spain is an economy dominated by SMEs, so I believe we will continue finding good companies that, together with talented entrepreneurs, will deliver very strong returns.
As for Europe, we are still in the early stages of the model. There is much work to be done. Every country is different: the tax system, business practices, culture; but I have no doubt about the potential the European market holds. We’re seeing new local investors, search funds emerging in new countries, searchers conducting sector-specific searches across Europe, and new exits…
Having been a searcher turned investor, do you see being on both sides of the table as an advantage? What value does this dual perspective bring to searchers and the companies they acquire?
One of the advantages of the model is having multiple investors, each of whom brings something unique to the table. Those of us who were searchers have the added benefit of being able to empathize more with entrepreneurs. We understand what they’re going through and can speak to them entrepreneur-to-entrepreneur at any stage of the process.
However, I always recommend having a diversified cap table, both in terms of investor profiles. I was fortunate to have investors like Simon Webster, the first European searcher, or Jürgen Rilling, who became an entrepreneur through acquisition, and they both brought a great deal of value, and I could sense that empathy. But the rest of my investors contributed a lot as well. I’m talking about Leon Bartolomé, Rob Johnson, Jose Barreiro, Jorge Maortua, Miguel Ángel Cestero, Miguel Ángel Albero, Sandro Mina, Coley Andrews, Will Thorndike, and Jan Woitschätzke. I was incredibly lucky to have all of them, and the mix of experiences added immense value to my journey. Without a doubt, having a cap table with diverse profiles is always highly recommended.
From your point of view, how “professionalized” do you think the industry will become over the next few years? Is it feasible to think we will see the emergence of “Funds of Funds” in the SF segment, specialized investment lenders, and secondaries operations? How do you view the evolution of EIR, platforms, and accelerators that professionalize the acquisition process? Do you think this trend will continue to grow worldwide?
As I mentioned earlier, we are still in the early stages of the model at an international level, and there is much work ahead. As an asset class, it makes sense that the returns and the growing number of transactions are attracting new investors, including institutional ones, as well as the emergence of specialized lenders and alternatives to provide liquidity to investments and continuity to projects. Just looking at the U.S. gives us a glimpse of what lies ahead for the rest of the world.
The increasing number of transactions is attracting more sophisticated and top-tier advisors, both in the legal and financial sectors, who have recognized that the model is here to stay, and we will regularly see both entry and exit deals. This involvement is undoubtedly contributing to the professionalization of the asset class.
Regarding new initiatives, we have had the opportunity to collaborate with some accelerators in Europe, such as Seqos, and our experience has been outstanding. We look forward to continuing to work with them in the future. Additionally, I believe we will start seeing search fund transactions entering the natural size range of mid-market private equity, as it offers a solution to the succession issue at the time of the transaction, allowing the entrepreneur to step back.
