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Sacha Tolegado was one of the first searchers in France. Due to the size of the company he had chosen to acquire, he had to facilitate a step-up for all his investors and turn to a Private Equity fund to successfully close his deal. He shares his story with us, highlights the limitations of the Search Fund model when the target is too large, and provides insights into his perspective on the current market.
In January 2021, after 23 years of professional experience and the acquisition of 3 companies under LBO, I embarked on the adventure of the Search Fund, model I had discovered in the USA in 2005.
My goal was to allow myself to acquire a larger company than my previous ones, and a financing model like LBO alone was not feasible. Quite quickly, I finalized and submitted my PPM, which garnered investor interest promptly. I completed my cap table with 10 investors (more seemed difficult to manage) in approximately 3 months. I made the decision to launch my SF, STJ INVEST, in September 2021, even though there were still two units available. Although this could potentially force me to accelerate my search for targets, it did not prevent me from building my target list simultaneously and reaching out to shortlisted companies, advancing on various projects.
The second half of 2021 allowed me to build my new acquisition project, identify potential targets, and approach the leaders of those that appealed to me the most. In February 2022, I set my sights on a company in the orthopedic sector. Since this company was of considerable size, with a turnover of nearly €50M and a fundraising goal of nearly €27M (+ leverage), I deviated from the “classic” search fund model. Although very interesting, my cap table did not have the necessary investment capacity to participate in the closing. Therefore, I had to move away from this model and return to a more traditional MBI model, integrating a majority private equity fund.
It’s worth noting that many French funds struggled to accept the model, especially with the inclusion of the step-up of SF investors in the overall financing. On my part, given the size of the target, I ensured that this impact did not exceed 3% of the acquisition amount. However, I faced teasing remarks several times about taking a 50% step-up for my investors when they were not participating in the acquisition. It seems that evangelizing the model is important in France to change preconceptions.
This acquisition was prolonged due to the company’s overperformance in 2022, renegotiation of the sale price, the exclusion of an initial PE fund in July 2022, and the entry of a new partner fund in September 2022, allowing the finalization of the acquisition in spring 2023 and closing before summer 2023.
My experience with this acquisition is that a significantly sized company (equity financing above €10M – €15M) is challenging to finance in the “standard” model, and involving private equity funds seems inevitable. It’s also worth noting that during my first acquisition in 2015, it was relatively easy to achieve a contribution/bank debt ratio of around 30/70. Today, this has completely reversed, and it’s not uncommon to have to provide funding of 60/70% of the acquisition amount with a relatively low bank debt leverage, ultimately around 30 to 40%.
Nevertheless, the SF model remains extremely interesting for first-time entrepreneurs, providing support and guidance to the searcher during periods that can sometimes feel like roller coasters, causing numerous frustrations and questions.
France remains a highly dynamic country in terms of business succession, primarily linked to the retirement of many leaders. So, don’t hesitate to seek guidance from a group of “wise” mentors and give yourself every chance of success in this incredible adventure. And don’t limit yourself in the size of the company! Many great companies are available for acquisition; you just need to adjust your financing model because the ultimate goal remains acquiring a company in the chosen sector and geography.
