By James Frank, Chief Executive Partner at Frank Law
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Addressing the Investor Challenge
Entrepreneurship through Acquisition (EtA) in Australia is growing fast. Searchers are active and deals are getting done, but the rate of new investors entering the space is lagging.
EtA investing remains underutilised in Australia compared to more developed markets like the USA. It has yet to establish itself as a mainstream asset class within the family office or private equity portfolios, and while early adopters exist, the equity capital remains constrained as a result.
What makes it more challenging is the lack of SBA program in Australia. This means that even self-funded deals require some form of significant equity contribution.
As we see it, the single greatest constraint on EtA’s growth in Australia is investor capital. Without an expanding pool of investors, the ecosystem simply cannot develop.
In our discussions with prospective investors (high-net-worth individualsand family offices), we saw three core concerns with the traditional search model emerge.
Firstly, they struggled with the idea of funding the ‘search period’. In their mind, this represented too high a risk, relative to the return.
Secondly, they struggled with the structure’s complexity. Due to Australia’s tax system, the two prevailing document sets for traditional search include either an options mechanism or a share price mechanism. Both mechanisms are complex and are a barrier for investors.
Thirdly, they wanted optionality around returns, especially the promotion of distributions rather than solely a capital event.
Taking these challenges into account, we recognised that a simpler, more flexible and value-aligned model needed to be developed to attract investors into the EtA space and increase the equity available to searchers.
The Independent Searcher Structure
The Independent Searcher Structure (ISS) is a hybrid between Traditional Search and the Independent Sponsor model. Below is a table which unpacks the major EtA models and compares them to the ISS.
| Dimension | Self-Funded Search | Traditional Search Fund | Independent Sponsor | Independent Searcher |
| Search funding | Self-funded from personal savings ($100k–$250k/yr) | Raised upfront from investors (~$400k) | No formal search capital; deal-by-deal | No formal search capital; deal-by-deal |
| Personal financial risk | High — searcher bears all search costs | Lower — investors cover search costs | Medium — no search capital but sourcing costs borne by sponsor | Medium — no search capital but sourcing costs borne by sponsor |
| When capital is raised | After a target is identified | Before the search begins | After a target is identified | After a target is identified |
| Investor relationship | Negotiated deal-by-deal with HNWIs/family offices | Committed investor group from day one | Deal-by-deal with family offices/institutions | Negotiated deal-by-deal with HNWIs/family offices |
| Hurdle Metric | None | IRR | MOIC and/or IRR | MOIC |
| Searcher Catch Up | As agreed | None | Yes. | As agreed |
| Searcher equity stake | Majority stake typical | 20–30% (minority) | Carry + fees; varies by deal | 30% plus capital contributed to deal. |
| Target deal size | Typically under $5–10M EV | $5–50M enterprise value | $10–100M+ EV | $10–100M+ EV |
| Role post-acquisition | Owner-operator of one company | CEO/operator of one company | Strategic oversight; may not run day-to-day | CEO/operator of one company |
| Mentorship & support | Limited — must build own network | Strong — built-in investor network and board | Moderate — depends on investor relationships | Moderate — depends on investor relationships |
| Number of deals | One company | One company | Can pursue multiple deals | One company but has flexibility to expand. |
| Investor oversight | Searcher is the owner; self-accountable | Board of directors oversees CEO | Investors participate deal-by-deal | Investors participate deal-by-deal |
| Hold Period | As long as desired | 5-7 years | 5-7 years | As long as desired |
Structural Simplicity
The structure holds simplicity at its heart. An investor invests $1 into a deal. They will get back an agreed multiple of that $1. After the searcher has returned the agreed multiple of invested capital, the investor then gets 70 cents, and the searcher gets 30 cents of every additional dollar distributed.
This distribution is not limited to a sale event but can be via dividend distributions providing significant flexibility as to hold length, focus and exit timing.
Flexibility
The ISS, being based on MOIC and not limited to a hold period, enables the structure to be flexible and malleable to the market. The investor return can be achieved in several ways. It can be via a sale, or dividend distributions or even a dividend recap. This provides the searcher and the investor flexibility should the target or market hit some headwinds.
Neither the searcher nor investor knows when the ‘golden window’ for an exit will appear, nor do they know what may lie ahead of them, which means having a structure that enables flexibility is critical.
Investor and Searcher value alignment
From our perspective, the ISS provides true investor and searcher alignment. The searcher’s carry is only unlocked or enlivened when the investor return has been met. This means that the searcher is totally aligned and motivated to return capital to the investor as quickly as possible.
We believe that this alignment is critical. The sooner investors get a return, the more they are likely to invest and the faster the EtA investor flywheel turns.
Who is the ISS suitable for?
The ISS is ideally suited for a searcher who wants to be the CEO, can afford to run their own search and is looking to acquire a larger business.
This structure can be used for 1 investor through to 10s of investors. It provides ultimate flexibility and can be deployed in a multitude of situations and scenarios.
Deal Tested. Full Pipeline.
The ISS is a deal-tested structure with the structure being deployed earlier this year to acquire a target which sat squarely within the core metrics of an ISS target.
Significant equity was raised from high-net-worth investors, family offices and private equity funds, with credit being provided by a Tier 1 bank.
Since publicly launching this structure, we have had numerous conversations with searchers looking for a structure that can attract investor capital, provide flexibility and ensure value alignment.
We believe that the Independent Searcher Structure is the type of structure that can drive investor engagement in the EtA ecosystem in Australia and New Zealand, resulting in more searchers being funded and deals being closed.
If you’re a searcher or investor in Australia or New Zealand and want to explore the Independent Searcher Structure, we’d love to hear from you. Reach out to James Frank directly to start the conversation.
About Frank Law:
Frank Law is a corporate and commercial law firm built around one idea: practical advice that drives growth and protects what you’ve built. Frankly speaking, we get deals done.
As the founding division of The Frank Group, we sit within an integrated team spanning law and advisory. We work with business owners, searchers and investors at the moments that matter the most.
