Why Is Search Such A High-Quality Investment?
Andrew Locke’s Ambit Partners is one of the big global names in search. Based in South Africa, the company has invested in searches across the world, and in some interesting markets. From the mature and established markets of Western Europe and the US to fascinating emerging opportunities in places like Brazil and Cote d’Ivoire, Andrew and his people have deep insight into the true opportunity and value of search.
In the presentation that he made at the inaugural EtA Forum last year, Andrew provided some fascinating and valuable insights into why search is appealing from an investor’s perspective. He presented a compelling case for how search fits into the spectrum of returns and why it is a relatively low-risk opportunity for investors. Search, done well, provides the downside protection of private equity investment while also offering the upside that venture capital brings to the table.
It also provides strong returns. Currently, the profile for both searcher and the type of companies that they look to acquire means that search is relatively lucrative. Additionally, it allows for substantial portfolio divestment, given the individual nature of most searchers and the breadth of companies that can be acquired through them.
Andrew also ran an extended Q & A session at the end of his presentation, which provided us with some excellent insights into the kind of searcher that Ambit Partners invests in, as well as the appeal of supporting the first (or one of the first) searchers in any given market.
For anyone who is interested in understanding the kind of searcher and business that investors will find appealing, this is a must-listen.
Connect with Andrew: https://www.linkedin.com/in/andrewtlocke/
Connect with Pete: https://www.linkedin.com/in/peteseligman/
Join us at the next EtA Forum in September: https://www.peteseligman.com.au/etaforum
What we discussed
1:15 Pete introduces the topic, and speaker Andrew Locke from Ambit Partners.
2:25 Andrew introduces himself and the broad topic of “why invest, what causes returns, and how do we hold them up?”
3:48 How do search funds fit into the wider private equity and VC landscape?
5:58 How successful are search efforts? How many find acquisitions and how many of those have a positive return?
8:05 Why do searches so frequently show a positive return? Why do these returns happen?
12:22 Open Q & A with the audience.
12:52 Why Andrew and Ambit Partners like working in unusual markets.
14:38 Andrew talks about one of the search funds that failed in the US.
15:40 How Andrew and Ambit Partners do due diligence on searchers.
17:15 Andrew explains the mix of Ambit Partners’ portfolio.
18:28 On why Andrew is agnostic about the need to have an MBA to be a searcher.
20:15 Pete provides a summary and analysis of the presentation.
Quotes
“We see search funds filling a missing segment of the investment landscape for smaller businesses that have the maturity and the stability of traditional private equity. Because of this, the chance of investment going to zero is very low.”
“When we look for businesses, we want to see companies that are post-concept risk and have missed that concept chasm. In other words, we’re looking for businesses that have found product market fit and are on their way to scale.”
“About two-thirds will find an acquisition and one-third will fail to find an acquisition and close after their search for capital. We don't see that as a failure. In the sense, it's far better to do no deal than to do the wrong deal.”
“There’s a very compelling individual profile for a searcher and for investors in a single asset. But as these are combined in portfolios, the overall benefits of diversification are quite meaningful.”
“What we often see is people taking a hybrid or omnivore approach, where you invest in a fund to get that diversification of exposure to search. And then you take targeted co-investment opportunities with searchers that you think you can provide additional value to.”
“Part of the reason that we actually like supporting entrepreneurs to be the first or among the first in a new market is that it's very hard to do that. And the type of person that is able to and has the appetite to meet the requirements of the profile very well.”
