Learning from the Trench Lines: First Months of Searching
1. Is there something about the search process that you did not expect?
We thought that we were going to enjoy it, but we have found ourselves even happier than expected. Having the freedom to design your own strategy and afterwards seeing it yield returns, is really satisfying. Even more when you have a group of committed investors who are helping you succeed and pointing to areas of risk that they foresee given their experience. Also, there is an even higher amount of work than expected as admin and other back-office tasks pile and compete for your attention with your key mission of searching a good company. Regarding this last point, being two partners has proven to be critical. Finally, everyone should be prepared for the “highs and lows” of the search process. We were informed by previous searchers, but we think that the highs are even higher than expected and the same happens with the lows, which is part of the excitement of this adventure.
2. What have you wished to have known beforehand?
For now, we have not experienced big surprises but, we are at the beginning of our search. That said, we cannot stress enough how important is to talk with a high number of searchers mainly in your market (given the specifics of each country). In our opinion, what we learnt during these calls has prepared us for most of the common pitfalls and has proven to be unvaluable.
3. There has been a lot of chat about Spain being overcrowded with Search Funds, what has been your experience?
We would not say that the market is overcrowded but definitely there is significantly more competition than we expected due mainly to three reasons. First, there is a significant number of players that fly under the radar operating in the €1-5M EBITDA range, such as, small club deal funds or experienced operators looking to buy a company. Second, as the competitive pressure above our search range increases, several PE firms arecoming down looking for add-ons and even for standalone acquisitions. Third, searchers, which numbers are increasing, usually contact a high number of companies and are encouraged to do so. This also increases the feeling of “over crowdedness” as a significant number of companies we have contacted had been in touch with other searchers beforehand. In our opinion, all these factors may lead to an increased difficulty to find and acquire good targets, and higher average acquisition prices. These two factors may result, in the mid and long term, in lower returns.
4. Can you please share a general overview of your current search strategy?
Our search strategy has two pillars, on one hand direct contact, leveraging the public databases and information about companies, and on the other hand through third parties, ranging from classical M&A boutiques to people in our networks. We do not like to call one proprietary vs. the other as a deal through intermediaries can be also exclusive if you have cultivated a good network.
5. What are you trying to do differently or, in general, what has worked well in your search?
In our opinion, the key differentiating factor is to have very well established processes and tools. Given our consulting and engineering backgrounds we were very focused since the beginning on defining a standardized and repeatable process for our search strategy. This has helped us to leverage our interns in a more efficient way as well as to allow us to do A/B testing as we are able to measure our outcomes easily. Finally, having the correct tools (e.g., CRM, task managers) is critical to support the beforementioned processes.
About Taurus Capital
Founded by Borja Mesonero-Romanos and Juan D. Carretero Jiménez, is a private investment firm focused on the acquisition and active management of a middle-market company in Spain, with a focus on growth and long-term value creation.
As of the publishing of this note, Taurus Capital has been actively searching 4 months.