Search Fund in Portugal: what it is and how it works
How a search fund works, how to prepare an acquisition thesis, and what to evaluate before buying a company to manage.
Contents
A search fund is an acquisition entrepreneurship model: an entrepreneur, or a small team, seeks a company to buy and then leads it. In the traditional model, investors finance the search and may reinvest in the acquisition. The goal is to develop an operation that already has customers, a team, and activity.
For those looking to start a business in Portugal, the question shifts from just "what business will I create?" to include "what company can I acquire and manage well?" This guide explains how the model works, how to prepare an acquisition thesis, and what to evaluate before starting.
What is a search fund?
The model brings together three elements: an entrepreneur who wants to take over management, investors willing to support the project, and a company available for ownership change. The entrepreneur is often referred to as a searcher. The Stanford Graduate School of Business describes the search fund as a vehicle through which investors support the search, acquisition, and management of a company.
The term is also associated with entrepreneurship through acquisition, or acquisition entrepreneurship. This latter concept is broader: it includes other ways of buying a company to operate, even without a traditional search fund.
The term "fund" does not alone indicate the legal structure or regulatory framework of a project in Portugal. This analysis depends on the vehicle, the investors, the way of raising capital, and the proposed operation.
How does it work, from search to management?
It is useful to think of the project in five phases. Each phase should end with a concrete decision to avoid wasting time and money without moving closer to the acquisition.
Define the thesis. Choose the type of company, geography, size, and the problems that the future manager knows how to solve.
Organise the search. Define budget, dedication, sources of opportunities, and how to track contacts.
Evaluate and negotiate. Understand the business, discuss terms, and confirm mutual interest.
Validate and acquire. Deepen the analysis, structure the financing, and formalise the necessary agreements.
Take over the operation. Transition with the seller, maintain activity, and execute a development plan.
Securing support to search for a company does not guarantee that the acquisition will be financed. Closing the purchase does not guarantee that the management transition will go smoothly. Both decisions require their own evaluation.
Traditional search fund or self-funded search?
The choice should start with the question "who bears the cost of the search?" Then, it is necessary to negotiate separately who finances the purchase and under what conditions.
| Question | Traditional model | Self-funded search |
|---|---|---|
| Who finances the search? | Investors support the research phase. | The entrepreneur funds the search with personal resources. |
| When is the capital for the purchase organised? | There is an initial network of investors; each acquisition requires a decision. | Capital is organised based on the opportunity, which may include investors. |
| What is important to negotiate? | Budget, monitoring, investor rights, and acquisition conditions. | Limits on personal spending, availability, and access to capital when a business opportunity arises. |
| What should not be assumed? | That support for the search equates to a commitment to buy. | That financing the search means paying for the company alone. |
Do not choose solely based on potential equity participation. Also compare decision-making autonomy, available support, personal risk, and the time you can dedicate to the project.
How to frame a search fund in Portugal?
Portugal has projects that publicly present themselves with the intention of acquiring and managing companies. Matter Capital, for example, describes an approach to acquiring and managing a Portuguese SME with a long-term perspective. It is an example of positioning, not a confirmation that it accepts proposals or that it is still in a particular search phase.
For a project in Portugal, we recommend testing three local questions before broadening the search: in which regions can you be present, which businesses do you understand well enough, and how will you reach owners willing to talk. A thesis that depends on being on the ground must be compatible with your real life.
The business succession without a family successor can create an acquisition context. But the reason for the sale alone does not prove the quality of the company. An operation still needs customers, margins, organisation, and the ability to generate cash after the owner's exit.
How to build a useful acquisition thesis?
A thesis should help you quickly reject mismatched businesses. "I am looking for a profitable company" is too broad. Try filling out this grid on one page.
| Criterion | Question to answer |
|---|---|
| Sector and customer | What activities do you know? Who buys the product or service and why? |
| Geography | Where can you work in person and how often? |
| Size | What range of turnover, results, and price can you analyse and finance? |
| Team | What skills need to remain when the seller leaves? |
| Owner dependency | Can the company sell, deliver, and collect without the owner? |
| Cash | How much do the payment terms, stock, and investment in equipment absorb? |
| Management plan | What concrete improvements do you know how to execute without relying on extraordinary growth? |
Imagine two businesses with similar results. One has recurring customers, team leaders, and documented processes. The other depends on the founder to sell and deliver all projects. For a first acquisition project, the difference in execution may be more relevant than a small discount in price.
How much capital is needed?
There is no universal amount. Separate the budget into three parts: the cost of the search, the resources needed to close the operation, and the financial margin to manage the company after the acquisition.
Search: personal expenses, travel, tools, and external support.
Operation: price, financial and legal analysis, transaction expenses, and financing.
Continuity: working capital needs, planned investment, and remuneration for those who will manage.
EBITDA helps analyse operational results, but does not correspond to the cash available to pay for an acquisition. Taxes, investment, changes in working capital, and debt service affect cash. To compare sources of capital, see the guide on financing the purchase of a company in Portugal.
Before contacting investors, prepare a thesis, a description of your operational experience, and an explanation of how you will decide. If there is already a company under analysis, also identify the information to be confirmed. A clear presentation distinguishes facts, hypotheses, and conditions still to be negotiated.
Where to find companies to acquire?
You can start with companies and businesses for sale, transaction advisors, industry contacts, and direct conversations with owners. Keep a unique record of opportunities: source, information received, next step, and reason for rejection.
An advertisement is the beginning of the analysis. Confirm what is actually for sale, whether the price is indicative, what the seller's role is, and what information will be available under confidentiality. Do not present a vague intention to buy as proof of approved financing.
When there is concrete interest, use a due diligence checklist to organise validation. The overall journey, from defining criteria to closing, is in the guide on how to buy a company in Portugal.
Search fund, MBI, MBO, and private equity: what is the difference?
| Concept | What it describes |
|---|---|
| Search fund | A search and acquisition model focused on an entrepreneur who intends to manage the company. |
| Management Buy-In (MBI) | The acquisition with the entry of external managers to take over leadership. |
| Management Buyout (MBO) | The acquisition led by managers already working in the company. |
| Private equity | Investment in the equity of unlisted companies, with diverse strategies and structures. |
The concepts can overlap. An external searcher may complete an acquisition with characteristics of management buy-in. A management buyout starts from the internal team. The presence of debt describes a different dimension: how the purchase is financed.
What risks should be tested before starting?
Set a limit for the time and money of the search. Without this limit, it is easy to prolong a project just because a lot has already been invested in it. Also, record the criteria that would make you abandon an acquisition, even at an advanced stage.
In the company, test the loss of a relevant customer, the departure of an essential person, delays in collections, and unforeseen investment. In the agreement with investors, clarify reserved decisions, economic participation, remuneration, and what happens if you stop managing.
Finally, assess whether you really want to operate. Leading an SME can mean dealing with collections, hiring, deliveries, and customers on the same day. If your motivation is solely in the transaction, it may be worth reconsidering the role you want to take.
Frequently asked questions about search funds
Is it mandatory to have an MBA to create a search fund?
An MBA is not a necessary element of the model's definition. The credibility of the project should rest on the ability to search, evaluate, and manage a company, along with the quality of the team and the support gathered.
Does self-funded mean buying the company without investors?
No. It refers to the entrepreneur funding the search phase. The acquisition may then include investors, credit, or other negotiated conditions.
Is it possible to start without having a company identified?
Yes. The search is part of the model. Before starting it, define the criteria, budget, and how to evaluate opportunities to avoid a directionless search.
Does the searcher receive a salary and equity in the company?
These elements depend on the agreements. Remuneration, equity participation, conditions for acquiring rights, and exit rules must be negotiated; there is no guaranteed package by the model.
Where can I delve deeper into the topic?
The International Search Fund Center of IESE brings together research and resources on the international ecosystem. Compare these materials with the reality of the company and the jurisdiction in which you intend to operate.
Move from idea to purchase criteria
Write your thesis on one page and compare it with concrete opportunities. This comparison helps to understand if the business you are looking for exists, what information is missing, and where you need to adjust expectations.
Explore companies for sale in Portugal
Informative content. The legal, tax, and financial structure of an acquisition must be validated for the specific operation.
