The projected $18.3 trillion in wealth to be transferred globally by 2030 is expected to be the largest intergenerational transfer of assets in history. However, this great wealth transfer brings with it a problem for families whose assets are tied up in their own businesses.
There is a risk that the private market is not ready for the influx of companies ready for sale. Analysis from Nasdaq shows that families are extremely poor when it comes to transferring wealth. 70% of wealthy families lose their wealth by the next generation and as many as 90% lose their wealth by the third generation. As we are about to witness the baby boomers’ asset transition, the losses to business built up over decades could be substantial. Could the solution be for search funds to acquire some of these companies that will soon be offered for sale?
Search funds are acquisition vehicles controlled by one or two individuals (the “searchers”) who work with a small group of investors to search for, acquire, and lead a privately held company for the medium to long term, typically five to ten years. Search funds offer entrepreneurs the opportunity to become equity-owning business operators (typically in the role of CEO) without necessarily having accumulated the capital or experience required to buy or lead a company. For investors, a search fund can provide attractive returns in a two-stage investment, with an initial, small investment in support of the entrepreneur’s sourcing of an existing business, followed by a larger investment in the acquisition of this company....