Search Funds
Diligence, tax structuring, and post-close accounting for search fund entrepreneurs and the investors backing their first acquisition.
Overview
A search fund entrepreneur usually has one shot at a great acquisition, a group of investors watching closely, and limited time to get from letter of intent to close. The accounting work around that deal carries real weight: investors want independent diligence on the target, lenders want reliable earnings figures, and the new owner needs a finance function that works on the first day. Pease Bell, a Top 200 U.S. CPA firm headquartered in Cleveland, Ohio, supports searchers and their investors from target evaluation through the first years of ownership.
Before close, we perform quality of earnings and tax diligence so the searcher and investors can test the target’s reported results and understand what they are buying. During structuring, we help evaluate how the acquisition entity is formed and how the transaction may affect taxes for the company and its investors. After close, we help set up accounting systems, monthly reporting, and the investor updates a search fund board expects. Audit, tax, and advisory sit under one roof.
How We Help Searchers and Their Investors
Quality of Earnings
Analysis of the target’s historical earnings, adjustments, working capital, and revenue quality, so the searcher, investors, and lenders can evaluate the purchase price and debt capacity on a supportable basis.
Acquisition Due Diligence
Financial and tax diligence on the target business, including review of customer concentration, owner-related expenses, payroll, and historical tax filings that could carry exposure into the new ownership.
Deal Tax Structuring
Analysis of asset versus equity purchase considerations, entity choice for the acquisition vehicle, and how the structure may affect the company and investors, coordinated with the searcher’s legal counsel.
Post-Close Accounting Setup
Chart of accounts, close process, controls, and reporting tools set up so the new CEO has timely monthly financials and can manage the business instead of rebuilding its books.
Investor and Board Reporting
Monthly or quarterly reporting packages, KPI dashboards, and covenant compliance schedules that give search fund investors and board members a consistent view of performance after the acquisition.
Ongoing Tax Compliance
Preparation of returns for the operating company and acquisition entity, along with investor K-1s where the structure is a pass-through, plus planning for future add-ons or an eventual exit.
Challenges We Help You Address
- ✓Validating a small company’s earnings when its books were built for taxes
- ✓Supporting lender and investor diligence on a tight closing timeline
- ✓Choosing an acquisition structure with tax consequences understood up front
- ✓Standing up reliable monthly reporting immediately after close
- ✓Giving a search fund board consistent, comparable performance reporting
Frequently Asked Questions
What is a search fund?
A search fund is a vehicle through which an entrepreneur, often called a searcher, raises capital from investors to find, acquire, and operate a single privately held business. Investors typically fund the search phase first, then have the opportunity to invest in the acquisition itself. The searcher usually becomes the CEO of the acquired company and earns equity tied to performance.
Do search funds need a quality of earnings report?
Most search fund acquisitions benefit from one, and investors or lenders often expect it. A quality of earnings report tests whether the target’s reported earnings are sustainable by analyzing adjustments, owner expenses, revenue trends, and working capital. Because many search targets are smaller companies with tax-basis books, the report helps the searcher and investors rely on the numbers behind the purchase price.
What accounting should a searcher set up after closing?
After closing, the new owner typically needs a clean opening balance sheet reflecting purchase accounting, a chart of accounts that supports management reporting, a monthly close process, basic internal controls over cash and payroll, and a reporting package for the board and lenders. Setting these up early helps the CEO spot problems quickly and makes future audits or reviews easier.
How are search fund acquisitions usually structured for tax purposes?
Structures vary, and the right one depends on the target, the sellers, the investors, and financing. Key questions usually include whether the deal is an asset or equity purchase, whether the acquisition entity is a corporation or pass-through, and how investor equity is organized. These choices can affect tax basis, future deductions, and exit outcomes, so it helps to model them with your CPA and attorney before signing.
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