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Search funds emerge as alternative funding platforms for small businesses
It is estimated that SMEs contribute as much as 63.5 per cent of the UAE’s non-oil economy
- PUBLISHED: Mon 24 Mar 2025, 4:19 PM
Small and medium enterprises (SMEs) form the backbone of the UAE economy, and constitute one of the key pillars of the country’s economic diversification programme. It is estimated that SMEs contribute as much as 63.5 per cent of the UAE’s non-oil economy, and their numbers are expected to cross one million by 2030, from 557,000 in 2022.
An issue which has often come up is the access to funding for SMEs. In this regard, a recent trend of search funds are coming up. These are effectively private investment companies for small and medium-sized businesses. The search fund founder, usually one or two MBA graduates, raises money from a diverse investor base to fund the process of identifying and acquiring a single SME.
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“I first heard about the idea of a search fund when doing my MBA at Harvard. At the time however, the model was predominantly focused on the US and Europe and I didn’t believe the time was right in the UAE. Over the past few years, with more businesses changing hands, economic growth in the region, and more excitement from global investors for the UAE, I think this dynamic has changed. Edmond Husseini launched the first search fund in the UAE last year, Gulf Succession, which helped tremendously in proving that this is possible here,” said Adam Giansiracusa, Managing Partner, Oryx Legacy.
A search fund targets acquisitions that typically have net profits in the range of $1 million to $5 million. It is usually buying those businesses from sellers, often family owners, looking for succession options to exit their businesses. Search funds typically target businesses that are not as capital intensive, have strong cash flows, and are in more traditional sectors or focus areas. My search fund is targeting pet services, education, IT services, tourist-adjacent services, and healthcare at the beginning, but I’ll look at any sector,” Giansiracusa said.
As the search fund model only emerged in the region in the past year, there have not yet been any acquisitions. “However, I’m hopeful that we’ll see the first acquisition happen in the near future. As of today, we have three search funds operating in the region. Besides Oryx Legacy, we also have Edmond Husseini’s search fund Gulf Succession in the UAE, and Ghassan Ayidh’s search fund, OxMar Partners, in Saudi Arabia,” Giansiracusa said.
Globally however, search funds typically target B2B and sometimes B2C service businesses in stable, non-cyclical industries like healthcare, education, HVAC, animal care, manufacturing, building services, among others. “More important for a search fund is the characteristics of the business being acquried – stable cash flow, recurring revenue, scalability, and loyal but diversified customers,” Giansiracusa said.
Search funds typically acquire 80-100 per cent of a business, with a mix of debt and equity. “As the search fund entrepreneur, I raise the money for that from a mix of local and international investors to acquire that business. My search fund includes 15 different investors for example,” ” Giansiracusa said. “As the search fund entrepreneur, you are earning your equity compensation by hitting performance targets for the business as you successfully grow it. The result is that you are fully aligned with your investors – when they win, you win,” he added.
Search funds are ideal for any business owner looking for a succession solution with a viable business generating between $1m-$5m in net profit. Search funds generally do not handle turnarounds or distressed situations, Giansiracusa said.
One the main trends underpinning the search fund ecosystem is the “silver tsunami” of retirees in most markets around the world, and the need for them to pass on their life’s work to the next generation. “This is creating the largest wealth transfer in human history. While it is a different market, by way of example, nearly a quarter of small businesses in the United States are owned by people 65 and older. In the UAE, in addition to owners looking to retire, we also have a lot of business owners that simply would like to focus on another business or are expats looking to return to their home countries. In all of these cases, a search fund can be a perfect option for those looking to exit,” Giansiracusa said.
Search funds are creating an entirely new way for business owners to exit their business, and serve as a mechanism for younger businesspeople who enjoy the business-building process to engage in the chance to do so. “My plan is, very simply, to find a great business over the next two years, acquire it, and build it over the following decade. If it all goes according to plan, I’d be happy to keep growing it for the rest of my career. I’m a big believer, and betting my career, on the fact that we are in a country and region with tremendous growth potential in the years and decades ahead. I’m excited to play a part in that story,” Giansiracusa said.
Associate Editor Somshankar Bandyopadhyay brings more than three decades of experience to the KT newsroom. Currently, he manages the news production of the business section, ensuring that the top economic and business news of the day reaches its readers.