Istria Capital: Year in review 2022

Another interesting year in the search fund space. Let’s start with Istria’s activity:

Invested in 26 search funds (including four that fundraised last year but launched in January).

  • We recently surpassed the #100 mark and have now committed to 104 search funds since 2016 (46 partnered, 58 solo).
  • Of those terminated (45), 82% acquired a company (37). Very important: most entrepreneurs that closed the fund without an acquisition found jobs quickly, mainly in private equity or as CEO/CFO at SMEs.
  • Partnerships have so far performed better in search: their acquisition ratio is 90% vs. 77% for solo searchers.

Invested in 12 acquisitions: France x2, Germany, Italy, Portugal, Spain x3, UK, Brazil x2, Mexico. One more deal just closed in Italy is probably the last one for fund I. The portfolio holds 32 companies and looks like this:

  • Geography: 83% Europe (across nine countries), 17% other (half US, half Latam)
  • Industry: 35% software, 27% services, 23% distribution, 8% light manufacturing, 7% healthcare. This split is not that relevant as companies in each bucket operate in very different end markets.
  • Average figures at acquisition: €2.5m EBITDA, 31% margin, 5.7x EV/EBITDA, 48% leverage. Ranges €1.0-7.6m, 11-75%, 3.0-9.5x.
  • Considering preliminary closing accounts received so far, the portfolio has increased its value c. 30% in 2022. This assuming no multiple expansion, just EBITDA growth and debt repayment. Moreover, it has proved its resilience: only two of 32 businesses have been severely hit by covid, supply chain issues or inflation. Superb job by the CEOs.

Some observations on the ecosystem, esp. related to Europe:

  1. Interest of sellers remains high, with response ratios above historic averages. Price expectations too, maybe just moderating a bit. There is a lot of dry powder but buyers seem more prudent. Our pipeline is as strong as ever. We expect to close five deals before the summer and could even double that number. We keep seeing a huge amount of deal flow, which allows to put opportunities in perspective and help searchers distinguish the good from the great.
  2. The benchmark of five visits per month to new companies is changing. In the era of zoom and with more competition around, searchers are aiming to have >10 meaningful calls per month. Nothing beats a visit and the more you visit the better, but a long, insightful call can save a lot of time.
  3. More brokers are trying to enter the space. I guess there are fewer deals happening in the lower middle market, hence they are reaching out massively to smaller companies looking for sell-side mandates. I expect this to add some noise, with few of those potential transactions materialising. The proprietary approach is still the way to go in most countries.
  4. Debt has become more expensive, even if we are not having problems to finance transactions (yet?). Banks are still willing to back good deals and private debt funds are becoming more active. We hold regular conversations with both to test their appetite and help searchers plan accordingly.
  5. The J-curve effect is common in SF-acquired companies. The key is to identify when it is “normal” vs. a sign of trouble, in order to properly assess and address priorities depending on what situation the CEO faces post-acquisition. A study that the TTCER team presented last year was quite revealing in this sense.
  6. While still a niche, the asset class is attracting more attention and it’ll be more difficult to keep trust, alignment of interests, best practices, etc. which are essential for this model to function. This message was all over the place at the IESE conference last October, both in panels and informal conversations. It’s critical who you partner with. This is a long-term project, team up with long-term people.
  7. The pool of high-quality opportunities is much larger than the field of potential buyers, the “great retirement” is here, and this simple fact remains unchanged: for companies of a certain size, search funds are the most attractive alternative for those who look for a flexible transition and care about leaving their legacy in good hands.

New developments at Istria

Fund II was registered in October with a target of €50m, >50% is already committed. Currently it supports 45+ active search funds, including 15 transferred from fund I, and will close its first two deals before mid-April.

We keep developing initiatives. Recently we held webinars on roll-ups and on selling to PE; some more are planned for this year. We are growing the network of specialised advisors, esp. in tech (due diligence, product development) and finance (control and reporting, working capital management, etc.). During this semester we’ll also onboard our first operating partners. And more important, we just welcomed Lenka Kolarova and Matthew Good to the Istria team.

As always, our gratitude to our travel companions: entrepreneurs, investors, co-investors and all those that help us in any way.

This article first appeared on 1.03.2023 on Linkedin, at

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