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Q#1 What do you think of the criteria described in Tasso Acquisition (Exhibit 1)? How does it compare to the typical criteria of a Search Fund raised in the readings?

Answer-1

Acquisition criteria expressed in Tasso Acquisition is that Tasso is interested to acquire such an industry with lower technological changes along with longer life cycle of products, and any company from such an industry has sound financial position as Tasso plans to acquire a company in the $10 million to $25 million price range by using $1.5 million to $3 million of investor capital. Tasso expects company revenues to range between $5 million and $30 million. Business should have strong market position to make future return and people of that business should be highly skilled in order to perform their responsibilities. In addition, the location of the company should be suitable from management’s perspective.

There are seven steps in the search fund process and Tasso should try to follow these steps to make the acquisition successful.

Step-1: The Decision

At the initial level, the principal (Tasso) has to screen out all possible attractive options. Tasso has screened out four options that include: wholesale frozen dough/pre-made bakery goods; commercial laundry/linen supply; commercial alarm monitoring services; and business records storage as these are the most suitable options available to Tasso for safe acquisition.

Step-2: Select Advisor and Investors

To minimize the risk, principal should select or get services of professional advisors and investors. In the given case, the financial requirements put by Tasso to acquire a company are stated as a safety measure to a safe future.

Step-3: Raise Search Fund

Principal raises a total of $150-$300K from about ten investors. This blind pool funds the search for the company. Tasso financial requirements are that the company should have a price range of $10 million to $25 million and its investor's capital should be between $1.5 million to $3 million. In addition, Tasso expects company’s revenues to range between $5 million and $30 million.

Step-4: Generate and Screen Deal;

The principal must generate proprietary deal flow and develop a mechanism to screen the candidates, who produces the flow rapidly.

Step-5: Negotiation

Lasting about six months, the search funder negotiates the purchase regarding debt leverage, investment and equity allocation to close the deal.

Senior Debt Negotiation— (between the principal and the bank).

Purchase Negotiation— (between the company and the principal)

Investment Negotiation — (between the principal and investor group.)

Equity Allocation Negotiation — (between principal and investor group).

Step-6: Run Company

The search fund becomes an entrepreneur. This is the longest stage as the search fund becomes
in charge of the ownership and operations of the company.

Step-7: Exit through Sale

Once the search fund-turned-entrepreneur has a sale opportunity and decides to end the life cycle
of the search fund then the company is sold, and investors make a return.

Q#2 What are the advantages and disadvantages of the search process used by Landry and Brooke? What emotional and professional characteristics stand Brooke Landry and during his long quest?

Answer-2

Advantages

Loyal Investors;

Most of the investors raise the search fund from friends, business associates and executives. Most of them are loyal to principals. In the given case, Landry and Brooke had put ideal conditions to acquire a company in order to win the loyalty of investors.

Support Young Entrepreneur

Search fund is raised to support the young entrepreneur with innovative ideas. This helps young business students to work hard and to motivate them to turn investments into a profitable opportunity.

Significant Return

Return is high because the selected industries are attractive and profitable industries. Screen out industries are financially sound and with long term product life. Landry and Brooke not only screen out industries on the basis of financial soundness, industry nature, employees but they are also screening the company on the basis of location. Additionally, investors will get equity interest in the ultimately acquired company at a stepped up value of 1.67 times. Equity interest of $25000 will be earned at an investment of $15000.

Commitment & Professionalism

There is a formal procedure of searching fund screening. The company is selected through professional mechanism. A formal proposal or business plan is written down at the initial stage, which clearly mentions the future goal and direction of each unit of the fund. Ten or more investors can buy one or several units of the search fund at about $20000 to $35000 per unit.

Disadvantages

High Risk

No doubt, there is probably high return for investors in search fund, but this high return is associated with high risk.

Inexperienced Entrepreneur

The key disadvantage of search fund is inexperienced entrepreneur. As mostly principals are fresh business graduate, so they rely on advices and business plans of investors as advisors.

Time Taking

Landry and Brooke searching .................

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