Small and medium enterprises (SMEs) are crucial to the UAE’s economy, contributing approximately 63.5 percent of the nation’s non-oil economy. The number of SMEs is projected to exceed one million by 2030, up from 557,000 in 2022. However, access to funding has been a significant challenge for these businesses.

In response to this issue, a recent trend has emerged: search funds. These are private investment companies specifically designed for SMEs. Typically founded by one or two MBA graduates, search fund leaders raise capital from a diverse group of investors to finance the identification and acquisition of a single SME. Adam Giansiracusa, Managing Partner of Oryx Legacy, noted that the first search fund in the UAE, called Gulf Succession, was launched by Edmond Husseini last year, marking a significant step in proving that this concept can thrive in the region.

Search funds generally aim to acquire businesses with net profits between $1 million and $5 million, often targeting family-owned businesses seeking succession options. Giansiracusa explained that these funds typically focus on non-capital-intensive sectors with strong cash flows, such as pet services, education, IT services, tourism-related services, and healthcare. He indicated that although the model has only recently emerged in the region, there is optimism that the first acquisition will occur soon, with three search funds currently operational: Oryx Legacy, Gulf Succession, and OxMar Partners in Saudi Arabia.

Globally, search funds often target stable, non-cyclical industries, including healthcare and education. Giansiracusa emphasized that key characteristics of potential acquisitions include stable cash flow, recurring revenue, scalability, and a loyal customer base. Search funds typically seek to acquire 80-100 percent of a business using a combination of debt and equity, with an example being Giansiracusa’s fund, which comprises 15 different investors.

Search funds are particularly suitable for business owners looking to exit from viable operations with net profits ranging from $1 million to $5 million. Giansiracusa pointed out that these funds do not typically engage in turnaround situations or distressed businesses.

A significant trend supporting the search fund ecosystem is the “silver tsunami,” referring to the wave of retiring business owners worldwide. This phenomenon is expected to create the largest wealth transfer in history. In the UAE, many business owners are looking to retire or focus on other ventures, making search funds an appealing option for those ready to exit.

Overall, search funds represent a new avenue for business owners to transition out of their ventures while providing opportunities for younger entrepreneurs to engage in business-building. Giansiracusa expressed his commitment to finding a promising business to acquire and grow over the next decade, believing that the UAE has immense growth potential in the coming years.