UAE, Saudi SMEs will have great use from ‘search funds’

The GCC’s landscape of business acquisitions and entrepreneurship is evolving, and at the center of this transformation is the growing prominence of search funds.

Once a niche investment model largely confined to North America, search funds are now gaining traction in the UAE and Saudi Arabia, offering a structured approach to business succession and SME growth.

This is a private investment vehicle created with the sole purpose of identifying, acquiring, and operating a single small or medium-sized business (SMB).

Unlike traditional venture capital, which targets high-growth startups, search funds focus on mature businesses generating annual net profits between $1 million and $5 million. This model is particularly valuable in markets like the GCC, where many SME owners lack clear succession plans and need structured exit strategies.

Search funds are typically initiated by aspiring entrepreneurs, who raise capital from investors to acquire an established company. Once the acquisition is complete, the searcher transitions into the CEO role, driving the company’s operational efficiency and long-term growth.

This hands-on leadership model differentiates search funds from traditional private equity firms, which often rely on external management teams to oversee acquisitions.

Search funds originated in 1984 as part of a Harvard Business School initiative and have since flourished in North America. According to Stanford Graduate School of Business' 2024 Search Fund Study, there have been 681 search funds raised in the US alone.

International adoption is accelerating, with Spain’s IESE Business School reporting that 320 search funds have emerged outside the US, signaling a rising global interest in this model.

The GCC is now following this trend as part of broader economic diversification efforts.

The UAE, home to 557,000 micro, small, and medium enterprises as of mid-2022, aims to increase this number to 1 million by 2030.

Similarly, Saudi Arabia, with 1.3 million SMEs, is fostering SME development as a core component of Vision 2030. As these economies grow, a significant number of businesses will require structured transitions, making search funds an ideal mechanism for smooth and sustainable ownership transfers.

Search funds are increasingly attracting investors in the UAE and KSA, offering them a unique opportunity to back an operator-led acquisition with strong growth potential. Unlike passive investments in large corporations, search funds provide investors with a direct stake in a hands-on operational model, reducing risks associated with traditional SME investments.

This structure allows investors to participate in the long-term success of a company while ensuring active leadership by a highly motivated entrepreneur.

Moreover, the region’s evolving capital markets, digital transformation initiatives, and increasing professionalization of SMEs create a fertile ground for search funds to thrive. Investors looking for alternative asset classes that balance risk with sustainable growth are finding search funds to be a compelling option.

The momentum behind search funds in the UAE and KSA is being driven by a combination of demographic shifts, economic diversification policies, and a maturing entrepreneurial ecosystem. As search funds gain further recognition, they are expected to play a pivotal role in:

Search funds are proving to be a game-changer in the UAE and Saudi Arabia, bridging the gap between SME succession planning and entrepreneurial ambition. Their structured approach to business acquisition not only benefits retiring business owners but also unlocks economic value by fostering innovation and operational excellence.

With growing investor interest, an influx of skilled entrepreneurs, and a supportive economic environment, search funds are set to become a key driver of the GCC’s SME ecosystem for years to come.