Search Funds growing interest in Healthcare Technology

Lloyd Price

3 minutes ago

Exec Summary

A search fund is an investment vehicle designed to support an entrepreneur (or a small team of entrepreneurs) in identifying, acquiring, and managing an existing private company, typically a small to medium-sized business.

It’s a unique model often used by aspiring business owners, usually younger professionals, such as recent MBA graduates, who lack the capital or experience to buy a company outright but have the ambition and skills to run one. The concept originated in the 1980s at Stanford University and has since grown into a recognised path for entrepreneurial acquisition.

Search funds remain a growing model, particularly in sectors like healthcare cybersecurity, where small, profitable firms (e.g niche MSSPs or compliance consultancies) align with the acquisition criteria. Rising interest rates and economic uncertainty may tighten debt availability, but the model’s focus on cash-flow-positive businesses makes it resilient.

Data from Stanford’s 2023 Search Fund Study shows a median IRR of 33% for successful funds, suggesting sustained appeal for investors despite evolving market conditions.

In essence, a search fund is a structured, entrepreneurial journey where capital and talent converge to acquire and grow an existing business, offering a win-win for searchers, investors, and sellers when executed well.

Search funds are drawn to healthcare technology in 2025 because the sector aligns exceptionally well with their investment and operational model: acquiring small to medium-sized businesses with stable cash flows, growth potential, and attractive exit opportunities. Healthcare technology, including digital health, health IT, medical devices, and cybersecurity, offers a unique blend of resilience, fragmentation, and scalability that appeals to searchers (entrepreneurs running the funds) and their investors.

Nelson Advisors > HealthTech M&A

Nelson Advisors specialise in mergers, acquisitions and partnerships for Digital Health, HealthTech, Health IT, Healthcare Cybersecurity, Healthcare AI companies based in the UK, Europe and North America. www.nelsonadvisors.co.uk

We work with our clients to assess whether they should 'Build, Buy, Partner or Sell' in order to maximise shareholder value and investment returns. Email lloyd@nelsonadvisors.co.uk

Nelson Advisors regularly publish Healthcare Technology thought leadership articles covering market insights, trends, analysis & predictions @ https://www.healthcare.digital

We share our views on the latest Healthcare Technology mergers, acquisitions and partnerships with insights, analysis and predictions in our LinkedIn Newsletter every week, subscribe today! https://lnkd.in/e5hTp_xb

#HealthTech #DigitalHealth #HealthIT #NelsonAdvisors #Mergers #Acquisitions #Growth #Strategy #Cybersecurity #HealthcareAI #Partnerships #NHS #UK #Europe #USA #Canada

Nelson Advisors

Hale House, 76-78 Portland Place, Marylebone, London, W1B 1NT

Contact Us

lloyd@nelsonadvisors.co.uk

Meet Us

Digital Health Rewired > 18-19th March 2025

NHS ConfedExpo > 11-12th June 2025

HLTH Europe > 16-19th June 2025

HIMSS AI in Healthcare > 10-11th July 2025

How does a search fund work?

A search fund is a unique investment model that empowers aspiring entrepreneurs to find, acquire, and manage an existing small to medium-sized company. Here's a breakdown of how it typically works:

1. Raising Capital (Search Phase):

Aspiring entrepreneurs, often with backgrounds in business or finance, raise capital from a group of investors.

This initial capital is used to fund the "search" itself, covering expenses like:

Salaries for the entrepreneurs

Travel and research costs

Legal and due diligence fees

Investors in this phase gain the right to invest in the acquisition of the target company.

2. The Search:

The entrepreneurs dedicate themselves to finding a suitable company to acquire. This involves extensive research, networking, and outreach to identify potential targets.

They typically look for companies with stable cash flows, history of profitability an potential for growth.

Owners looking to retire or transition out of the business.This search phase can take a considerable amount of time, often one to two years.

3. Acquisition:

Once a target company is identified, the entrepreneurs conduct thorough due diligence. They then negotiate the acquisition terms with the company's owners. Additional capital is raised from investors to fund the acquisition. Often bank debt and seller financing are also used in the acquisition.

4. Operating the Business:

The entrepreneurs take on active management roles in the acquired company, often with one becoming the CEO. They focus on improving operations, driving growth, and increasing the company's value. Investors often provide guidance and support to the management team.

5. Exit:

After a period of time, typically several years, the entrepreneurs and investors seek an exit, such as:

Selling the company to another buyer

Recapitalisation

In some instances, an initial public offering (IPO)

The proceeds from the exit are distributed to the investors.

Key Characteristics:

Entrepreneurial Focus: Search funds provide a pathway for individuals to become owner-operators of a business.
Single Acquisition: Unlike private equity firms that acquire multiple companies, search funds typically focus on acquiring a single company.
Active Management: The entrepreneurs take on active management roles in the acquired company.
Long-Term Horizon: Search funds typically have a longer investment horizon than traditional private equity.

In essence, the search fund model is a way to combine the drive of an entrepreneur with the capital of investors to acquire and grow a promising business.

Why are search funds interested in Healthcare Technology?

1. Predictable and Recurring Revenue Streams

Search Fund Priority: Search funds seek companies with consistent, recurring cash flows to support debt financing (often 50–70% of the purchase price) and ensure stability during the searcher’s management phase.
Healthcare Tech Advantage: Many healthcare tech companies operate on subscription or SaaS models, think electronic health record (EHR) systems, telehealth platforms, or cybersecurity services.

For example, a small EHR provider might charge clinics $10,000–$50,000 annually, generating predictable revenue. This reliability reduces financial risk and appeals to lenders and investors, making healthcare tech a safer bet than volatile industries like retail.

2. Fragmented Market Ripe for Acquisition

Search Fund Sweet Spot: Search funds target businesses with $5 million to $30 million in revenue and $1 million to $5 million in EBITDA, often owned by founders nearing retirement or lacking successors.
Healthcare Tech Advantage: The sector is filled with niche, founder-led firms—e.g., regional telehealth providers, specialised medical device makers, or cybersecurity consultancies serving small practices.

With baby boomers retiring (10,000+ turn 65 daily in the U.S.), many owners are ready to sell. A search fund could acquire a $10 million-revenue health IT firm from a 70-year-old founder, leveraging this demographic wave.

3. Strong Growth Opportunities

Search Fund Goal: Beyond stability, searchers aim to grow the business over 5–10 years, targeting a 5x–10x return on investment through operational improvements or market expansion.
Healthcare Tech Advantage: The healthcare tech market is surging—digital health alone is expected to grow from $262 billion in 2023 to $939 billion by 2032 (CAGR 15.2%), per Precedence Research.

Subsectors like remote patient monitoring (RPM) and cybersecurity are booming (e.g., RPM to $175 billion by 2027). A searcher acquiring a telehealth startup could expand its customer base from local clinics to national telehealth networks, driving significant value creation.

4. Resilience and Regulatory Support

Search Fund Preference: Search funds favor industries with durable demand and low disruption risk, ensuring long-term viability under new management.
Healthcare Tech Advantage: Healthcare is inherently recession-proof, with demand fueled by aging populations (16% of Americans over 65 by 2030) and chronic disease prevalence. Regulatory tailwinds like the 2025 HHS cybersecurity budget ($141 million) or telehealth reimbursement policies, further bolster the sector. A cybersecurity firm ensuring HIPAA compliance, for instance, benefits from mandatory demand, making it a low-risk, high-reward target.

5. Operational Upside for Searchers

Search Fund Strength: Searchers, often MBAs or young professionals, excel at optimising operations, modernising processes, and scaling businesses without needing deep technical expertise.
Healthcare Tech Advantage: Many healthcare tech SMEs are profitable but under-managed—lacking digital marketing, efficient sales teams, or tech integrations. A searcher could acquire a $3 million-EBITDA medical device firm, implement CRM software, and double revenue by targeting new regions. This “low-hanging fruit” aligns with the searcher’s skill set, amplifying value without reinventing the core product.

6. Lucrative Exit Potential

Search Fund Endgame: The ultimate goal is a profitable exit—selling to a strategic buyer, private equity, or competitor—yielding high returns (e.g., 33% median IRR per Stanford’s 2023 Search Fund Study).
Healthcare Tech Advantage: The M&A market in healthcare tech is hot, with 2025 poised for a surge (Business Insider, Dec 2024). Big players like Teladoc (Livongo, $18.5 billion) and Philips (BioTelemetry, $2.8 billion) are acquiring, while private equity is active (e.g., KKR’s Cotiviti deal). A searcher growing a cybersecurity firm could sell to a firm like Proofpoint in 2030, capitalising on consolidation trends.

7. Spotlight on High-Impact Subsectors

Healthcare Cybersecurity: With a market growing from $19.3 billion in 2024 to $75.04 billion by 2032 (CAGR 18.5%), small MSSPs or data security firms fit the search fund profile—profitable, niche, and in demand after breaches like Change Healthcare in 2024.
Digital Health: Telehealth and RPM firms (e.g., Lifelight’s contactless monitoring) offer scalable, low-capex solutions, ideal for searchers aiming to ride the post-COVID telehealth wave.

Why 2025 Specifically?

Economic Climate: Despite higher interest rates, healthcare tech’s cash flow stability supports debt financing (e.g., SBA loans at 6–8%). Sellers may also offer financing to close deals.
Seller Supply: Post-COVID retirement trends and economic uncertainty are pushing more founders to sell, creating a buyer’s market.
Searcher Interest: The growing pool of searchers (60+ funds annually, per Stanford) sees healthcare tech as a high-impact, high-return sector, fuelled by its societal relevance and profitability.

Search funds are interested in healthcare technology because it checks all their boxes: recurring revenue, a fragmented market of SME targets, growth potential, resilience, operational leverage, and strong exit prospects. In 2025, subsectors like cybersecurity and digital health stand out, offering searchers a chance to acquire a $10 million-revenue firm, grow it to $20 million, and sell it for $50 million+ in a decade. It’s a strategic sweet spot where financial upside meets manageable risk, making healthcare tech a magnet for this entrepreneurial acquisition model.

Examples of search funds success in healthcare technology

Search funds have gained traction as a viable model for entrepreneurial acquisition, particularly in healthcare technology, where the sector’s stability, growth potential, and fragmented landscape align with the search fund criteria.

While specific, detailed success stories from 2025 are not fully documented,, historical examples and trends provide insight into how search funds have succeeded in this space. Below are notable examples of search fund success in healthcare technology, drawing from well-known cases and broader patterns that remain relevant in 2025.

1. HealthCare Solutions (Acquired by Jim Coyle and Matt Crisp, 2008)

Overview: In 2008, searchers Jim Coyle and Matt Crisp raised a search fund and acquired HealthCare Solutions, a provider of medical billing and revenue cycle management services based in Texas. The company served small to medium-sized healthcare practices, offering software and outsourced services to optimise billing processes.
Success Factors:
- Stable Cash Flows: HealthCare Solutions had recurring revenue from long-term contracts with physician groups, a hallmark of search fund targets.
- Operational Improvements: Post-acquisition, Coyle and Crisp modernised the company’s technology stack, integrating more efficient billing software and expanding the sales team, which boosted revenue by 50% within three years.
- Exit: In 2014, the company was sold to a private equity firm for $40 million, delivering a 6x return on invested capital (ROIC) for investors and a significant equity payout for the searchers.
2025 Relevance: This case exemplifies the appeal of health IT firms with scalable, SaaS-like models—still a hot target in 2025 as healthcare digitisation accelerates.

2. MedSpeed (Acquired by Jake Crampton, 2004)

Overview: Jake Crampton, a Stanford MBA graduate, used a search fund to acquire MedSpeed, a healthcare logistics company specializing in intra-system transport of medical specimens, supplies, and records. At acquisition, MedSpeed had $5 million in revenue and served a regional hospital network.
Success Factors:
- Niche Market: MedSpeed operated in a fragmented, underserved niche within healthcare logistics, giving it room to grow without heavy competition.
- Growth Strategy: Crampton expanded MedSpeed’s footprint from one region to over 20 states by securing contracts with larger health systems and leveraging technology for route optimization, growing revenue to $50 million by 2015.
- Exit: MedSpeed remains a success story, with Crampton still leading it as of the last public updates (pre-2025), though private equity interest has been noted, suggesting a potential high-value exit.
2025 Relevance: Healthcare logistics, boosted by telehealth and remote diagnostics, continues to attract search funds seeking operational businesses with tech-driven scalability.

3. CareSync (Early Search Fund Involvement, Acquired by Kevin McKay, 2012)

Overview: Kevin McKay, a searcher, acquired CareSync, a Florida-based health tech company offering chronic care management software and services. Initially a small operation with $2 million in revenue, CareSync helped providers coordinate care for patients with chronic conditions.
Success Factors:
- Regulatory Tailwinds: The Affordable Care Act’s emphasis on care coordination (circa 2010s) drove demand for CareSync’s solutions, aligning with search fund interest in policy-supported sectors.
- Tech Integration: McKay enhanced the platform with patient engagement tools and interoperability features, tripling revenue to $6 million in three years.
- Exit Challenges: While CareSync grew rapidly, it faced cash flow issues and shut down in 2018 after failing to secure additional funding. However, McKay’s equity stake yielded a modest return for early investors during a partial asset sale, making it a qualified success.
  
  2025 Relevance: This highlights both the potential and risks in healthcare tech—growth is promising, but searchers must navigate reimbursement complexities, a lesson still critical in 2025.

4. Hospice Source (Acquired by Mike Janko and Andrew Amicon, 2015)

Overview: Mike Janko and Andrew Amicon, through their search fund, acquired Hospice Source, a Texas-based distributor of durable medical equipment (DME) to hospice providers, with initial revenue of $10 million.
Success Factors:
- Aging Population: The growing demand for end-of-life care (16% of U.S. population over 65 by 2030) provided a strong market tailwind.
- Operational Scale: The duo expanded from 8 to 20 locations, optimising supply chain tech and doubling EBITDA to $4 million by 2020.
- Exit: Sold to a strategic buyer in 2021 for $45 million, yielding a 7x ROIC for investors.
2025 Relevance: DME and related tech services remain appealing as healthcare shifts toward home-based care, a trend accelerating in 2025 with telehealth and RPM growth.

Broader Trends and Hypothetical 2025 Example

Historical Data: Stanford’s 2023 Search Fund Study notes that healthcare (including tech-related firms) accounts for 35% of search fund acquisitions, with a median IRR of 33% for successful exits. This trend persists into 2025, fueled by healthcare tech’s resilience.
Hypothetical 2025 Case: Imagine a searcher acquiring a $7 million-revenue healthcare cybersecurity firm specializing in HIPAA-compliant cloud storage for small practices. Post-acquisition, they integrate AI-driven threat detection, grow revenue to $15 million, and sell to a firm like Proofpoint in 2030 for $60 million. This mirrors 2025’s focus on cybersecurity (market to $75 billion by 2032) and search fund strategies.

Why These Succeed in Healthcare Tech

Fit with Model: These companies offer stable cash flows (e.g., subscriptions, contracts), operational upside (e.g., tech upgrades), and exit potential (e.g., PE or strategic buyers).
2025 Context: With M&A heating up (Business Insider, Dec 2024) and healthcare tech growing (e.g., digital health to $939 billion by 2032), search funds thrive by targeting niche players in telehealth, cybersecurity, or health IT.

Success stories like HealthCare Solutions, MedSpeed, and Hospice Source illustrate how search funds leverage healthcare technology’s stability and growth. In 2025, the model continues to target similar profiles, profitable SMEs in cybersecurity, digital health, or logistics—delivering strong returns when searchers execute well. These examples underscore the sector’s enduring appeal for entrepreneurial acquisition.

Nelson Advisors > HealthTech M&A

We work with our clients to assess whether they should 'Build, Buy, Partner or Sell' in order to maximise shareholder value and investment returns. Email lloyd@nelsonadvisors.co.uk

Nelson Advisors regularly publish Healthcare Technology thought leadership articles covering market insights, trends, analysis & predictions @ https://www.healthcare.digital