Sandy Paige·September 25, 2023

The $295m Search Fund Exit | Sandy Paige Interview

Sandy Paige is a searcher who bought Explora BioLabs, a pre-clinical contract research and vivarium-on-demand company, in early 2018 using a traditional search fund after a long, circuitous path to entrepreneurship that included two earlier attempts delayed by family health crises. He was 48 at acquisition — one of the oldest traditional searchers on record — and overcame significant investor skepticism (geographic search restriction, non-elite MBA, older age) to close a fund that was barely subscribed. The business had ~$10m revenue and ~$2.5m EBITDA at purchase and operated 7 vivarium facilities in San Diego and San Francisco that drug developers rented like WeWork space for animal research. Sandy poured gasoline on the vivarium-on-demand model: by using landlord tenant improvement capital as off-balance-sheet growth financing and pre-selling capacity before signing 15-year leases, he expanded to 18+ facilities nationally with near-zero additional equity dilution. In 3 years and 10 months he sold to Charles River Laboratories for $295m — approximately 17x forward EBITDA — generating a MOIC of roughly 27-28x for investors, one of the highest returns in search fund history. The episode explores the risk discipline behind explosive growth, the value of deep industry experience, and the case for mid-career acquisition entrepreneurship.

Deal facts

multiple: ~2.5x EBITDA (implied, bought at 'traditional search fund multiples')
sde ebitda: EBITDA ~$2.5m at acquisition; grew to $18m at exit
revenue: ~$10m at acquisition
financing structure: Traditional search fund equity; growth funded largely via landlord tenant improvement capital (non-recourse, off-balance-sheet)
notes: Sold to Charles River Laboratories for $295m. Exit multiple implied ~17x forward EBITDA on $18m EBITDA. MOIC ~27-28x in 3 years 10 months. Company was Explora BioLabs. Paid a dividend to investors during the hold period.

Why this business

Sandy had spent a decade at the Jackson Laboratory and had deep industry expertise in pre-clinical contract research (animal research/vivarium services). The business had search-friendly characteristics rare for biotech: true recurring revenue from 1-3 year take-or-pay contracts, strong EBITDA margins in the low-to-mid 20s, a 'vivarium on demand' model with a built-in financing source via landlord tenant improvement capital, and was in an industry Sandy knew intimately. He recognized a twist in the model — the recurring facilities-management piece — that he believed could explode with capital.

What's working

Vivarium on demand model (like WeWork for animal research space) with 1-3 year take-or-pay contracts providing true recurring revenue
Two-sided marketplace: landlords sent qualified leads because an Explora facility in the basement was an amenity that helped them lease office floors above; landlords also funded tenant improvements, providing off-balance-sheet growth capital
De novo geographic expansion: grew from 7 to 18+ operating facilities, pre-selling capacity before signing leases (30% of capacity pre-sold for half the lease term before committing)
Hired a strong senior team of 4-5 early leaders with no turnover; one salesperson who largely sold out facilities by answering inbound demand
Picks-and-shovels positioning in a VC-fueled biotech boom: biotechs needed vivarium space quickly and couldn't justify building their own
Consecutive month-over-month revenue growth every month except April-May 2020 (COVID); recovered by June 2020
Equity-efficient growth: clients sometimes prepaid to buy down rates; company paid a dividend to investors mid-hold
Strategic awareness: kept Charles River (eventual buyer) as a known strategic, competed aggressively to stay ahead of them

What's hard

Long-term lease obligations (10-15 year leases at $90+/sq ft escalating 3%/yr) created enormous financial exposure if facilities went unfilled — one empty facility could cost $130k+/month
Biotech was not a traditional search-friendly industry; had to convince investors to back an 'excluded' sector
Geographic search (Northern California only) plus older age (48) plus Babson MBA created multiple investor objections; took ~9 months to raise with many half-unit commitments
Business headquarters was in San Diego, not in his committed search geography (Northern California), requiring weekly Southwest Airlines commute
Rapid 40% year-over-year growth made long-term strategic planning nearly impossible — focused on not running out of cash and not missing facility opening deadlines
Eventually decided to sell because Charles River's large balance sheet was becoming a competitive threat in securing premium real estate locations; persuading a reluctant cap table (for whom this was their best asset) to exit was a challenge
Market conditions post-sale validated timing: VC into biotech slowed and supply/demand imbalance emerged in the vivarium space shortly after exit

Notable quotes

I think if you were to ask our seller Dr. Lynn that question you'd probably say we should have paid more now — but it wasn't worth at the time a premium to be honest.

We started two and a half million and what we sold was basically 18 million of EBITDA on a forward multiple of — if you buy it six and a half and you sell it 17x — 17 times 18 is a bigger number. The ultimate selling price was 295 million dollars.

I spent probably 75 percent of my time managing the real estate pipeline and managing the relationships at the CEO level with Alexandria and Biomed and all these other life science real estate firms so that we were getting access to the capital we needed in order to grow at the rate that we thought we could.

I have to convey kind of the terror I felt every time I signed a lease — you're signing these leases that are 15-year leases that start at ninety dollars a square foot and escalate at three percent a year. You're just not getting out of that long-term contractual obligation. You better have it full.