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Auxo search fund snags first deal Add to ...

Toronto-based search fund Auxo Management has tied the knot on its first relationship.

Unlike private equity funds that invest in companies and then manage or oversee them from afar, Auxo's managers Rob Cherun and Erik Mikkelsen set out last September in search of a company that they could get their hands dirty in.

That's typical of search funds, which seek out flourishing, small-to-medium-sized enterprises that want to sell but can't find buyers. These investment vehicles are rare in Canada, but are quite common south of the border. But thanks to a growing wave of retirements by baby boomer entrepreneurs, more of them could pop up because there should a growing supply of small businesses up for sale.

However, Auxo didn't buy from a retiree; instead it invested in UCIT Online Security, which provides 24-hour live video monitoring as an affordable and effective substitute or supplement to security guards. The business was founded in 2003 by Sidney Sommer who worked out of his mom's basement. The deal took about four months to put together and Mr. Cherun and Mr. Mikkelsen started their first day on the job on Wednesday.

UCIT fit nicely into Auxo's investment requirements: recurring revenues and diversified customer base in a growing industry. The fund secured lending from Toronto-Dominion Bank, but not so much that the investment would act like a traditional leveraged buyout, in which near-term cash generation would be used solely to pay down debt.

Mr. Cherun and Mr. Mikkelsen moved back to Canada from the U.S. in 2010 and set up Auxo after stints in investment banking, management consulting and private equity on both sides of the border. The two men have some heavyweight investors behind them, including Howard Stevenson, senior associate dean at Harvard Business School, and Joel Peterson, founder of JCP Capital and chairman of JetBlue.

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